Resource-Seeking Cross-Border Mergers and Acquisitions and Growth: Industry-level Analysis

Abstract

While the effect of foreign direct investment (FDI) on economic growth at the aggregate level is ambiguous, recent studies at the sector level suggest that this could be due to aggregation. And yet, studies on the effect of FDI on growth at the sector level are scant in the literature. In this paper, I empirically examine the effect of FDI on growth using detailed data on worldwide mergers and acquisitions (M&A) activity at industry level from 1986 to 2010. My results show that foreign acquisition has positive effect on the host country’s economic growth overall. However, the effect varies by sector and foreign acquisition into extractive industries has least positive effect on growth. This also seems to be more pronounced in natural resource-abundant developing countries. On the other hand, foreign acquisition into manufacturing sector has biggest positive effect on growth.