foreign direct investment

Definition
Direct investments in productive assets by a company incorporated in a foreign country, as opposed to
investments in shares of local companies by foreign entities. An important feature of an increasingly
globalized economic system.

Foreign direct investment (FDI) refers to long term participation by country A into country B. It usually involves participation in
management, joint-venture, transfer of technology and expertise. There are three 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.[1]

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. Figure below shows net inflows of foreign direct investment. 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:[2]

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

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 societal organisation; or
 any combination of the above.
Methods
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 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)

Debates about the benefits of FDI for low-income countries

Some countries have put restrictions on FDI in certain sectors. India, with its restriction on FDI in the retail sector is an example. [3] In a
country like India, the “walmartization” of the country could have significant negative effects on the overall economy by reducing the
number of people employed in the retail sector (currently the second largest employment sector nationally) and depressing the income
of people involved in the agriculture sector (currently the largest employment sector nationally). [4]