FOREIGN DIRECT INVESTMENT

An investment made to acquire a lasting interest in enterprises operating outside of the economy of the investor.

"Foreign direct investment is simply a direct investment which occurs across national boundaries, that is when a firm from one country buys a controlling investment in another country or when a firm sets up a branch or a subsidiary in another country."
(Dicken, P., Global Shift: Reshaping the Global Economic Map in the 21st Century, 4th ed., New York: Guilford Press, 2003, p. 52)

Foreign direct investment is generally the largest flow of foreign capital into a country, apart from bank loans and other loans from supranational and public lenders (governments, the World Bank).

Direct Investment Enterprise and Direct Investor

"A direct investment enterprise is an incorporated or unincorporated enterprise in which a single foreign investor either owns 10 per cent or more of the ordinary shares or voting power of an enterprise (unless it can be proven that the 10 per cent ownership does not allow the investor an effective voice in the management) or owns less than 10 per cent of the ordinary shares or voting power of an enterprise, yet still maintains an effective voice in management. […]
The foreign entity or group of associated entities that makes the investment is termed the ‘direct investor'."
(United Nations Conference on Trade and Development (UNCTAD), Foreign Direct Investment, 2002, visited 2009-06-23)

Forms of FDI

"The forms of investment by the direct investor which are classified as FDI are equity capital, the reinvestment of earnings and the provision of long-term and short-term intra-company loans (between parent and affiliate enterprises)."
(Dicken, P., Global Shift: Reshaping the Global Economic Map in the 21st Century, 4th ed., New York: Guilford Press, 2003, p. 57)

Inward or Outward FDI

Outward FDI, or direct investments abroad are investments made in foreign resources. The opposite is inward FDI, investments made by foreigners in local resources.

Critical Point of View

"There is more to the list of legitimate complaints about foreign direct investment. Such investment often flourishes only because of special privileges attracted from the government. While standard economics focuses on the distortions of incentives that result from such privileges, there is a far more insidious aspect: often those privileges are the result of corruption, the bribery of government officials. The foreign direct investment comes only at the price of undermining democratic processes. This is particularly true in mining, oil and other natural resources, where foreigners have a real incentive to obtain the concessions at low prices."
(Stiglitz, J., Globalization and Its Discontents, Penguin books, 2002, pp. 71-72)