Migrant Networks, Greenfield FDI, and Cross-border Mergers and Acquisitions

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). Greenfield FDI is often favored over cross-border M&A (i.e., brownfield FDI) by host countries because it is associated with greater job creation and technology transfers. This implies higher implicit entry barriers for cross-border M&A. Using data on overseas Chinese 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, the presence of these migrant networks is more closely associated with M&A than greenfield FDI. Moreover, we find this relationship with FDI to be more pronounced when information asymmetry is stronger, namely, for privately held companies, privately-owned enterprises, in tertiary industries, cross-industry FDI, and in host countries that are more culturally distant from China with tighter regulations. The results are robust to various specifications and estimation methods, including an instrumental variables approach that addresses potential endogeneity concerns. JEL: F21, F22, F23