15 March 2012

FDI

Foreign Direct Investment (FDI) is one of the major economic driver of globalization. FDI inflows represent investment originating from foreign economies, while a country's FDI outflows represent a country's investments placed outside of its borders.1

FDI inflows depend on several factors, including policy framework, business facilitation and economic determinants. More specific research shows that to the main drivers of investment decision in the current economic climate belong: access to new market, building up capacity to prepare for the economic rebound, low M&A target prices, cutting costs, hedge for current business' regional exposure, financial subsidies, tax exemptions.2 In general number of FDI inflows shows measurable
attractiveness of the country in a global competition.

The following figure shows 20 economies, which are the top hosts of FDI inflows in 2009 and 2010.


Source: UNCTAD, World Investment Report 2011, New York and Geneva, 2011, page 4.

According exact definition prepared by OECD Foreign Direct Investment is a category of investment that reflects the objective of establishing a lasting interest by a resident enterprise in one economy (direct investor) in an enterprise (direct investment enterprise) that is resident in an economy other than that of the direct investor. The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence on the management of the enterprise. The direct or indirect ownership of 10% or more of the voting power of an enterprise resident in one economy by an investor resident in another economy is evidence of such a relationship.3

Among several classifications of Foreign Direct Investment, the main types of FDI are:
  • greenfield investments,
  • mergers and acquisition,
  • participating in an equity joint venture with another investor or enterprise.

A complexity of the business activity causes difficulties connected with right classification and measurement of FDI inflows and outflows. One of the attempts to systematize the issue is in-depth analysis prepared by the OECD - Benchmark Definition of Foreign Direct Investment: Fourth Edition (2008).

The table below presents FDI inflows and outflows in 2010 divided into developed and developing countries.

Region
FDI inflows
FDI outflows
Developed countries
601 906
935 190
Developing countries
573 568
327 564
World
1 243 671
1 323 337
Source: UNCTAD, World Investment Report 2011, New York and Geneva, 2011, page 187-190.

Detailed information about countries, their specifications and their incentives for foreign investors are provided by:
20 largest economies in the world as well as their inflows and outflows of FDI in 2010 are presented below.

Country
GDP Rank
FDI inflows
millions of dollars
FDI outflows
millions of dollars
United States
1
228 249
328 905
China
2
105 735
68 000
Japan
3
-1 251
56 263
Germany
4
46 134
104 857
France
5
33 905
84 112
United Kingdom
6
45 908
11 020
Brazil
7
48 438
11 519
Italy
8
9 498
21 005
Canada
9
23 413
38 585
India
10
24 640
14 626
Russia
11
41 194
51 697
Spain
12
24 547
21 598
Australia
13
32 472
26 431
Mexico
14
18 679
14 345
South Korea
15
6 873
19 230
Netherlands
16
-16 141
31 904
Turkey
17
9 071
1 780
Indonesia
18
13 304
2 664
Switzerland
19
-6 561
58 253
Poland
20
9 681
4 701
Source: UNCTAD, World Investment Report 2011, New York and Geneva, 2011, page 187-190.

References:
1. www.cnbc.com/id/33230032/Countries_with_the_Most_Foreign_Direct_Investment , 28.02.2012.
2. A.T. KEARNEY, Investing in a rebound – the 2010 A.T. KAERNEY FDI Confidence Index, p. 4.
3. OECD, Benchmark Definition of Foreign Direct Investment: Fourth Edition,  2008, p. 234.
Posted by GB at 12:00 PM

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