INTERNATIONAL INVESTMENT

INTERNATIONAL FINANCIAL FLOWS (CONT.)

Slides by Cao Thi Hong Vinh – FTU

1

Official Flows FOREIGN AID

Private Flows

ODA

OA

OOFs

FDI

fpi

Private loans

Grants

Concessional loans

Non-Concessional Loans

Porftolio Equity Flows

Bond Debt Flows

Commercial Loans

Bond Debt Flows X 2
05/04/2012 2

PRIVATE FLOWS  Foreign direct investment (FDI)  Foreign portfolio investment (FPI)  (International) private loans (IPL) .

Definition OECD Benchmark Definition of FDI: Foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (‘‘direct investor’’) in an entity resident in an economy other than that of the investor (‘‘direct investment enterprise’’) .FDI .

A significant degree of influence on the management of the enterprise Via ownership of ≥ 10% voting power of incorporated enterprise.The existence of a long-term relationship .FDI – Definition (cont. or equivalent of an unincorporated enterprise .) Lasting interest: .

their owners are personally liable.FDI – Definition (cont. .asp?ID=2800 . .An unincorporated enterprise is a producer unit which is not incorporated as a legal entity separate from the owner (household. Unincorporated enterprises OECD definition: http://stats. the enterprises as such cannot engage in transactions with other economic units nor can they enter into contractual relationships with other units nor incur liabilities on their own behalf. government or foreign resident).the fixed and other assets used in unincorporated enterprises do not belong to the enterprises but to their owners.) Incorporated vs. for any debts or obligations incurred in the course of production. without limit.org/glossary/detail. .oecd.

.org/glossary/detail. Unincorporated enterprises OECD definition: http://stats. created for the purpose of producing goods or services for the market.oecd.asp?ID=455 An incorporated enterprise (or a corporation) is a legal entity.) Incorporated vs.FDI – Definition (cont. it is collectively owned by shareholders who have the authority to appoint directors responsible for its general management. that may be a source of profit or other financial gain to its owner(s).

Unincorporated enterprises Formation cost Formality level Liability Taxation Ease of raising capital - - .) Incorporated vs.FDI – Definition (cont.

) Vu Chi Loc (1997): Foreign direct investment is the category of international investment that an investor in one country invest the whole or a substantial part of a project's capital amount in another country to control or join in controlling activities of that project.FDI – Definition (cont. .

FDI – Characteristics A voice in management Threshold-equity ownership .Vietnam .OECD (IMF) .UNCTAD .

FDI – Characteristics (cont.) Return of investors Technology transfer .

FDI – Components Equity capital Reinvested earnings Other capital .

I. (2002).Types of FDI Moosa. Foreign Direct Investment: Theory. Evidence and Practice Perspectives of investor: + Horizontal FDI: to produce the same or similar kinds of products abroad (in host country) as in home country 13 .A.

): + Vertical FDI: . Exploit raw materials (Backward vertical FDI) or .Types of FDI (cont. Be nearer to the consumers through the acquisition of distribution outlets (Forward vertical FDI) + Conglomerate FDI: Manufacture products not manufactured by the parent company at home 14 .) Perspectives of investor (cont.

Types of FDI (cont.) Perspectives of host country: + Import-substituting FDI + Export-increasing FDI + Government-initiated FDI 15 .

Modes of FDI entry Greenfield vs. M&A Greenfield: (UNCTAD) undertaken to set up a new production venture in a host country 16 .

) M & A: (UNCTAD) Investing firm merge with or acquire an existing firm  transfer of assets from domestic to foreigner investors 17 .Modes of FDI entry (cont.

18 . Merger: Assets and operations of two firms are combined to set up a new legal entity.) M & A: (UNCTAD) - - Acquisition: transfer of assets and operations from a local to a foreign company.Modes of FDI entry (cont.

gains via synergies.Modes of FDI entry (cont. production capacity. risk reduction…) 19 . profit) + strategic assets. + others (market.) M & A: (UNCTAD) - Advantages: + speed of attaining desired goals (market.

Modes of FDI entry (cont.) 20 . + social...): . lay-offs and closing. identity..(culture.Concerns: + economic (no productive capacity.). sovereignty.) M & A (cont. dominance.

excluding any such instruments that are classified as direct investment or reserve assets .FPI – Definitions IMF. Balance of Payment: Portfolio investment is the category of international investment that covers investment in equity and debt securities.

) Vu Chi Loc (1997). .FPI – Definitions (cont. Foreign Investment: Foreign portfolio investment is the category of international investment that an investor in one country buy securities of enterprises in another country equal to or below a certain threshold to gain profit but not control those security issuers.

Return of investors .FPI – Characteristics .No voice in management Sornarajah (2004) UNCTAD .

) .Less stable .FPI – Characteristics (cont.No technology transfer .

. Foreign Investment: International Private Loan is the category of international indirect investment that investors lend their money and gain profits via interest.IPL – Definitions Vu Chi Loc (1997).

Relation between investors and recipients .Usage right of invested money .Return of investor .IPL – Characteristics .

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