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An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries

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 captures the key difference between the two types of FDI: 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. The model suggests that greenfield FDI has 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.

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Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 11.10.

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Length: 31 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:szg:worpap:1110
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