Greenfield Foreign Direct Investment and Mergers and Acquisitions : Feedback and Macroeconomic Effects
Foreign direct investment (FDI) flows to developing countries surged in the 1990s to become their leading source of external financing. This rise in FDI volume was accompanied by a marked change in its composition: investment taking the form of acq...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/01/2893049/greenfield-foreign-direct-investment-mergers-acquisitions-feedback-macroeconomic-effects http://hdl.handle.net/10986/13941 |
| Summary: | Foreign direct investment (FDI) flows to
developing countries surged in the 1990s to become their
leading source of external financing. This rise in FDI
volume was accompanied by a marked change in its
composition: investment taking the form of acquisition of
existing assets (mergers and acquisitions) grew much more
rapidly than investment in new assets
("greenfield" FDI), particularly in countries
undertaking extensive privatization of public enterprises.
This raises two issues. First, is the mergers and
acquisitions boom a one-time effect of privatization, or is
it likely to be followed by a rise in greenfield investment?
Second, do these two types of FDI have different
macroeconomic causes and consequences in relation to
aggregate investment and growth? The authors focus on
establishing the stylized facts in terms of time precedence
between both types of FDI, investment, and growth, using
annual data for the period 1987-2001 and a large sample of
industrial and developing countries. The authors find that
in all samples, higher mergers and acquisitions is typically
followed by higher greenfield investment, while the reverse
is true only for developing countries. In industrial and
developing countries alike, both types of FDI lead domestic
investment, but not the reverse. Finally, neither type of
FDI appears to precede economic growth in developing or
industrial countries, but FDI does respond positively to
increases in the growth rate. |
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