What is foreign direct investment?

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Foreign Direct Investment is a long-term investment made by an enterpise that is situated in a foreign country. The following tyes of FDI exist:

Greenfield investment: when a new facility is set up or existing facilities are expanded. in this case the company sets up a factory in another county to produce goods. These type of investments usually benefit both the local country and the investor.

Mergers and Acquisitions are the other form of FDI, which are cross-boarder mergers or acquisitions. In case of mergers ompanies at two or many different countries merge into one company, while in case of acquisitions the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company.



there are two other types of FDI, based on the type of industry the investments are made. In case of Horizontal FDI the company invests into a similar industry as it is operating in in the home country, while in case of VERTICAL FDI the investment is made into a different industry, either to create imputs (backwards integration) or another industry that uses the outputs of the local industry (forward integration).

The reasons for FDI are:
Resource Seeking: such as cheap labour or resources.
Market Seeking: so as to penetrate new markets or maintaining existing ones. ]
Efficiency Seeking: by exploiting the benefits of economies of scale and scope.

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