When you finish this chapter, you should be able to: Recognize current trends regarding foreign direct investment (FDI) in the world economy, explain the different theories of FDI, understand how political ideology shapes a government's attitudes toward FDI, describe the benefits and costs of FDI to home and host countries,. | Global Business Today 6e by Charles . Hill McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 Foreign Direct Investment Introduction Question: What is foreign direct investment? Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country Once a firm undertakes FDI it becomes a multinational enterprise There are two forms of FDI A greenfield investment (the establishment of a wholly new operation in a foreign country) Acquisition or merging with an existing firm in the foreign country Foreign Direct Investment in the World Economy There are two ways to look at FDI The flow of FDI refers to the amount of FDI undertaken over a given time period The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time Outflows of FDI are the flows of FDI out of a country Inflows of FDI are the flows of FDI into a country Both the flow and stock of FDI in the world economy has increased over the last 20 years Foreign Direct Investment in the World Economy Historically, most FDI has been directed at the developed nations of the world, with the United States being a favorite target FDI inflows have remained high during the early 2000s for the United States, and also for the European Union South, East, and Southeast Asia, and particularly China, are now seeing an increase of FDI inflows Latin America is also emerging as an important region for FDI Foreign Direct Investment in the World Economy The majority of cross-border investment involves mergers and acquisitions rather than greenfield investments In the last two decades, there has been a shift towards FDI in services Theories of Foreign Direct Investment Question: Why do firms prefer FDI to either exporting (producing goods at home and then shipping them to the receiving country for sale) or licensing (granting a foreign entity the right to produce and sell the firm’s . | Global Business Today 6e by Charles . Hill McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 Foreign Direct Investment Introduction Question: What is foreign direct investment? Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country Once a firm undertakes FDI it becomes a multinational enterprise There are two forms of FDI A greenfield investment (the establishment of a wholly new operation in a foreign country) Acquisition or merging with an existing firm in the foreign country Foreign Direct Investment in the World Economy There are two ways to look at FDI The flow of FDI refers to the amount of FDI undertaken over a given time period The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time Outflows of FDI are the flows of FDI out of a country Inflows of FDI are the flows of FDI into a country Both the flow and stock
