Premium
What Drives Economic Growth? The Case of Cross‐Border M&A and Greenfield FDI Activities
Author(s) -
Wang Miao,
Sunny Wong M. C.
Publication year - 2009
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.2009.00438.x
Subject(s) - greenfield project , foreign direct investment , investment (military) , human capital , economics , international economics , business , mergers and acquisitions , monetary economics , international trade , market economy , macroeconomics , finance , politics , political science , law
SUMMARY 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.