FDI entry modes and host country differences

Foreign direct investment (FDI) flows have contributed to the productive and technological upgrading of many host economies, whereas the discussion about the entry modes of multinational companies (MNC) and developmental effects is far from being concluded. Our aim is to exam the relative importance of host country differences in the understanding of FDI configuration and their modes of entry, considering crossborder merger and acquisitions (M&A) explicitly. The paper explores the interplay between the effects of FDI in locations and to what extent the structural transformations in host countries could raise their capacities for the attraction of FDI via M&A. We hypothesise that, adopting a dynamic perspective, the behaviour of inward FDI and a country’s level of development would describe a co-evolutionary process in which institutional stability and the consolidation of absorptive capacities become key driver mechanisms. The empirical analysis is built upon a sample of countries with dissimilar level of development using longitudinal data for the period 1998-2004. The findings confirm that the relative weigh of host countries characteristics may differ for crossborder M&A, being noticeable the diversity of the developing world and the potential of emerging economies, supporting the need to investigate new drivers for the attraction of FDI.