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What Drives Economic Growth? The Case of Cross-Border M&A and Greenfield FDI Activities

  • Miao Wang
  • M. C. Sunny Wong

The effect of aggregate foreign direct investment (FDI) on economic growth remains uncertain in the literature. We revisit this FDI-Growth relation by analyzing the components of FDI - greenfield investment and cross-border mergers and acquisitions (M&As). Our analysis contributes to the existing literature by focusing on potentially heterogeneous growth effects of different FDI entry modes. Using a sample of 84 countries from 1987 to 2001, we separately examine the growth effects of greenfield investment and M&As. We find that greenfield investment and M&As have different impacts on economic growth. Greenfield investment promotes economic growth while M&As can be beneficial only when the host country has an adequate level of human capital. Our results provide support for receiving M&As when policymakers allocate more resources for human capital accumulation. Copyright 2009 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Kyklos.

Volume (Year): 62 (2009)
Issue (Month): 2 (04)
Pages: 316-330

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Handle: RePEc:bla:kyklos:v:62:y:2009:i:2:p:316-330
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