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Good and bad FDI: The growth effects of greenfield investment and mergers and acquisitions in developing countries

Listed author(s):
  • Philipp Harms
  • Pierre-Guillaume Méon

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 underlines that, 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. Greenfield FDI should therefore have 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, in a panel of up to 78 developing and emerging countries over 1987-2005.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 14-021.

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Length: 35 p.
Date of creation: 20 Aug 2014
Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/174783
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