Migrant Networks, Greenfield FDI, and Cross-Border Mergers and Acquisitions
41 Pages Posted: 26 Jul 2017
Date Written: June 15, 2017
We study the relationship between international migration and foreign direct investment (FDI), differentiating between the two modes of entry: Greenfield FDI and cross-border mergers and acquisitions (M&A). Each mode may face different formal and informal information barriers, from regulations, laws, cultural differences, as well as the information intensity required in the transaction. Using data on overseas Chinese migrant networks and outward FDI from 2003-2014 to over 100 countries, we estimate a gravity equation for FDI. We find a positive association between overseas Chinese migrant networks and Chinese outward FDI, and importantly, they are more closely associated with M&A than Greenfield FDI. The relationships are more pronounced where formal and informal barriers are stronger: in host countries with tighter regulations and those that are more culturally distant, in service industries and cross-industry FDI, and for investment from privately held companies and privately-owned enterprises. The results are robust to various specifications and estimation methods, including an instrumental variables approach that addresses potential endogeneity concerns.
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