Foreign direct investment (FDI) and environmental quality: Is greenfield FDI greener than mergers and acquisitions FDI?

Abstract

Abstract Environmental sustainability is a key objective of sustainable development. In this connection, there are growing concerns about the environmental impact of foreign direct investment (FDI), even though it is a potentially powerful engine of growth and development in developing countries. In this study, we empirically examine and compare the environmental impact of two different types of FDI, namely greenfield FDI, and mergers and acquisitions (M&A) FDI. Using data from 91 countries in 2005–2020, we find significant differences in the environmental effects of the two different types of FDI. In particular, our empirical results show that greenfield FDI is more harmful to the environment of host countries than M&A FDI. In addition, FDI from emerging markets and developing countries tends to be more harmful to the environment than FDI from developed countries.