11.5.4—Foreign Direct Investment

Foreign direct investment (FDI) is investment that gives an investor a lasting interest and significant control in a business in another country. It differs from a short-term purchase of shares.

FDI can add capital, jobs, technology, management and export links. Host outcomes depend on local suppliers, skills, tax arrangements, environmental rules, competition and whether profits are reinvested or repatriated.

A foreign car plant may train local workers and suppliers, but if it imports nearly every input and repatriates profits, domestic value added is smaller than its gross sales.

FDI is not automatically a net benefit or a transfer of the whole firm’s sales to the host country; trace the income and spillovers.