foreign direct investment Characteristics

Foreign Direct Investment (FDI) is the financial investment giving rise and sustaining over time the investor's significant degree of influence on the management of the affiliate.


The initial investment can be the purchase of an existing firm (by acquisition or by merger, the so-called "M&A") as well as the foundation of a new legal entity who usually - but not necessarily - makes a green-field real investment (e.g. building a factory) in the foreign country.

In a broader definition, FDI consists of the acquisition or creation of assets (e.g. firm equity, land, houses, oil-drilling rigs,...) undertaken by foreigners. If in these enterprises they are not alone but act together with local firms and/or governments, one talks of "joint ventures".


A country outflows of FDI means that it is "exporting money" to "buy" or "build" foreign productive capacity, whose ownership will remain in the first country's hands.


For a country, attracting an inflow of FDI strengthen the connection to world trade networks and finance its development path. However, unilateral massive FDI to a country can make it dependent on the external pressure that foreign owners might exert on it.


Since it is through FDI that a firm becomes a multinational, one could say that the it's the FDI process that generates MNC (multinational companies). The reverse is also true: firms that are already multinational generate the majority of FDI flows.