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

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  • Miao Wang
  • M. C. Sunny Wong

Abstract

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.

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  • Miao Wang & M. C. Sunny Wong, 2009. "What Drives Economic Growth? The Case of Cross‐Border M&A and Greenfield FDI Activities," Kyklos, Wiley Blackwell, vol. 62(2), pages 316-330, April.
  • Handle: RePEc:bla:kyklos:v:62:y:2009:i:2:p:316-330
    DOI: 10.1111/j.1467-6435.2009.00438.x
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