Resumo

One major controversial issue on the internationalization of MNEs is whether OFDI crowds in or crowds out domestic activities. We investigate the association between OFDI, considering its two main forms: cross border M&A and greenfield on domestic economy in Latin America. The internationalization process may have a negative impact on home economy because of their weak conditions and low level of absorptive capacity to absorb and exploit external knowledge.

MNEs from developed countries typically enjoy technological superiority and strong management capabilities and better technologies and management practices compared to firms from developing countries. Thus, MNEs from developing countries require aggressive asset-strategy to rapidly catch-up their latecomers’ disadvantage, so they engage in operations such cross border M&A. However, Latin America does not follow this strategy and has weak institutions. Further, previous studies find that the association between OFDI and domestic economy is positive, but we argue that this is not always the case

We rely on FDI traditional theories, which states that MNEs go abroad to take advantage of ownership advantages. However, MNEs from developing countries tend to have weaker ownership advantages and firm-specific capabilities. This indicates that the results of the association between CBMA or greenfield investment on domestic market may vary. We also base our studies on institutions, since Latin America has weak institutions.

We use data from World Bank and UNCTAD over the period 2003-2016 for all Latin American countries. We consider the following database: cross border merger and acquisition, greenfield investments and domestic investment to search for the association. Because of missing data, we select Argentina, Brazil, Chile, Colombia, Mexico, Panama and Peru. We apply panel data analysis with fixed and random effect. Moreover, as comparison we apply the same method to Asia some selected Asian countries.

We have argued that firms from Latin America do not have strong institutions that could back-up their strategies. Strong institutions can provide stability and business stimulation for firms to increase their management skills or innovation capacity but developing countries do not have supportive government. Further, Latin America strategies are different from other developing markets. We find that CBMA impact negatively DI, which is on the opposite direction of developing market studies

We examine the impact of OFDI on DI, using a disaggregate data that is CBMA and greenfield investments. We analyze Latin America countries. The main conclusion is that positive impacts of OFDI on DI as expected by the literature is not assured when analyzing Latin America because the benefit depends on entry mode (ie. CBMA and greenfield) and the ability to absorb external knowledge and institutions on domestic market. We have identified that CBMA has negative effect on DI in Latin America and no statistically effect of greenfield on DI for Latin America. In addition, we also compare the resul

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