Effects of cross-border mergers and acquisitions on GDP per capita and domestic investment in transition countries
Abstract
The study investigates the impact of cross-border mergers and acquisitions on GDP per capita and domestic investment in 22 European transition countries from 2000 to 2014 by using the system Generalized Method of Moments estimator. The main implications are that cross-border mergers and acquisitions have a negative effect on GDP per capita in the year of merger or acquisition, while their lagged level shows a positive impact. From long-term perspective, this type of FDI has negative and significant effect on GDP per capita. The results show that one-year lagged cross-border mergers and acquisitions positively affects domestic investment, suggesting that spillover effects of this type of investment can be expected not earlier than one year after the merger or acquisition. The value of this paper is that our results show how the advances in structural reforms enhance GDP per capita whereas their influence on domestic investment activity is insignificant. We found that there is insignificant impact of the relationship between overall structural reforms and cross-border mergers and acquisitions on GDP per capita and domestic investment both in short and long run. The originality of this study lies in investigation of the dynamic nature of cross-border mergers and acquisitions and their economic effects depending on the quality of structural reformss.
Keyword : cross-border mergers and acquisitions, structural reforms, GDP per capita, domestic investment, transition countries, system GMM
How to Cite
Zvezdanović Lobanova, J., Kračun, D., & Kavkler, A. (2018). Effects of cross-border mergers and acquisitions on GDP per capita and domestic investment in transition countries. Journal of Business Economics and Management, 19(1), 124-137. https://doi.org/10.3846/16111699.2017.1408677
This work is licensed under a Creative Commons Attribution 4.0 International License.
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UNCTAD. 2003. World investment report 2003: FDI policies for development: national and international perspectives. New York and Geneva: United Nations publications.
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Wang, M. 2010. Foreign direct investment and domestic investment in the host country: evidence from panel study, Applied Economics 42(29): 3711–3721. https://doi.org/10.1080/00036840802314580
Windmeijer, F. 2005. A finite sample correction for the variance of linear efficient two-step GMM estimators, Journal of Econometrics 126(1): 25–51. https://doi.org/10.1016/j.jeconom.2004.02.005
World Bank. 2015. World Development Indicators database [online], [cited 10 April 2015]. Available from Internet: http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators
Albulescu, C. T. 2015. Do foreign direct and portfolio investments affect long-term economic growth in Central and Eastern Europe?, in 2nd Global Conference on Business, Economics, Management and Tourism, 30–31 October, 2014, Prague, Czech Republic. https://doi.org/10.1016/S2212-5671(15)00539-0
Alguacil, M.; Cuadros, A.; Orts, V. 2011. Inward FDI and growth: the role of macroeconomic and institutional environment, Journal of Policy Modelling 33(3): 481–496. https://doi.org/10.1016/j.jpolmod.2010.12.004
Amighini, A.; McMillan, S.; Sanfilippo, M. 2017. FDI and capital formation in developing economies: new evidence from industry-level data. NBER Working Papers Series 23049.
Ashraf, A.; Herzer, D. 2014. The effects of greenfield investment and M&As on domestic investment in developing countries, Applied Economics Letters 21(14): 997–1000. https://doi.org/10.1080/13504851.2014.904482
Azman-Saini, W. N. W.; Baharumshah, A. Z.; Law, S. H. 2010. Foreign direct investment, economic freedom and economic growth: international evidence, Economic Modelling 27(5): 1079–1089. https://doi.org/10.1016/j.econmod.2010.04.001
Beck, T.; Laeven, L. 2005. Institution building and growth in transition economies. Policy Research Working Paper 3657. Washington, DC: World Bank.
Blundell, R.; Bond, S. 1998. Initial conditions and moment restrictions in dynamic Panel Data Models, Journal of Econometrics 87(1): 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
De Melo, M.; Denizer, C.; Gelb, A.; Tenev, S. 1997. Circumstance and choice: the role of initial conditions and policies in transition economies. Policy Research Working Paper Series 1866. Washington, DC: World Bank.
EBRD. 2015. Economic data [online], [cited 15 February 2015]. European Bank for Reconstruction and Development. Available from Internet: http://www.ebrd.com/what-we-do/economic-research-and-data/data.html
Efendić, A.; Geoff, P.; Adnett, N. 2010. Institutions and economic performance: system GMM modelling of institutional effects in transition [online], [cited 23 June 2016]. Available from Internet: http://riinvestinstitute.org/pdf/Efendic_et_al.pdf
Eren, M.; Zhuang, H. 2015. Mergers and acquisitions versus greendfield investment, absorptive capacity, and economic growth: evidence from 12 new member states of the European Union, Eastern European Economics 53(2): 99–123. https://doi.org/10.1080/00128775.2015.1033240
Farla, K.; de Combruggher, D.; Vertspagen, B. 2016. Institutions, foreign direct investment, and domestic investment: crowding out or crowding in?, World Development 88: 1–9. https://doi.org/10.1016/j.worlddev.2014.04.008
Gocer, İ.; Mercan, M.; Peker, O. 2014. Effect of foreign direct investments on the domestic investments of developing countries: a dynamic Panel Data Analysis, Journal of Economic and Social Studies 4(1): 73–90. https://doi.org/10.14706/JECOSS11415
Herzer, D. 2012. How does foreign direct investment really affect developing countries’ growth?, Review of International Economics 20(2): 396–414. https://doi.org/10.1111/j.1467-9396.2012.01029.x
Hlavacek, P.; Bal-Domanska, B. 2016. Impact of foreign direct investment on economic growth in Central and Eastern European countries, Engineering Economics 27(3): 294–303. https://doi.org/10.5755/j01.ee.27.3.3914
IMF. 2000. World economic outlook: focus on transition economies. Washington, DC: International Monetary Fund.
Jude, C. 2014. Does FDI crowd out domestic investment in transition countries [online], [cited 25 May 2016]. Available from Internet: http://www.touteconomie.org/afse2014/index.php/meeting2014/lyon/paper/viewFile/86/44
Jude, C.; Levieuge, G. 2017. Growth effect of FDI in developing economies: the role of institutional quality, The World Economy 40(4): 715–742. https://doi.org/10.1111/twec.12402
Kosova, R. 2010. Do foreign firms crowd out domestic firms? Evidence from the Czech Republic, Review of Economics and Statistics 92(4): 861–881. https://doi.org/10.1162/REST_a_00035
Kulikova, N.; Lobanov, M. 2011. The role of FDI in the economic modernization of Central and Eastern European EU member states: view from Russia, in M. Antevski (Ed.). Development potentials of foreign direct investment: international experience. Belgrade: Institute of International Politics and Economics.
Mileva, E. 2008. The impact of capital flows on domestic investment in transition economies. Working Paper Series 871. European Central Bank.
Papke, L. E.; Wooldridge, J. M. 2005. A computational trick for Delta-method standard errors, Economics Letters 86(3): 413–417. https://doi.org/10.1016/j.econlet.2004.07.022
Pegkas, P. 2015. The impact of FDI on economic growth in Eurozone countries, The Journal of Economic Asymmetries 12(2): 124–132. https://doi.org/10.1016/j.jeca.2015.05.001
Pilbeam, K.; Oboleviciute, N. 2012. Does foreign direct investment crowd in or crowd out domestic investment? Evidence from the European Union, The Journal of Economic Asymmetries 9(1): 89–104. https://doi.org/10.1016/j.jeca.2012.01.005
Polterovich, V. 2008. Institutional trap, in S. N. Durlauf, L. E. Blume (Eds.). The new Palgrave dictionary of economics. New York: Palgrave Macmillan. https://doi.org/10.1057/978-1-349-95121-5_2717-1
Polterovich, V.; Popov, V. 2007. Democratization, quality of institution and economic growth. Tiger Working Paper 102.
Roodman, D. 2009. How to do xtabond2: an introduction to “difference” and “system” GMM in stata, Stata Journal 9(1): 86–136.
Sikharulidze, D.; Tordinava, T.; Kurdadze, S. 2015. The impacts of FDI on domestic investment (in case of Georgia), Social and Economic Revue 13(1): 35–40.
Szkorupová, Z. 2015. Relationship between foreign direct investment and domestic investment in selected countries of Central and Eastern Europe, in 2nd Global Conference on Business, Economics, Management and Tourism, 30–31 October 2014, Prague, Czech Republic. https://doi.org/10.1016/S2212-5671(15)00350-0
Tan, B. W.; Goh, S. K.; Wong, K. N. 2016. The effects of inward and outward FDI on domestic investment: evidence using panel data of ASEAN-8 countries, Journal of Business Economics and Management 17(5): 717–733. https://doi.org/10.3846/16111699.2015.1114515
UNCTAD. 2003. World investment report 2003: FDI policies for development: national and international perspectives. New York and Geneva: United Nations publications.
United Nations. 2003. Monterrey consensus on financing for development. United Nations: New York.
Wang, M. 2010. Foreign direct investment and domestic investment in the host country: evidence from panel study, Applied Economics 42(29): 3711–3721. https://doi.org/10.1080/00036840802314580
Windmeijer, F. 2005. A finite sample correction for the variance of linear efficient two-step GMM estimators, Journal of Econometrics 126(1): 25–51. https://doi.org/10.1016/j.jeconom.2004.02.005
World Bank. 2015. World Development Indicators database [online], [cited 10 April 2015]. Available from Internet: http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators