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Foreign direct investment

From Wikipedia, the free encyclopedia

Foreign direct investment (FDI) refers to long term participation by country A into country B. It usually
involves participation in management, joint-venture, transfer of technology and "know-how". There are
two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in
a net FDI inflow (positive or negative).

Contents
[hide]

• 1 History

• 2 Types

• 3 Methods

• 4 Debates about the benefits of FDI for low-income

countries

• 5 Foreign direct investment in the United States

• 6 Foreign direct investment in China

• 7 References

• 8 External links

[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. Figure below shows 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, Western Europe and Japan). But flows to non-industrialized countries are
increasing sharply.

US International Direct Investment Flows:[1]

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]Types

A foreign direct investor may be classified in any sector of the economy and could be any one of the
following:[citation needed]

 an individual;
 a group of related individuals;
 an incorporated or unincorporated entity;
 a public company or private company;
 a group of related enterprises;
 a government body;
 an estate (law), trust or other societal organisation; or
 any combination of the above.

[edit]Methods

The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy
through any of the following methods:

 by incorporating a wholly owned subsidiary or company


 by acquiring shares in an associated enterprise
 through a merger or an acquisition of an unrelated enterprise
 participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:[citation needed]

 low corporate tax and income tax rates


 tax holidays
 other types of tax concessions
 preferential tariffs
 special economic zones
 investment financial subsidies
 soft loan or loan guarantees
 free land or land subsidies
 relocation & expatriation subsidies
 job training & employment subsidies
 infrastructure subsidies
 R&D support
 derogation from regulations (usually for very large projects)

[edit]Debates about the benefits of FDI for low-income countries


Some countries have put restrictions on FDI in certain sectors. India, with its restriction on FDI in the retail
sector is a good example. [2] In a country like India, the “walmartization” of the country could have
significant negative effects on the overall economy by reducing the number of people employed in the
retail sector (currently the second largest employment sector nationally) and depressing the income of
people involved in the agriculture sector (currently the largest employment sector nationally).