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Types of FDI

Types of FDI

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Published by Sachin Kumar Bassi

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Published by: Sachin Kumar Bassi on Apr 19, 2011
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05/20/2013

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Types of FDI 
By Direction
InwardInward foreign direct investment is when foreign capital is invested in local resources.Inward FDI is encouraged by:> Tax breaks, subsidies, low interest loans, grants, lifting of certain restrictions> The thought is that the long term gain is worth short term loss of incomeInward FDI is restricted by:> Ownership restraints or limits> Differential performance requirementsOutwardOutward foreign direct investment, sometimes called "direct investment abroad", is whenlocal capital is invested in foreign resources.Outward FDI is encouraged by:> Government-backed insurance to cover risk Outward FDI is restricted by:> Tax incentives or disincentives on firms that invest outside of the home country or onrepatriated profits> Subsidies for local businessesBy TargetGreenfield investmentMain article: Greenfield investmentDirect investment in new facilities or the expansion of existing facilities. Greenfieldinvestments are the primary target of a host nation’s promotional efforts because theycreate new production capacity and jobs, transfer technology and know-how, and canlead to linkages to the global marketplace. The Organization for International Investmentcites the benefits of greenfield investment (or insourcing) for regional and nationaleconomies to include increased employment (often at higher wages than domestic firms);investments in research and development; and additional capital investments. Criticism of the efficiencies obtained from greenfield investments include the loss of market share for competing domestic firms. Another criticism of greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinational'shome economy. Critics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy.Mergers and AcquisitionsMain article: Mergers and AcquisitionsTransfers of existing assets from local firms to foreign firms takes place; the primary typeof FDI. Cross-border mergers occur when the assets and operation of firms from differentcountries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign

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