Define Foreign direct investment (FDI)
Posted by Ripon Abu Hasnat on Wednesday, September 3, 2014 | 0 comments
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Foreign direct investment (FDI) is a
direct investment into production or business in a country by an individual or
company of another country, either by buying a company in the target country or
by expanding operations of an existing business in that country. Foreign direct
investment is in contrast to portfolio investment which is a passive investment
in the securities of another country such as stocks and bonds.
Broadly, foreign direct investment
includes "mergers and acquisitions, building new facilities, reinvesting
profits earned from overseas operations and intra company loans". In a narrow
sense, foreign direct investment refers just to building new facilities. The
numerical FDI figures based on varied definitions are not easily comparable.
FDI is defined as the net inflows of
investment (inflow minus outflow) to acquire a lasting management interest (10
percent or more of voting stock) in an enterprise operating in an economy other
than that of the investor. FDI is the sum
of equity capital, other long-term capital, and short-term capital as shown the
balance of payments. FDI usually involves participation in management,
joint-venture, transfer of technology and expertise.
There are two types of FDI: inward and
outward, resulting in a net FDI
inflow (positive or negative)
and "stock of foreign direct investment", which is the cumulative
number for a given period. Direct investment excludes investment through
purchase of shares. FDI is one
example of international factor movements.
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