Impact of Greenfield Investment and M&A on the Host Country’s Economic Growth

Empirical literature regarding the ultimate effects of foreign direct investment (FDI) on host countries’ economic growth does not reach a unanimous conclusion. To fill the gap, this paper differentiates greenfield investments from mergers and acquisitions (M&A) and focuses on the host country’s innovativeness. A total sample of 25 member countries of the European Union (EU) over the period 1999-2018 has created a balanced panel dataset, which made it possible to analyse the separate effects of greenfield investment and M&A on economic growth. Panel data analysis with fixed effects, corrected for groupwise heteroskedasticity and cross-sectional correlation, confirms that different types of FDI generate different effects on economic growth and concerning the host country’s innovation capacity. More specifically, M&A achieve the stron gest contribution to economic growth in countries with stronger innovation capacities, while greenfield investments add more to economic growth in countries lagging behind in innovation.