Foreign Direct Investment (FDI) is an active form of cross-border investment where an investor, company, or government from one country acquires a substantial stake in a foreign company or project. FDI is a key element in international economic integration because it creates stable and long-lasting links between economies. Here are some key points about FDI:
- FDI investors typically take controlling positions in domestic firms or joint ventures and are actively involved in their management.
- The investment may involve acquiring a source of materials, expanding a company’s footprint, or developing a multinational presence.
- FDI can be outbound, where a domestic firm invests in a foreign country, or inbound, where a country receives investment from a foreign firm.
- FDI benefits both the exporting country and the country where the investment takes place. Businesses in the exporting country experience increased access to markets for their products and services, lower labor costs, and access to a more skilled workforce. The host country sees higher employment and increased economic development and growth.
- FDI allows the transfer of technology, particularly in the form of new varieties of capital inputs, that cannot be achieved through financial investments or trade.
FDI is measured by FDI stocks, which measure the total level of direct investment at a given point in time, usually the end of a quarter or of a year. FDI data do not give a complete picture of international investment in an economy, as they do not include capital raised locally, an important source of investment financing in some developing countries.
