Foreign direct investment (FDI) in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.[1] The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.[2]
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In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now constituting 28 percent of global GDP.[3]
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 |
In the US, in the late 1960s and early 1970s, outward investment became increasingly politicized. Organized labor, convinced that investment abroad exported jobs, undertook a major campaign to reform the tax provisions which affected foreign direct investment. The Foreign Trade and Investment Act of 1973 (or the Burke-Hartke Bill) would have eliminated both the tax credit and tax deferral. The Nixon Administration, influential members of Congress of both parties, and well-financed lobbying organizations came to the defense of the multinational. The massive counterattack of the multinational corporations and their allies defeated this first major challenge to their interests.[5]