Foreign direct investment

Foreign direct investment
Wikideas1 · CC0 · source
Name	Foreign direct investment
Type	International capital flows
Founded	Ancient to modern eras
Main location	Global
Key people	John Maynard Keynes; Adam Smith; Alexander Hamilton; David Ricardo; Milton Friedman
Products	Cross-border investment; multinational enterprises

Contents

Foreign direct investment is cross-border capital committed by one jurisdiction's resident entity to acquire lasting interest in an enterprise located in another jurisdiction. It underpins the international expansion of multinational corporations such as Apple Inc., Toyota Motor Corporation, Unilever, Nestlé, Samsung Electronics and influences capital markets like the New York Stock Exchange, London Stock Exchange, Tokyo Stock Exchange, Shanghai Stock Exchange and Euronext. Policymakers from institutions including the International Monetary Fund, World Bank, World Trade Organization, Organisation for Economic Co-operation and Development and regional bodies such as the European Union, Association of Southeast Asian Nations and African Union frame strategies and rules affecting these flows.

Definition and types

Scholars and agencies distinguish between equity-based investment and reinvested earnings, classifying transactions as greenfield investments, mergers and acquisitions or portfolio allocations by investors like BlackRock, Vanguard Group, Berkshire Hathaway and SoftBank. Classification schemes from the United Nations Conference on Trade and Development and the International Monetary Fund separate intra-company loans from minority equity stakes, with thresholds influenced by legal precedents such as rulings of the European Court of Justice and national statutes like the Investment Canada Act and the Committee on Foreign Investment in the United States reviews.

Over centuries, patterns shifted from medieval trade networks centered on cities like Venice, Genoa and Antwerp to colonial-era capital movements involving empires such as the British Empire, Spanish Empire, Dutch East India Company and the Portuguese Empire. The 19th century saw expansion of finance houses in London and Paris, financing railways and infrastructure in Argentina, Australia and India. Post-World War II reconstruction driven by policies from figures like John Maynard Keynes and institutions such as the International Bank for Reconstruction and Development transformed flows, while the late 20th century's neoliberal reforms associated with leaders like Margaret Thatcher and Ronald Reagan and agreements like the General Agreement on Tariffs and Trade and later North American Free Trade Agreement accelerated global mergers among firms including General Electric, Siemens, BP, Shell and ExxonMobil. The 21st century witnesses rising outward flows from China, India, Brazil and South Korea, with new actors like Tencent, Alibaba Group, Bayerische Motoren Werke AG and sovereign investors such as Abu Dhabi Investment Authority and Norwegian Sovereign Wealth Fund.

Firms cite access to markets exemplified by European Single Market entry, search for resources in regions like Congo Basin or Gulf Cooperation Council states, and pursuit of technologies via acquisitions from Intel Corporation or ARM Holdings. Determinants include regulatory frameworks influenced by treaties like the Energy Charter Treaty and incentives from entities such as State-owned Assets Supervision and Administration Commission of the State Council or national agencies like Invest India and UK Department for International Trade. Macro factors highlighted by researchers at Harvard University, London School of Economics, Massachusetts Institute of Technology and Stanford University include exchange rates, tax regimes in jurisdictions such as Ireland, Luxembourg and Switzerland, and political risk considerations seen in cases like Argentina 2001 crisis and Venezuela nationalizations.

Mechanisms range from greenfield projects and cross-border mergers and acquisitions to joint ventures with partners like Tata Group or Huawei Technologies and contractual forms such as build–operate–transfer agreements used in infrastructure projects with firms like Bechtel or Vinci. Financial instruments include equity stakes, intra-company loans, royalty and licensing arrangements found between Microsoft and regional developers, and complex structures using entities in Cayman Islands, Bermuda and Luxembourg for tax planning. State actors employ sovereign wealth funds like Temasek and Qatar Investment Authority to secure strategic assets.

Proponents cite productivity gains demonstrated in studies from OECD and World Bank and technology transfer in sectors dominated by Boeing, Airbus, Siemens Gamesa and BASF. Critics highlight crowding-out concerns raised during debates in United States, Brazil and South Africa, profit repatriation scandals involving companies like Enron and Glencore, and disputes adjudicated in fora such as the International Centre for Settlement of Investment Disputes and panels under Bilateral investment treaties and Investor-state dispute settlement mechanisms. Environmental and social controversies have arisen around projects near Amazon Rainforest, extractive operations in Democratic Republic of the Congo, and infrastructure linked to disputes over Three Gorges Dam and urban redevelopment in Shanghai and New York City.

National screening regimes operate in jurisdictions including the United States, Canada, Australia and China, coordinated with multilateral rules from World Trade Organization agreements and investment chapters in accords like Comprehensive and Progressive Agreement for Trans-Pacific Partnership and United States–Mexico–Canada Agreement. Regulatory debates engage institutions such as the Organisation for Economic Co-operation and Development with instruments like the Base Erosion and Profit Shifting project, and regional tribunals such as the European Court of Justice address matters of free movement and competition involving firms including Google LLC, Amazon.com, Inc. and Facebook.

Data compilation is conducted by organizations like United Nations Conference on Trade and Development, International Monetary Fund, World Bank and national statistical offices including the U.S. Bureau of Economic Analysis and China National Bureau of Statistics. Key metrics include inward and outward stock and flow series, balance-of-payments items tracked by the Balance of Payments Manual and country-by-country reports used by tax authorities in United Kingdom, Australia, Germany and Japan. Empirical research draws on firm-level databases such as ORBIS, Compustat, Worldscope and surveys by McKinsey Global Institute and Bain & Company.

Category:International investment