No abstract

The effect of aggregate foreign direct investment (FDI) on economic growth remains uncertain in the literature. We revisit this FDI-Growth relation by analyzing the components of FDI - greenfield investment and cross-border mergers and acquisitions (M&As). Our analysis contributes to the existing literature by focusing on potentially heterogeneous growth effects of different FDI entry modes. Using a sample of 84 countries from 1987 to 2001, we separately examine the growth effects of greenfield investment and M&As. We find that greenfield investment and M&As have different impacts on economic growth. Greenfield investment promotes economic growth while M&As can be beneficial only when the host country has an adequate level of human capital. Our results provide support for receiving M&As when policymakers allocate more resources for human capital accumulation. Copyright 2009 Blackwell Publishing Ltd.

"A positive relationship between FDI and economic growth under two economic conditions has been estimated: a sufficient level of human capital and well-developed financial markets, respectively. However, these two conditions can be fundamentally different catalysts for FDI to promote economic growth in the perspective of growth accounting. Using data from 69 countries over 1970-1989, we find that FDI promotes productivity growth only when the host country reaches a threshold level of human capital; and FDI promotes capital growth only when a certain level of financial development is achieved." ("JEL" F21) Copyright (c) 2008 Western Economic Association International.