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Sectoral Growth Effects of Cross-Border Mergers and Acquisitions

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Abstract

We analyze the impact on growth of cross-border mergers and acquisition (M&A) sales. Using the GMM methodology we find that most economies benefit from financial service M&A sales. However, some type of capital flows may hurt growth. In some cases M&A sales in manufacturing and the primary sector may lead to deindustrialization in manufacturing industry and/or services industries.

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Notes

  1. Throughout the paper we use the term “spillover” loosely and do not distinguish between spillovers due to change in factor productivity, knowledge/technology diffusion or scale economies. We term spillover any such externalities that MNEs introduce in the host country, which affect sectoral growth rates.

  2. See De Mello [1997, 1999] for an overview of the earlier literature and Lim [2001], Doytch [2005] and Crespo and Fontoura [2007] for a survey of the more recent literature.

  3. For panel data estimation of the growth models see Islam [1995], Durlauf et al. [2004].

  4. See Acemoglu et al. [2004] for a thorough survey of the literature on the role of institutions and economic growth.

  5. We thank an anonymous referee for alerting us to this point.

  6. International Standard Industrial Classification (ISIC), revision 3.

  7. The country list is as follows: Full Sample: Argentina, Armenia, Australia, Austria, Bangladesh, Bolivia, Brazil, Bulgaria, Canada, Chile, China, Colombia, Costa Rica, Cyprus, Czech Republic, Denmark, Ecuador, El Salvador, Estonia, Finland, France, Germany, Honduras, Hong Kong, China, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Kazakhstan, Republic of Korea, Malaysia, Mexico, Morocco, Myanmar, Netherlands, Norway, Pakistan, Paraguay, Peru, Philippines, Poland, Portugal, Russian Federation, Singapore, Spain, Sweden, Switzerland, Thailand, Tunisia, Turkey, Uganda, United Kingdom, United States, Venezuela, RB, Vietnam. LAC: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, Mexico, Paraguay, Peru, Venezuela, RB. WEE: Armenia, Austria, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Kazakhstan, Netherlands, Norway, Poland, Portugal, Russian Federation, Spain, Sweden, Switzerland, Turkey, United Kingdom. South & East Asia and the Pacific(SEAP): Australia, Bangladesh, China, Hong Kong, China, India, Indonesia, Japan, Republic of Korea, Malaysia, Myanmar, Pakistan, Philippines, Singapore, Thailand, Vietnam.

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Acknowledgements

We would like to thank an anonymous referee for invaluable comments, which improved the manuscript substantially and the participants at the Eastern Economic Association, New York, 2009, as well as the participants at the Research Forums Seminar Series at University of New Haven. The second author gracefully acknowledges PSC-CUNY grant #61841-00 39.

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Authors and Affiliations

  1. University of New Haven, 300 Boston Post Road, West Haven, 06516, CT, USA

    Nadia Doytch

  2. Asian Institute of Management, 123 Paseo de Roxas, Makati City, Metro Manila, 1260, Philippines

    Nadia Doytch

  3. Brooklyn College and the Graduate center of the City University of New York, Ph.D. Program in Economics, 10016-4309, NY, USA

    Merih Uctum

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  1. Nadia Doytch
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APPENDIX

APPENDIX

DATA, DEFINITIONS AND SOURCES

Primary Source: World Development Indicators (2005)

Secondary Source: Economic Intelligence Unit report.

  • GDP per capita: gross domestic product (current USD divided by midyear population;

  • Industry value added per capita growth rates: industry annual growth rate minus population annual growth rate;

  • Gross fixed capital formation (current USD) as a share of GDP: includes land improvements (fences, ditches, drains and so on); plant, machinery and equipment purchases; and the construction of roads, railways and the like, including schools, offices, hospitals, private residential dwellings and commercial and industrial buildings (according to the 1993 SNA, net acquisitions of valuables are also considered capital formation);

  • Real lending interest rate: the rate charged by banks on loans to prime customers net of the annual inflation rate, measured by the GDP deflator.

  • GDP deflator: the ratio of GDP in current local currency to GDP in constant local currency (base year varies by country);

  • General government final consumption expenditure (formerly general government consumption) as a share of GDP: includes all government current expenditures for purchases of goods and services (including compensation of employees) and most expenditure on national defense and security, excluding government military expenditures that are part of government capital formation divided by GDP in current USD;

United Nations Educational, Scientific and Cultural Organization and World (website); Development Indicators (various years)

  • Secondary school enrollment ratio: the ratio of total enrollment, regardless of age, to the population of the age group that officially corresponds to the level of education shown;

International Country Risk Guide reports

  • Government stability: an index from 0 to 12 where an increase reflects an improvement.

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Doytch, N., Uctum, M. Sectoral Growth Effects of Cross-Border Mergers and Acquisitions. Eastern Econ J 38, 319–330 (2012). https://doi.org/10.1057/eej.2011.16

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