Does the Long-Term Developmental Effect of Mergers and Acquisitions and Greenfield Investment Differ in Host African Economies?

  •  Aristide Karangwa    
  •  Sylvestre Rwamihigo    
  •  Zhan Su    


The choice between greenfield investment (GFIELDI) and mergers and acquisitions (M&As) is rarely straightforward for host developing countries (DCs), as this subject has not been thoroughly researched. Thus, this study fills this gap in the literature. It compares the overall long-term dynamic effect of GFIELDI and M&As on host African countries (ACs) from 1990 to 2020. The study, in particular, adopted a rigorous analytical framework that optimizes the welfare-decreasing and welfare-increasing effects of these two main FDI entry modes in the countries under study. The study used panel data from 15 African countries and adopted the PMG/ARDL approach. Therefore, the empirical findings of this study surprisingly contradict not only the preferred GFIELDI entry option of governments and development partners but also nearly all of the existing empirical literature in other developing regions. The results specifically demonstrate that while M&As outperform the GFIELDI in terms of their size effects, they both have net positive long-term dynamic effects on real GDP per capita in the studied countries. In practical terms, a 1% increase in GFIELDI has, on average, a weaker positive long-term dynamic effect on real GDP per capita than an equivalent investment in M&As. Except for Malawi and Botswana, evidence shows that the speed of adjustment parameter is consistently negative and statistically significant. South Africa (SA) has the lowest adjustment speed rate (=-0.157), while Morocco has the highest (=-1.554). Our findings have important policy implications, which are outlined in the conclusion of this study.

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