Foreign direct investment
From Wikipedia, the free encyclopedia
Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. [1]Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.[2] The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.[3]
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[edit] History
Foreign direct investment (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. Maps below show net inflows of foreign direct investment as a percentage of gross domestic product (GDP). The largest flows of foreign investment occur between the industrialized countries (North America, North West Europe and Japan). But flows to non-industrialized countries are increasing.
US International Direct Investment Flows:[4]
| 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 |
[edit] Opposition
In the US, in the late 1960s and early 1970s, outward investment became increasingly politicized. Organized labor, convinced that investment abroad exported jobs, undertook a major campaign to reform the tax provisions which affected foreign direct investment. The Foreign Trade and Investment Act of 1973 (or the Burke-Hartke Bill) would have eliminated both the tax credit and tax deferral. The Nixon Administration, influential members of Congress of both parties, and well-financed lobbying organizations came to the defense of the multinational. The massive counterattack of the multinational corporations and their allies defeated this first major challenge to their interests.[5]
[edit] See also
- List of countries by received FDI
- International investment position
- International Centre for Settlement of Investment Disputes
- Foreign Affiliate Trade Statistics
- World Association of Investment Promotion Agencies
- Articles on international trade organizations
[edit] References
- ^ Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 551. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.
- ^ Foreign Direct Investment, United Nations Conference on Trade and Development, www.unctad.org
- ^ International Monetary Fund (IMF), 1993. Balance of Payments Manual, fifth edition (Washington, DC).
- ^ http://www.bea.gov/international/xls/table1.xls
- ^ Gilpin, R. (1986) U.S. Power and the Multinational Corporation- The Political Economy of Foreign Direct Investment. New York: Basica Books, Inc., Publishers
