Foreign Direct Investment. Introduction

Course Contents   (FDI)

1. Introduction to the Foreign direct investment (FDI)
2. Foreign Direct Investment Outlook.
3. World Trade Organization and Foreign Direct Investment. Agreement on Trade-Related Investment Measures (TRIMs)
4. OECD and the Foreign Direct Investment
5. European Union Policy on Foreign Direct Investment
6. The Multilateral Investment Guarantee Agency's (MIGA)
7. Appendices: Index of Economic Freedom (Heritage). FDI Atlas. Foreign Direct Investment and Developing Countries.

Summary

Foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (‘‘direct investor’’) in an entity resident in an economy other than that of the investor (‘‘direct investment enterprise’’).

The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise.

Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated.

OECD recommends that a direct investment enterprise be defined as an incorporated or unincorporated enterprise in which a foreign investor owns 10 per cent or more of the ordinary shares or voting power of an incorporated enterprise or the equivalent of an unincorporated enterprise.

Global foreign direct investment (FDI) inflows grew in 2007 to an estimated US$1.5 trillion, surpassing the previous record set in the year 2000. FDI flows to developed countries in 2007 grew for the fourth consecutive year, reaching US$1 trillion. Flows were particularly buoyant in the United Kingdom, France, and the Netherlands. The United States maintained its position as the largest single FDI recipient. The European Union (EU) as a whole continued to be the largest host region, attracting almost 40% of total FDI inflows in 2007. However, several risks to the world economy -- most of them not new -- may have implications for FDI flows to and from developed countries in 2008.

• In Africa, FDI inflows in 2007 remained relatively strong. The unprecedented level of inflows (US$36 billion) was supported by a continuing boom in global commodity markets.
• FDI inflows to Latin America and the Caribbean, meanwhile, rose by 50% to a record level of US$126 billion. Significant increases were recorded in the region´s major economies, especially Brazil, Chile and Mexico, where inflows doubled.
• FDI inflows to South, East and South-East Asia, and Oceania maintained their upward trend in 2007, reaching a new high of US$224 billion, an increase of 12% over 2006. More than half of all FDI to developing countries went to these economies. At the subregional level, there was a further shift towards South and South-East Asia, although China and Hong Kong (China) remained the two largest recipients in the region.
• In West Asia, overall FDI inflows declined by 12%. Turkey and oil-rich Gulf States continued to attract the most, but geopolitical uncertainty in parts of the region affected FDI overall.
• FDI to South-East Europe and the CIS, or transition economies, expanded significantly, by 41%, to a new record of US$98 billion. This was the seventh year of uninterrupted growth of FDI in the region. Inflows almost doubled to the region´s largest recipient, the Russian Federation (Russia).

 (Source: UNCTAD)

OECD gathers and analyses detailed statistics on international direct investment and publishes statistics and reports on aid and other resource flows to developing countries and countries in transition and related matters. OECD Guidelines for Multinational Enterprises are recommendations addressed by governments to multinational enterprises operating in or from adhering countries. The 2002 United Nations Monterrey Consensus ascribes critical importance to mobilizing private investment, both domestic and foreign, for achieving the development objectives of the Millennium Declaration.

The Agreement on Trade-Related Investment Measures (“TRIMs Agreement”), one of the Multilateral Agreements on Trade in Goods, prohibits trade-related investment measures, such as local content requirements, that are inconsistent with basic provisions of GATT 1994.

While being one of world’s biggest investors, the European Union considers Foreign Direct Investment (FDI) as a key means to promote development and economic and social growth. The European policy on investment develops in consistency with the existing international rules that are most relevant to this area, i.e. the WTO General Agreement on Trade in Services (GATS), the Guidelines for Multinational Enterprises developed in the OECD framework, and other OECD instruments.

The Multilateral Investment Guarantee Agency's (MIGA). As a member of the World Bank Group, MIGA's mission is to promote foreign direct investment (FDI) into developing countries to help support economic growth, reduce poverty, and improve people's lives.

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