FDI

Foreign direct investment (FDI) is an investment made by a resident of one economy into a business located in another economy, with the aim of obtaining a lasting interest and a degree of influence in the management of the enterprise. A common criterion is that the investor owns 10 percent or more of voting shares. FDI differs from portfolio investment in its intent to exert control or significant influence over operations. It includes equity capital, reinvested earnings, and other long-term measures of capital.

FDI takes several forms, including greenfield investments (building new facilities from the ground), mergers and acquisitions (M&A), and joint ventures or strategic alliances. The data typically distinguish inflows (new investment into the economy) and outflows (investment abroad). FDI stock is the cumulative value of all direct investments in the host economy. Data are compiled by the IMF, UNCTAD, and national statistics offices.

Motives include market-seeking expansion, access to resources and production networks, and efficiency-seeking drives to lower costs or access advanced technologies. Determinants include market size, growth prospects, openness to trade and investment, exchange-rate stability, human capital, infrastructure, and the quality of institutions and governance. Policy reforms, such as liberalizing restrictions and protecting investor rights, can affect FDI inflows.

FDI can raise productivity, transfer technology and skills, create employment, and expand capital formation in host economies. It can also influence the balance of payments and export performance. Critics warn of potential risks, such as crowding out domestic firms, profit repatriation, and sensitivity to global shocks. Policymakers use investment incentives, treaties, and dispute-settlement mechanisms to attract and regulate FDI while safeguarding national interests.