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Greenfield versus merger and acquisition FDI: Same wine, different bottles?

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  • Ronald B. Davies
  • Rodolphe Desbordes
  • Anna Ray

Abstract

Relying on a large foreign direct investment (FDI) transaction level dataset, unique both in terms of disaggregation and time and country coverage, this paper examines patterns in greenfield (GF) versus merger and acquisition (M&A) investment. Although both are found to seek out large markets with low international barriers, important differences emerge. M&A is more affected by geographic and cultural barriers and exhibits opportunistic behaviours as it is more sensitive to temporary shocks such as a currency crisis. Further, M&A is more affected by destination factors such as financial development and institutional quality. GF, on the other hand, is relatively more driven by factors such as origin comparative advantage and destination taxes. These empirical facts are consistent with the conceptual distinction made between these two modes, i.e., M&A involves transfer of ownership for integration or arbitrage reasons while GF relies on firms own capacities, which are linked to origin country attributes. They also suggest that GF and M&A are likely to respond differently to policies intended to attract FDI.

Suggested Citation

  • Ronald B. Davies & Rodolphe Desbordes & Anna Ray, 2018. "Greenfield versus merger and acquisition FDI: Same wine, different bottles?," Canadian Journal of Economics, Canadian Economics Association, vol. 51(4), pages 1151-1190, November.
  • Handle: RePEc:cje:issued:v:51:y:2018:i:4:p:1151-1190
    DOI: 10.1111/caje.12353
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    References listed on IDEAS

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    Cited by:

    1. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2020. "Voting with their money: Brexit and outward investment by UK firms," European Economic Review, Elsevier, vol. 124(C).
    2. Aneta Bobeni? Hinto?ová, 2019. "Does inward foreign direct investment influence macroeconomic performance? A case of Slovakia," Proceedings of International Academic Conferences 9811998, International Institute of Social and Economic Sciences.
    3. Bruce A. Blonigen & Anca D. Cristea & Donghyun Lee, 2019. "Evidence for the Effect of Monitoring Costs on Foreign Direct Investment," NBER Working Papers 25933, National Bureau of Economic Research, Inc.
    4. Aneta Bobeni? Hinto?ová & Michaela Bruothová, 2019. "A link between innovation performance and inward foreign direct investments: A case of Slovakia," Proceedings of International Academic Conferences 9812114, International Institute of Social and Economic Sciences.

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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