Foreign Direct Investment Essay

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What is Foreign Direct Investment (FDI)? n A source of capital and investment involving foreign control of production A source of exploitation? A channel of technology transfer and industrial development? AMIT SHARMA n n What is FDI…? n n n n Foreign direct investment (FDI) is defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based. The FDI relationship, consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent AMIT SHARMA for an unincorporated firm. Types of FDI n n Greenfield n direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. downside of Greenfield investment is that profits from production do not feed back into the local economy, but instead to the multinational's home economy. This is in contrast to local industries whose profits flow back into the domestic economy to promote growth. AMIT SHARMA investment: Types of FDI Continued………. n Mergers and Acquisition transfers of existing assets from local firms to foreign firms takes place; the primary type of FDI. n Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. n AMIT SHARMA Types of FDI Continued………. n n

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