Foreign direct investment
Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment 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.[1]. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, 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.[2] FDI is one example of international factor movement.
[edit] History
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. The figure below shows net inflows of foreign direct investment in the United States. The largest flows of foreign investment occur between the industrialized countries (North America, Western Europe and Japan). But flows to non-industrialized countries are increasing sharply.
US International Direct Investment Flows:[3]
| Period | FDI Inflow | FDI Outflow | Net Inflow |
|---|---|---|---|
| 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 |
[edit] Types
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 or private company;
- a group of related enterprises;
- a government body;
- an estate (law), trust or other social institution; or
- any combination of the above.
[edit] Methods
The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:
- by incorporating a wholly owned subsidiary or company
- by acquiring shares in an associated enterprise
- through a merger or an acquisition of an unrelated enterprise
- participating in an equity joint venture with another investor or enterprise
Foreign direct investment incentives may take the following forms:[citation needed]
- low corporate tax and income tax rates
- tax holidays
- other types of tax concessions
- preferential tariffs
- special economic zones
- EPZ - Export Processing Zones
- Bonded Warehouses
- Maquiladoras
- investment financial subsidies
- soft loan or loan guarantees
- free land or land subsidies
- relocation & expatriation subsidies
- job training & employment subsidies
- infrastructure subsidies
- R&D support
- derogation from regulations (usually for very large projects)
[edit] Global foreign direct investment
The United Nations Conference on Trade and Development said that there was no significant growth of Global FDI in 2010. In 2010 was $1,122 billion and in 2009 was $1.114 billion. The figures was 25 percent below the pre-crisis average between 2005 to 2007.[4]
[edit] Foreign direct investment in the United States
 |
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The United States is the world’s largest recipient of FDI. More than $325.3 billion in FDI flowed into the United States in 2008, which is a 37 percent increase from 2007. The $2.1 trillion stock of FDI in the United States at the end of 2008 is the equivalent of approximately 16 percent of U.S. gross domestic product (GDP).55
Benefits of FDI in America: In the last 6 years, over 4000 new projects and 630,000 new jobs have been created by foreign companies, resulting in close to $314 billion in investment.[citation needed] Unarguably, US affiliates of foreign companies have a history of paying higher wages than US corporations.[citation needed] Foreign companies have in the past supported an annual US payroll of $364 billion with an average annual compensation of $68,000 per employee.[citation needed]
Increased US exports through the use of multinational distribution networks. FDI has resulted in 30% of jobs for Americans in the manufacturing sector, which accounts for 12% of all manufacturing jobs in the US.
Affiliates of foreign corporations spent more than $34 billion on research and development in 2006 and continue to support many national projects. Inward FDI has led to higher productivity through increased capital, which in turn has led to high living standards.[5][dead link]
[edit] Foreign direct investment in China
Starting from a baseline of less than $19 billion just 20 years ago, FDI in China has grown to over $300 billion in the first 10 years. China has continued its massive growth and is the leader among all developing nations in terms of FDI.[citation needed] Even though there was a slight dip in FDI in 2009 as a result of the global slowdown, 2010 has again seen investments increase.[citation needed]
[edit] Foreign direct investment in India
Starting from a baseline of less than USD 1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010-2012. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, the US and the UK were among the leading sources of FDI.
FDI for 2009-10 at USD 25.88 billion was lower by five per cent from USD 27.33 billion in the previous fiscal. Foreign direct investment in August dipped by about 60 per cent to aprox. USD 34 billion, the lowest in 2010 fiscal, industry department data released showed. [6]In the first two months of 2010-11 fiscal,FDI inflow into India was at an all-time high of $7.78 billion up 77% from $4.4 billion during the corresponding period in the previous year.
[edit] Foreign direct investment and the developing world
FDI provides an inflow of foreign capital and funds, in addition to an increase in the transfer of skills, technology, and job opportunities.[citation needed] Many of the Four Asian Tigers benefited from investment abroad.[citation needed] A recent meta-analysis of the effects of foreign direct investment on local firms in developing and transition countries suggest that foreign investment robustly increases local productivity growth.[7] The Commitment to Development Index ranks the "development-friendliness" of rich country investment policies.
[edit] Foreign Direct Investment: A Critical Appraisal
While the FDI approvals reveal quantum jump since the liberalisation of policy in 1991, the actual inflow have been much less. Thus the foreign investors have not matched their intent with performance. In fact, actual inflows have been less than half of the approvals.
[edit] See also
- Foreign Affiliate Trade Statistics
- Foreign portfolio investment
- List of countries by received FDI
- List of countries by FDI abroad
- International factor movements
[edit] References
- ^ Data.worldbank.org
- ^ CIA.gov
- ^ BEA.gov
- ^ UN body says global foreign direct investment inflows remain stagnant in 2010, business.globaltimes.cn
- ^ Benefits of FDI The International Trade Administration. Retrieved on 2010-03-10[dead link]
- ^ FDI inflows plunge by about 60% in August Economic Times (India Times) 2010-10-22
- ^ Which Foreigners are Worth Wooing? A Meta-Analysis of Vertical Spillovers from FDI William Davidson Institute Working Paper 996.
