Define Foreign Direct Investment

I will begin this section by defining foreign direct investment as well as economic growth, following that I will provide a brief history of foreign direct investment (FDI), covering a timespan over three decades from 1980 – 2012. This will portray the severe journey FDI has taken over the last three decades, through booms and busts. Using existing literature I will analyze the effect of the attitude of attracting FDI into the country through government policy and incentives.

Foreign investment can be defined as a company or individual investing is tangible assets or ownership shares in a company located in a foreign host country. Once a company engages in foreign investment it becomes known as a multinational enterprise (MNE). Foreign investment can be made either directly or indirectly. Foreign direct investment (FDI) involves company’s investing in tangible assets such as land, buildings & factories, machines or other equipment in a foreign host country. There are two types of FDI, Greenfield and Brownfield investment. Greenfield investment involves a

GDP, GNP, GNI. Gross domestic product (GDP) is most commonly used, however, there are studies on whether GDP is the best measure of growth as it does not account for depreciation and deterioration as well as that, it only accounts for everything within the country and not any foreign investment they may have made within that time period. Gross national product (GNP) accounts for everything within the country as well as any income they have abroad. Some countries have a larger GNP than GDP such as the UK. But some countries particularly developing countries will have a larger GDP than GNP as they will have many multinational enterprises investing into their economy. Lastly, gross national income (GNI), accounts for all GNP calculations as well as net cross country income, which is any flows of capital between countries for example dividends or interest