Question

A foreign direct investment is acquiring certain “…assets with the intent to control and manage them.”  (International Business, 2012). These types of investments are long term, as the time, money and resources that are put into acquiring them are vast! A “foreign direct investment is when an individual or business owns 10% or more of foreign company…it [is] part of his or her stock portfolio.” (Amadeo, 2018).

Foreign direct investment helps countries thrive that have them within it. These operations aid the communities that they are in by providing work to their citizens, cash flow in the community, and stability for numerous reasons. According to the article, Foreign Direct Investment, Its Pros, Cons, and Importance to You: How FDI Affects Your Life, written by Kimberly Amadeo, it states that,

“In 2017, global foreign direct investment was $1.52 trillion, according to the United Nations. The FDI is down 16 percent from 2016's record of $1.8 trillion. The decline was due to a 27 percent drop in developed countries. Investments returned to normal levels in the United States after spiking in 2016…In 2017, developing countries received 37 percent of total global FDI. They received 43 of worldwide investment. Investments rose 2 percent in Asia, the largest recipient region in the world”.

There are several types of direct foreign investments. To name a few there is an outward FDI, which is money coming into a country and outward FDI, which is a company who expands into another country, also sometimes known as a greenfield investment. "Horizontal FDI investment occurs when a company is trying to open up a new market...A vertical FDI is when a company invests internationally to provide input into its core operations--usually into its home country."

Please respond in 100-150 words

Answer 1

Foreign Direct Investment has been a hot topic, especially after the globe accepted the ideology of being a single market which allows level playing field to everyone in trade. FDI offers key value to all participants i.e. the country in which it is being done and the county where it originates from.

Through FDI, companies can create value by reducing their overall costs of operations, as in case of Vertical FDI in which they reduce their input costs by investing in some other country which can allow inputs at a lesser costs, or other options such as outward foreign direct investment through which companies create opportunities outside their originating country due to market stagnation or other benefits. While, all around the globe foreign direct investment has rapidly grown, the Asian counterparts have seen the largest amounts because of the higher availability of manpower at a cheaper rate example countries such as China and India.

It is thus to be noted, that foreign direct investment in all forms has resulted in capital inflows and encouraged creation of jobs as long as it has laws to prevent exploitation, it will serve as the guiding force for development in an economy respectively. This can be done through various means as explained above which are horizontal, vertical, inward or outward Foreign Direct Investment respectively.

Please feel free to ask your doubts in the comments section if any.