| Abstract: |
Relying on a large foreign direct investment (FDI) transaction level dataset,
unique both in terms of disaggregation and time and country coverage, this
paper examines patterns in greenfield (GF) versus merger \& acquisition (MA)
investment. Although both are found to seek out large markets with low
international barriers, important differences emerge. MA is more affected by
geographic and cultural barriers and exhibits opportunistic behaviours as it
is more sensitive to short-run changes, such as a currency crisis. On the
other hand, GF is relatively driven by long-run factors, such as
origin-country technological and institutional development or comparative
advantage. These empirical facts are consistent with the conceptual
distinction made between these two modes, i.e. MA involves transfer of
ownership for integration or arbitrage reasons while GF relies on firms' own
capacities, which are linked to the origin countries' attributes. They also
suggest that GF and MA are likely to respond differently to policies intended
to attract FDI.
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