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]
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(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 |
A foreign direct investor may be classified in any sector of the economy and could be any one of the following:
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:
Foreign direct investment incentives may take the following forms:
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]
"Invest in America" is an initiative of the US Department of Commerce and aimed to promote the arrival of foreigners investors to the country.[5]
The “Invest in America” policy is focused on:
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. Unarguably, US affiliates of foreign companies have a history of paying higher wages than US corporations. Foreign companies have in the past supported an annual US payroll of $364 billion with an average annual compensation of $68,000 per employee.
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.[6]
Affiliates of foreign corporations spent more than $34 billions 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.[7]
FDI in China has been one of the major successes of the past 3 decades. 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. Even though there was a slight dip in FDI in 2009 as a result of the global slowdown, 2010 has again seen investments increase. The Chinese continue to steamroll with expectations that economic growth will be 10% this year.[8]