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Good and useless FDI: The growth effects of greenfield investment and mergers and acquisitions

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  • Philipp Harms
  • Pierre†Guillaume Méon

Abstract

We explore the effect of foreign direct investment (FDI) on economic growth, 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 that are based on a panel of up to 127 industrialized, emerging, and developing countries over 1990 to 2010.

Suggested Citation

  • Philipp Harms & Pierre†Guillaume Méon, 2018. "Good and useless FDI: The growth effects of greenfield investment and mergers and acquisitions," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 37-59, February.
    • Handle: RePEc:bla:reviec:v:26:y:2018:i:1:p:37-59
    DOI: 10.1111/roie.12302
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