Foreign Direct Investment

Definition
A foreign direct investment is an investment in the form of a controlling
ownership in a business in one country by an entity based in another country.
It is thus distinguished from a foreign portfolio investment by a notion of
direct control. 
Explanation

Business Venture

Mergers & Acquisitions

FDI = Equity Capital+ Short Term Capital
+ Long Term Capital
Stock of FDI
Outward FDI – Inward FDI
Polycentric Attitude
FPI is different from FDI
A submissive investment in the securities
of another country such as public stocks
and bond
FDI is different from
Portfolio Investment
When companies put their money into
assets in another country
With FDI, Companies bring
Money
Knowledge
Skills
Technology
 Spillover Effect

(Hot Money)
Breaking down FDI
FDI is made in Open Economies(mostly)
Open Economies provide:
Skilled Labour
High Investment
High Growth Rate
US Bureau of Economic Analysis
FDI in US(2016)
$373.4 Billion, 15% decrease
Acquisitions made $365.7 Billion, a new
FDI type
Greenfield Investments made,
$7.7 Billion
 Background

Neo Classical Theory by Old Economists

Theories were based on the classical theory of trade in which the motive
behind trade was a result of the difference in the costs of production of goods
between two countries, focusing on the low cost of production as a motive for
a firm’s foreign activity
Internalization Challenge
Three Main Principles
Absolute Cost Advantages
Product Differentiation Advantages
Economies of Scale
(Neoclassical theories were created under the assumption of the existence of
perfect competition)
Hymer’s Theory
Exposed deficiency of Neo Classical
Focused on Filling Gaps regarding
International Investment
Approached Investment from Firm-
Specific point of view
Determinants proposed by Hymer of
FDI
Firm-specific advantages
Removal of conflicts
Propensity to formulate an
internationalization strategy to mitigate
risk
FDI in Pakistan
Average value of FDI net inflows as a
percentage of GDP is 0.76
Current Exchange Rate can be controlled
if FDI is attracted
Average value of FDI net inflows are
lower than neighbours
In 1973, only year, net inflows of FDI as a
percentage of GDP was negative(-0.063)
The graph indicates that in 2007, the value
was at its maximum, 3.67
Drastic decline in FDI net inflows as a percentage of GDP is due to,

political uncertainty
Terrorism, and
a weak foreign policy
continuous energy shortfalls,
rising cost of doing business,
consistent devaluation of the currency and
crowding out local investors from the market
During 2008-09,
 Pakistan’s FDI decreased
 India attracted $47 Billion
Even Bangladesh attracted more FDI
From 2015-17,
FDI increased mainly due to China’s investment in CPEC
Foreign Direct Investment in Pakistan
increased by 3434.90 USD Million in
2017. Foreign Direct Investment in
Pakistan averaged 2807.85 USD Million
from 2010 until 2017, reaching an all-time
high of 3434.90 USD Million in 2017 and
a record low of 2099.10 USD Million in
2012. (Trading Economics)
FDI in India
There are two routes by which India gets
FDI
Automatic Route
Government Route
Government Initiatives
The Government of India has amended FDI
policy
In 2014, FDI upper limit increased from
26% to 49% in insurance sector
Make in India Initiative was launched
FDI policy for 25 sectors was revised
In April 2015, FDI was increased by 48%
Ranking:
India was ranked 15th in FDI inflow in
2013
It got 9th in 2014
And became top destination for FDI
During 2014–15,
India received most of its FDI
from Mauritius, Singapore, Netherlands, 
Japan and the US
Sectors which were affected due to
initiatives,
 Infrastructure
 Automotive
 Pharmaceuticals
 Service
 Railways
 Chemicals
 Textile
 Airlines
Foreign Direct Investment in India
increased by 855 USD Million in
November of 2018.
Foreign Direct Investment in India
averaged 1328.99 USD Million from 1995
until 2018, reaching an all-time high of
8579 USD Million in August of 2017 and a
record low of -1336 USD Million in
November of 2017.
(Trading Economics)
 FDI in USA

US is an,
‘Open Economy’ &
low barriers to FDI
FDI in,
US totaled $194 Billion in 2010
84% of FDI in US came from 8 countries,
 Switzerland
 the United Kingdom
 Japan
 France
 Germany
 Luxembourg
 the Netherlands and
 Canada
Major FDI area is Real Estate, It got $92.2 Billion in 2013
5.7 Million White House workers depend on FDI
13% of the US manufacturing workforce depends on it
Average salary of such workers is $70K, 30% higher
Foreign Direct Investment in the United
States increased by 51938 USD Million in
the third quarter of 2018.
Foreign Direct Investment in the United
States averaged 25001.83 USD Million
from 1994 until 2018, reaching an all-time
high of 51938 USD Million in the third
quarter of 2018 and a record low of -9988
USD Million in the fourth quarter of 2001.
(Trading Economics)
 FDI in China
Also known as RFDI
Reached $19.1 Billion in first 6 months of
2012 as compared to $17.4 Billion of US
In 2013,
FDI inflow was $24.1 Billion, 34.7%
share of Asia-Pacific Market
FDI outflow was $8.97 Billion, 10.7%
share of Asia-Pacific Market
In 2016,
 FDI reached $127.27 Billion rose about
6.4% per year
China surpassed US in Assets acquisition
Europe was prime destination
It raised concerns in Europe due to
China’s Communist approach
Foreign direct investment into China declined
1.3 percent year-on-year to USD 115.54 billion
(CNY 793.27 billion) in January to November
of 2018.
In November alone, FDI into the country
slumped 26.3 percent from a year earlier to
CNY 92.11 billion. Foreign Direct Investment in
China averaged 439.46 USD HML from 1997
until 2018, reaching an all-time high of 1310.35
USD HML in December of 2017 and a record
low of 18.32 USD HML in January of 2000.
(Trading Economics)