Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. [1] Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.[2] The FDI relationship consists of a parent enterprise and a foreign affiliate which together form an international business International business is a term used to collectively describe all commercial transactions that take place between two or more nations. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons or a multinational corporation A multinational corporation or transnational corporation (TNC), also called multinational enterprise (MNE), is a corporation or enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation (MNC). In order to qualify as FDI the investment Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. Investing is the active redirection of resources: from being consumed today, to creating benefits in the future; the use of assets to earn income or profit. An investment is a choice by must afford the parent enterprise control over its foreign affiliate. The IMF The International Monetary Fund is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It is an organization formed to stabilize international exchange rates and facilitate defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated Incorporation is the forming of a new corporation . The corporation may be a business, a non-profit organization, sports club or a government of a new city or town. This article focuses on the process of incorporation; see also corporation firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment In economics and finance, Portfolio Investment represents passive holdings of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities' issuer by the investor; where such control exists, it is known as foreign direct investment. Generally, this means the investor.[3]
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History
Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization. Maps below show net inflows of foreign direct investment as a percentage of gross domestic product (GDP). The largest flows of foreign investment occur between the industrialized countries (North America, North West Europe and Japan). But flows to non-industrialized countries are increasing.
US International Direct Investment Flows:[4]
| Period | FDI Outflow | FDI Inflows | Net |
|---|---|---|---|
| 1960-69 | $ 42.18 bn | $ 5.13 bn | + $ 37.04 bn |
| 1970-79 | $ 122.72 bn | $ 40.79 bn | + $ 81.93 bn |
| 1980-89 | $ 206.27 bn | $ 329.23 bn | - $ 122.96 bn |
| 1990-99 | $ 950.47 bn | $ 907.34 bn | + $ 43.13 bn |
| 2000-07 | $ 1,629.05 bn | $ 1,421.31 bn | + $ 207.74 bn |
| Total | $ 2,950.69 bn | $ 2,703.81 bn | + $ 246.88 bn |
Type of Foreign Direct Investors
A foreign direct investor may be classified in any sector of the economy and could be any one of the following:[citation needed]
- an individual;
- a group of related individuals;
- an incorporated or unincorporated entity;
- a public company A publicly-traded company is a company that has permission to offer its registered securities for sale to the general public, typically through a stock exchange, or occasionally a company whose stock is traded over the counter (OTC) via market makers who use non-exchange quotation services or private company The term privately held company refers to the ownership of a business company in two different ways: first, referring to ownership by non-governmental organizations; and second, referring to ownership of the company's stock by a relatively small number of holders who do not trade the stock publicly on the stock market. Less ambiguous terms for a;
- a group of related enterprises;
- a government body;
- an estate (law) An estate is the net worth of a person at any point in time. It is the sum of a person's assets - legal rights, interests and entitlements to property of any kind - less all liabilities at that time. The issue is of special legal significance on a question of bankruptcy and death of the person, trust or other societal organisation; or
- any combination of the above.
Methods of Foreign Direct Investments
The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods:
- by incorporating a wholly owned subsidiary A subsidiary, in business matters, is an entity that is controlled by a separate entity. The controlled entity is called a company, corporation, or limited liability company and in some cases can be a government or state-owned enterprise, and the controlling entity is called its parent . The reason for this distinction is that a lone company or company In the United States, a company is a corporation—or, less commonly, an association, partnership, or union—that carries on an industrial enterprise." Generally, a company may be a "corporation, partnership, association, joint-stock company, trust, fund, or organized group of persons, whether incorporated or not, and any receiver,
- by acquiring shares in an associated enterprise
- through a merger The phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity or an acquisition In business, a takeover is the purchase of one company by another (the acquirer, or bidder). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company of an unrelated enterprise
- participating in an equity joint venture A joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as with another investor or enterprise
Foreign direct investment incentives may take the following forms:[citation needed]
- low corporate tax Corporate tax refers to a tax levied by various jurisdictions on the profits made by companies or associations. It is a tax on the value of the corporation’s profits and income tax An income tax is a tax levied on the income of individuals or business . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual rates
- tax holidays A tax holiday is a temporary reduction or elimination of a tax. Governments usually create tax holidays as incentives for business investment. The taxes that are most commonly reduced by national and local governments are sales taxes. In developing countries, governments sometimes reduce or eliminate corporate taxes for the purpose of attracting
- other types of tax concessions
- preferential tariffs A tariff is a duty imposed on goods when they are moved across a political boundary. They are usually associated with protectionism, the economic policy of restraining trade between nations. For political reasons, tariffs are usually imposed on imported goods, although they may also be imposed on exported goods
- special economic zones A Special Economic Zone is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and
- investment financial subsidies
- soft loan A soft loan is a loan with a below-market rate of interest. This is also known as soft financing. Sometimes soft loans provide other concessions to borrowers, such as long repayment periods or interest holidays. Soft loans are usually provided by governments to projects they think are worthwhile. The World Bank and other development institutions or loan guarantees In law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy
- free land or land subsidies
- relocation & expatriation subsidies
- job training & employment subsidies
- infrastructure Infrastructure can be defined as the basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function. The term typically refers to the technical structures that support a society, such as roads, water supply, sewers, power grids, subsidies
- R&D support
- derogation from regulations (usually for very large projects)
See also
- List of countries by received FDI This article includes a list of countries of the world sorted by received Foreign direct investment stock, the level of accumulated FDI in a country. The US dollar estimates presented here are calculated at market or government official exchange rates
- International investment position Categories: International economics | International factor movements | National accounts |
- International Centre for Settlement of Investment Disputes The International Centre for Settlement of Investment Disputes , an institution of the World Bank group based in Washington, D.C., was established in 1966 pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention or Washington Convention). As of May 2005, 155 countries
- Foreign Affiliate Trade Statistics Foreign affiliate trade statistics , also known as transnational corporation (TNC) data details the economic operations of foreign direct investment-based enterprises
- World Association of Investment Promotion Agencies
- Articles on international trade organizations Categories: International trade | International economic organizations
References
- ^ Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 551. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.
- ^ Foreign Direct Investment, United Nations Conference on Trade and Development, www.unctad.org
- ^ International Monetary Fund (IMF The International Monetary Fund is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It is an organization formed to stabilize international exchange rates and facilitate), 1993. Balance of Payments Manual, fifth edition (Washington, DC).
- ^ http://www.bea.gov/international/xls/table1.xls
External links
Categories: International factor movements | International economics Categories: International relations | Economics | World economy | Macroeconomics | Development The Development category relates to issues of economic development, development aid and international development. See also Sustainability
www.romaniantimes.at
Foreign direct investment ( FDI ) in Romania fell by 42.9 per cent year on year to 2.894 billion Euros in the first six months, the central bank announced ...
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Foreign direct investment by sector in Poland in 2003 in Sources Polish Information and Foreign Investment Agency
Q. current volume of direct foreign investment in & of USA
Asked by dip_aneek - Wed Jul 5 10:58:02 2006 - - 1 Answers - 0 Comments
A. Check out the US BEA stats website
Answered by Wayne H - Wed Jul 5 11:36:42 2006
