ABSTRACT
The last decade has seen a dramatic increase in foreign direct investment (FDI), defined as ownership and (normally) control of a business or part of a business in another country. Foreign direct investment is usually distinguished from portfolio investment, where a foreign actor purchases securities in a domestic company solely to earn a financial return, without any intent to own, control or manage the domestic firm.1 Foreign direct investment generally takes one of ‘three forms: an infusion of new equity capital such as a new plant or joint venture; reinvested corporate earnings; and net borrowing through the parent company or affiliates’.2 According to UNCTAD,
The global FDI stock, a measure of the investment underlying international production increased fourfold between 1982 and 1994; over the same period it doubled as a percentage of world gross domestic product to 9 per cent. In 1996, the global FDI stock was valued at $3.2 trillion. Its rate of growth over the past decade (1986-96) was more than twice that of fixed capital formation, indicating an increasing internationalization of production systems. The worldwide assets of foreign affiliates, valued at $8.4 trillion in 1994 also increased more rapidly than world gross fixed capital formation…. Unlike the two previous investment booms in 197981 and 1987-90 (the first one being led by petroleum investments in oil producing countries and the second one being concentrated in the developed world) the current boom is characterized by considerable developing-country participation on the inflow side, although it is driven primarily by investments originating in just two countriesthe United States and the United Kingdom.
