fdi-definition and explanation

Topics: Investment, Macroeconomics, United States Pages: 3 (719 words) Published: February 22, 2014
Theories regarding FDI,FII,EQUITY FLOW,DEBT FLOW and CAD

Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans".[1] In a narrow sense, foreign direct investment refers just to building new facilities As a part of the national accounts of a country, and in regard to the GDP equation Y=C+I+G+(X-M)[Consumption + gross Investment + Government spending +(eXports - iMports], where I is domestic investment plus foreign investment, FDI is defined as 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. FDI is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. FDI 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 excludes investment through purchase of shares.[3] FDI is one example of international factor movements.

The current account is a part of the Balance of Payment of any economy and includes four major categories: Trade in Goods
Trade in services
Income (Salaries and investments income)
Unilateral Transfers(worker’s remmitance)

Basic Relationship:

Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then finance minister...
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