FDI A Foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign direct investment is distinguished from Portfolio Foreign Investment, a passive investment in the securities of another country such as public stocks and bonds, by the element of control. According to the Financial Times, Standard definitions of control use the internationally agreed 10 per cent threshold of voting shares, but this is a grey area as often a smaller block of shares will give control in widely held companies. Moreover, control of technology, management, even crucial inputs can confer de facto control. The origin of the investment does not impact the definition as an FDI, i.e. the investment may be made either inorganically by buying a company in the target country or organically by expanding operations of an existing business in that country. Definitions Broadly, foreign direct investment includes mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans.[1] In a narrow sense, foreign direct investment refers just to building new facilities. The numerical FDI figures based on varied definitions are not easily comparableAs a part of the national accounts of a country, and in regard to the GDP equation Y=C+I+G+(X-M)[Consumption + gross Investment + Government spending +(exports - imports)], where I is domestic investment plus foreign investment, 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.[2] 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. Stock of FDI is the net (i.e. Inward FDI minus Outward FDI) cumulative FDI for any given period. Direct investment excludes investment through purchase of shares.[3] FDI is one example of international factor movements Types Horizontal FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI.[4] Platform FDI Foreign direct investment from a source country into a destination country for the purpose of exporting to a third country. Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.
Posted on: Fri, 17 Oct 2014 09:04:02 +0000