Vol. 2, Issue 8, Part B (2016)

FDI are investments made by residents of one economy with the objective of establishing a lasting interest in a company located in another economy (host economy). With `lasting interest’ we mean both the existence of a long-term relationship and a degree of ownership of the foreign firm. In statistics, ownership of at least 10 percent of the ordinary shares in US, India etc. and 25 per cent in Britain has been the criterion for the existence of a direct investment relationship. Ownership of less than 10 percent is considered as a portfolio investment. The presence of foreign investors means that firms controlled by foreigners produce part of domestic output. Foreign direct investment has grown at rates far beyond those of international trade since the late 1980s. Especially in the second half of the 1990s, firms were exceptionally active in cross border Mergers and Acquisitions (M&A). The outstanding global stock of FDI more than doubled in ten years time from 8.3 percent of world output in 1990 to 17.5 percent in 2000. It is conceivable that the larger presence of FDI is partly responsible for the observed increase in cross-country business.

FDI refers to the purchase by the citizens of one country of non-financial assets in another country. Foreign direct investment involves the acquisition or establishment of a firm, company or enterprise in a country outside of the registered corporate home country. FDI in real estate involves acquisition of land or building across all commercial, residential and retail segments. Any construction activity is also included in FDI.