Foreign Investments

16 Foreign Direct Investment and International Portfolio Investment

According to the classification of the balance of payment, there are three major channels of international economic linkages between nations around the globe – exports/imports, foreign direct investment (FDI) and international portfolio investment (IPI). The latter two channels of international economic linkages, i.e., FDI and IPI, have become increasingly important and significant in the last two decades in the name of globalisation, leading to the recommendation and installation of the international investment position statement that records primarily FDI and IPI activities. The entries to the international investment position are the same and consistent with the balance of payments financial account, so FDI and IPI activities are recorded and can be analysed both as stocks of, and as flows to/from, a country in the global economy. This chapter examines international investment in terms of FDI and IPI. It presents the recent profiles of international investment, discusses the channels, types and strategies of international investment and makes contract between them. We analyse international investment from the viewpoint of international economic linkages revealed by the balance of payments and the international investment position statement, taking into account opportunities, returns and risks involved in investing in foreign lands.

16.1 Recent Profiles of Foreign Direct Investment
As discussed in Chapter 4, FDI involves a significant degree of control and/or management in a corporation or other entities located in a foreign country with a long lasting interest. Estimation of FDI figures by the IMF involves three terms: direct investment enterprises, direct investors, and direct investment capital in foreign countries. Direct investment enterprises are defined as incorporated or unincorporated enterprises in which a direct investor who resides in another country owns 10 percent or more of...