Foreign Direct Investment

Definition


Foreign direct investment (FDI) occurs when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intent to manage or control that asset. The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business.

The management or control dimension is what distinguishes FDI from portfolio investment in foreign stocks, bonds and other financial instruments.

Investors may make a direct investment by creating a new foreign enterprise, (greenfield investment), or by the acquisition of a foreign firm, (brownfield investment).


Importance & Benefits


FDI provides immense benefits and stability to the global economy by promoting economic development in both developed and emerging economies and helps to raise living standards for millions of people enhancing the well-being of entire societies.

  • Is a key element in international economic integration
  • Provides a means for creating direct, stable and long-lasting links between economies
  • Has a positive effect on the development of international trade
  • Is an important source of capital for a range of host and home economies
  • Can be an effective way for you to enter into a foreign market
  • Encourages the transfer of technology and know-how between economies
  • Serves as an important vehicle for local enterprise development,
  • Provides investors with diversification of holdings beyond a specific country, industry sector or political system
  • Exposes national and local governments, local businesses, and citizens to new business practices, management techniques, economic concepts, and technology that will help them develop local businesses and industries

Subsidiaries

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