Greenfield foreign direct investment and mergers and acquisitions - feedback and macroeconomic effects
AbstractForeign direct investment (FDI) flows to developing countries surged in the 1990s to become their leading source of external financing. This rise in FDI volume was accompanied by a marked change in its composition: investment taking the form of acquisition of existing assets (mergers and acquisitions) grew much more rapidly than investment in new assets ("greenfield"FDI), particularly in countries undertaking extensive privatization of public enterprises. This raises two issues. First, is the mergers and acquisitions boom a one-time effect of privatization, or is it likely to be followed by a rise in greenfield investment? Second, do these two types of FDI have different macroeconomic causes and consequences in relation to aggregate investment and growth? The authors focus on establishing the stylized facts in terms of time precedence between both types of FDI, investment, and growth, using annual data for the period 1987-2001 and a large sample of industrial and developing countries. The authors find that in all samples, higher mergers and acquisitions is typically followed by higher greenfield investment, while the reverse is true only for developing countries. In industrial and developing countries alike, both types of FDI lead domestic investment, but not the reverse. Finally, neither type of FDI appears to precede economic growth in developing or industrial countries, but FDI does respond positively to increases in the growth rate.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3192.
Date of creation: 15 Jan 2004
Date of revision:
International Terrorism&Counterterrorism; Environmental Economics&Policies; Fiscal&Monetary Policy; Economic Theory&Research; Payment Systems&Infrastructure; Foreign Direct Investment; Economic Theory&Research; International Terrorism&Counterterrorism; Environmental Economics&Policies; Trade and Regional Integration;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
- NEP-COM-2004-09-12 (Industrial Competition)
- NEP-IFN-2004-08-16 (International Finance)
- NEP-MAC-2004-09-12 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Calderon, Cesar & Loayza, Norman & Serven, Luis, 2003. "Do capital flows respond to risk and return?," Policy Research Working Paper Series 3059, The World Bank.
- Calvo, Sara & Reinhart, Carmen, 1996.
"Capital flows to Latin America : Is there evidence of contagion effects?,"
Policy Research Working Paper Series
1619, The World Bank.
- Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters, in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
- Reinhart, Carmen & Calvo, Sara, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?”," MPRA Paper 7124, University Library of Munich, Germany.
- Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
- Albuquerque, Rui & Loayza, Norman & Serven, Luis, 2003.
"World market integration through the lens of foreign direct investors,"
Policy Research Working Paper Series
3060, The World Bank.
- Albuquerque, Rui & Loayza, Norman & Serven, Luis, 2005. "World market integration through the lens of foreign direct investors," Journal of International Economics, Elsevier, vol. 66(2), pages 267-295, July.
- Sebnem Kalemli-Ozcan & Laura Alfaro & Selin Sayek & Areendam Chanda, 2002.
"FDI and Economic Growth: The Role of Local Financial Markets,"
- Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
- Christopher D. Carroll & David N. Weil, 1993.
"Saving and Growth: A Reinterpretation,"
NBER Working Papers
4470, National Bureau of Economic Research, Inc.
- Carroll, Christopher D. & Weil, David N., 1994. "Saving and growth: a reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 133-192, June.
- Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
- Holger Görg, 2000.
"Analysing foreign market entry – The choice between greenfield investment and acquisitions,"
Journal of Economic Studies,
Emerald Group Publishing, vol. 27(3), pages 165-181, September.
- Görg, Holger, 1998. "Analysing Foreign Market Entry: The Choice between Greenfield Investment and Acquisitions," Economics Technical Papers 981, Trinity College Dublin, Department of Economics.
- Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998.
"How does foreign direct investment affect economic growth?1,"
Journal of International Economics,
Elsevier, vol. 45(1), pages 115-135, June.
- Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
- Assaf Razin, 2003.
"FDI Contribution to Capital Flows and Investment in Capacity,"
052003, Hong Kong Institute for Monetary Research.
- Assaf Razin, 2002. "FDI Contribution to Capital Flows and Investment in Capacity," NBER Working Papers 9204, National Bureau of Economic Research, Inc.
- Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1993.
"Is Fixed Investment the Key to Economic Growth?,"
NBER Working Papers
4436, National Bureau of Economic Research, Inc.
- Manuel Agosin & Roberto Machado, 2005.
"Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?,"
Oxford Development Studies,
Taylor & Francis Journals, vol. 33(2), pages 149-162.
- Manuel R. AGOSIN & Ricardo MAYER, 2000. "Foreign Investment In Developing Countries, Does It Crowd In Domestic Investment?," UNCTAD Discussion Papers 146, United Nations Conference on Trade and Development.
- Eduardo Fernández-Arias, 2000. "The New Wave of Capital Inflows: Sea Change or Tide?," Research Department Publications 4199, Inter-American Development Bank, Research Department.
- Blomström, Magnus & Sjöholm, Fredrik, 1998.
"Technology Transfer and Spillovers: Does Local Participation with Multinationals Matter?,"
Working Paper Series in Economics and Finance
268, Stockholm School of Economics.
- Blomstrom, Magnus & Sjoholm, Fredrik, 1999. "Technology transfer and spillovers: Does local participation with multinationals matter?1," European Economic Review, Elsevier, vol. 43(4-6), pages 915-923, April.
- Blomström, Magnus & Sjöholm, Fredrik, 1998. "Technology, Transfer and Spillovers: Does Local Participation With Multinationals Matter?," CEPR Discussion Papers 2048, C.E.P.R. Discussion Papers.
- Magnus Blomstrom & Fredrik Sjoholm, 1998. "Technology Transfer and Spillovers? Does Local Participation with Multinationals Matter?," NBER Working Papers 6816, National Bureau of Economic Research, Inc.
- William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993.
"Good Policy or Good Luck? Country Growth Performance and Temporary Shocks,"
NBER Working Papers
4474, National Bureau of Economic Research, Inc.
- Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
- Pritchett, Lant, 2000.
" The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) Is Not Capital,"
Journal of Economic Growth,
Springer, vol. 5(4), pages 361-84, December.
- Pritchett, Lant, 2000. "The tyranny of concepts - CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital," Policy Research Working Paper Series 2341, The World Bank.
- Orazio P. Attanasio & Lucio Picci & Antonello E. Scorcu, 2000. "Saving, Growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 182-211, May.
- Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001.
"Mode of Foreign Entry, Technology Transfer, and FDI Policy,"
CEPR Discussion Papers
2870, C.E.P.R. Discussion Papers.
- Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2004. "Mode of foreign entry, technology transfer, and FDI policy," Journal of Development Economics, Elsevier, vol. 75(1), pages 95-111, October.
- Robertson, D & Symons, J, 1992.
"Some Strange Properties of Panel Data Estimators,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 7(2), pages 175-89, April-Jun.
- Jong Il Choe, 2003. "Do Foreign Direct Investment and Gross Domestic Investment Promote Economic Growth?," Review of Development Economics, Wiley Blackwell, vol. 7(1), pages 44-57, February.
- Ari Kokko & Ruben Tansini & Mario Zejan, 1994.
"Productivity spillovers from FDI in the Uruguayan manufacturing sector,"
Documentos de Trabajo (working papers)
0194, Department of Economics - dECON.
- Kokko, Ari & Tansini, Ruben & Zejan, Mario, 1994. "Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector," Working Paper Series in Economics and Finance 2, Stockholm School of Economics.
- Fernandez-Arias, Eduardo & Montiel, Peter J, 1996. "The Surge in Capital Inflows to Developing Countries: An Analytical Overview," World Bank Economic Review, World Bank Group, vol. 10(1), pages 51-77, January.
- Eduardo Fernández-Arias, 2000. "The New Wave of Capital Inflows: Sea Change or Tide?," IDB Publications 6464, Inter-American Development Bank.
- Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
- Parantap Basu & Chandana Chakraborty & Derrick Reagle, 2003. "Liberalization, FDI, and Growth in Developing Countries: A Panel Cointegration Approach," Economic Inquiry, Western Economic Association International, vol. 41(3), pages 510-516, July.
- Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-71, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.