Greenfield Investments And Cross-border Mergers And Acquisitions Comparative Analysis Of The Host Country Economic Growth And Its Implications For China

Ever since 70s of the last century, FDI has been increasing extremely fast worldwide. It has become one of the most attracting activities and its volume has reached to a historical record. Traditional researches demonstrate that FDI can promote the economic growth of host countries by several means, which is one of the reasons why governments make great efforts to obtain more FDI. However, recent empirical results cast doubts on the established positive relationship between FDI and economic growth in theoretical literature. Moreover, in some circumstances, it may even hinder the growth. Consequently, it is worthwhile to explore the economic effects of FDI from a new perspective.Current researches generally focus on the gross volume of FDI investigating growth effects on host countries, while ignoring its composition. Yet, a multinational corporation can choose freely between two modes when entering a host country, namely Greenfield investments and Cross-border Mergers and Acquisitions, which are essentially different from each other, thus may result in different economic effects. Greenfield investment is FDI via establishing new business facility, while Cross-border M&A is FDI through a form of obtaining an existing company in host country. Based on this distinction, the purpose of this paper is trying to find out the economic impacts of Greenfield investment and Cross-border M&A, respectively.I will first start from theoretical analysis, hoping to analyze both the similarities and differences of Greenfield investment and Cross-border M&A. An empirical analysis using cross-country data for the period 1997-2006 from 40 countries suggests that gross FDI exerts an ambiguous effect on growth. In short term, the direct and indirect economic impacts of Greenfield investment are insignificant; however, Cross-border M&A has significant negative direct effects on host countries' growth, while as long as the host countries have the capability to absorb the technology they can benefit from Cross-border M&A. Finally, combining the development and distribution of FDI, as well as regional socio-economic status in China, some corresponding policy will be recommended on attracting FDI.