ABSTRACT
In this chapter, we empirically explore whether the type of foreign direct investment (FDI) – that is, Greenfield versus mergers and acquisitions (M&A) – influences economic growth and domestic investment differently. We focus on a large panel of developing Asian economies from 1990 to 2013 to probe this relationship empirically. Conventional wisdom holds that FDI is a preferable form of external financing compared to other types of capital flows because of its stabilising properties. However, do all types of FDI flows produce similar macroeconomic benefits? Our results show that Greenfield FDI contributes positively to economic growth while FDI in the form of M&A appears to have no significant growth influence. We also find that the effects of Greenfield FDI on domestic capital formation are stronger and larger relative to M&A flows.
