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An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries

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We explore the effect of foreign direct investment on economic growth in developing countries, distinguishing between mergers and acquisitions (“M&As”) and “greenfield” investment. A simple model captures the key difference between the two types of FDI: unlike greenfield investment, M&As partly represent a rent accruing to previous owners, and do not necessarily contribute to expanding the host country’s capital stock. The model suggests that greenfield FDI has a stronger impact on growth than M&A sales. This hypothesis is supported by our empirical results, which show that greenfield FDI enhances growth, while M&As have no effect, at best.

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Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 11.10.

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Length: 31 pages
Date of creation: Nov 2011
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Handle: RePEc:szg:worpap:1110

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