Foreign Direct Investment’s Effect on Economic Growth in Developing Countries: Cross-Border Mergers and Acquisitions versus Greenfield Investments

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: Foreign direct investment (FDI) occurs when a domestic corporation invests in another company in a foreign country. There are two main entry modes through which corporations can invest into the foreign country, merger and acquisitions (M&A) or greenfield investments. According to endogenous growth theory, FDI in either form should have a significant effect on economic growth in the host country. This study aims to investigate if greenfield and M&A have an effect on economic growth in developing countries. The results are estimated from using panel data methods for 32 countries over the time-period 2003-2015. The study found that the empirical evidence is inconclusive of greenfield investments and M&A impact on economic growth in developing countries.

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