Foreign Direct Investment (Fdi) Essay

694 WordsAug 14, 20153 Pages
1. Foreign Direct Investment (FDI): FDI occurs when a firm invests directly in new facilities to produce and market in a foreign country. Once a firm undertakes FDI, it becomes a Multinational Enterprise (MNE).  FDI takes on two main forms: 1. Greenfield Investment 2. Acquisitions or Mergers(M&As) 1. Greenfield Investment: it involves the establishment of a wholly new operation in a foreign country. 2. Acquisitions or Mergers(M&As): with existing firms in a foreign country  Outflow of FDI: are the flows of FDI out of a country while inflows of FDI into a country.  The stocks of FDI: refers to the total accumulated value of foreign-owned assets at a given time. 2. Patterns of FDI:  Both the flow & stock of FDI have increased over the last 30 years • Most FDI is targeted towards developed nations • South, east, and Southeast Asia- China- and Latin America are emerging.  FDI has grown more rapidly than world trade and world output • Democratic political institution and free market economies have encouraged FDI. • Globalization is forcing firms to maintain a presence around the world.  FDI is a important source of capital investment and a determinant of the future economic growth. 3. Sources of FDI: Since World War 2, the U.S has been the largest sources country for FDI.  The United Kingdom, the Netherland. France, Germany, and Japan are other important source countries.  Together, these countries account for 56% of all FDI outflows from 1998-2006, and 61% of the total global stock of FDI in 2007. 4. The form of FDI: Acquisitions vs. Greenfield investments: FDI can take the form of a Greenfield investment in a new facility or an acquisition of or a merger with and existing local firm. The data suggest the majority of cross-border investment is in the form of mergers and acquisition rather than Greenfield investments. First,

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