The growth effects of greenfield investment and mergers and acquisitions : econometric investigation and implication for Mena Countries

Abstract EN

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 robustly 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.