Foreign Direct Investment

Topics: Foreign direct investment, Investment, Macroeconomics Pages: 10 (3276 words) Published: February 10, 2013
Foreign direct investment (FDI) is direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bond

Foreign direct investment can take on many forms and so sometimes the term is used to refer to different kinds of investment activity. Commonly foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intracompany loans."[1] However, foreign direct investment is often used to refer to just building new facilities orgreenfield investment, creating figures that although both labeled FDI, can't be side by side compared. As a part of the national accounts of a country, and in regard to the national income equation Y=C+I+G+(X-M), I is investment plus foreign investment, FDI refers to the net inflows of investment(inflow minus outflow) to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.[2] It is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward and outward, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludesinvestment through purchase of shares.[3] FDI is one example of international factor movements. foriegn direct investment is nothing but increase the country's economy . -------------------------------------------------

1. Horizon FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI.[4] 2. Platform FDI
3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.[4] Horizontal FDI decreases international trade as the product of them is usually aimed at host country; the two other types generally act as a stimulus for it.

Though India stands today as the largest democracy, its administrative as well as the political set up has many flaws and shortcomings. The Indian system of administration and governance is impregnated with flaws like shortages of power, bureaucratic hassles, political uncertainty, and infrastructural deficiencies .In spite of all these political shortcomings, India is perceived to be one of the most lucrative grounds for investing, in the eyes of the wealthy European as well as American investors. This is the true reason why the researches made into the sector establishes more and more foreign investors coming to India and investing liberally into the various sectors of the Indian economy. Various Indian market sectors have experienced a recent progress and boom, owing to the investment made in them as well as due to the relaxation of rules and regulations that had been levied on the foreign direct investment in India, by the Indian government. One of such sectors of the Indian economy, that has seen a sudden booming phase of prosperity and sustained growth, owing to these factors is the real estate as well as the construction business in India. It was the year of 2005, when the Indian Central government finally realized the economic prosperity that foreign direct investment in India would bring about. Thus, in an effort to encourage this, the government made a crucial amendment to some of the governing laws...
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