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The geography of acquisitions and greenfield investments: firm heterogeneity and regional institutional conditions

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  • Amendolagine, Vito
  • Crescenzi, Riccardo
  • Rabellotti, Roberta

Abstract

This paper investigates how institutional conditions at national and regional levels shape the decisions of Multinational Enterprises (MNEs) to invest abroad by means of either acquisitions or greenfield investments. The empirical analysis covers all Foreign Direct Investment (FDI) projects in the European Union by the largest MNEs in the world to study alternative choices by the same firm and account for firm-level characteristics in investment decisions. The empirical results show that - other things being equal - MNEs prefer acquisitions to control activities in regions with stronger investment eco-systems, while they choose greenfield investments in regions with weaker systemic conditions. Moreover, the regional quality of government makes a fundamental difference to the nature of the investment projects attracted by regions: those with high quality of government can attract greenfield investments undertaken by the most productive MNEs. By improving their quality of government, local and regional policy makers can attract higher quality FDI to their constituencies, potentially breaking the vicious circle between low productivity areas and low productivity FDI.

Suggested Citation

  • Amendolagine, Vito & Crescenzi, Riccardo & Rabellotti, Roberta, 2022. "The geography of acquisitions and greenfield investments: firm heterogeneity and regional institutional conditions," LSE Research Online Documents on Economics 115597, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:115597
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    File URL: http://eprints.lse.ac.uk/115597/
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    More about this item

    Keywords

    greenfield FDI; cross-border acquisitions; firm terogeneity; regions; Europe; insitutions; European Union Horizon 2020 Programme H2020/2014-2020 (Grant Agreement n 639633-MASSIVE-ERC-2014-STG).;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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