How is "foreign direct investment" (FDI) defined?

Foreign direct investment (FDI) is defined as investment made by a company in one country into business interests in another country. This typically involves the investor acquiring a significant degree of influence or control over the foreign business operation, which can include physical assets, such as factories or offices, or establishing a new business entity in the foreign country. FDI is a critical component of international business as it allows for the transfer of capital, technology, and management knowledge across borders, and plays a significant role in global economic integration and development.

The focus on establishing or expanding business operations in a foreign country distinguishes FDI from other forms of investment, such as portfolio investment, which involves purchasing stocks or bonds without taking a significant management role. This characteristic underscores the strategic intent behind FDI as companies seek to capitalize on emerging market opportunities, access local resources, and tap into new consumer bases. The definition importantly captures how FDI facilitates globalization by allowing firms to operate internationally while remaining rooted in their home country.