Foreign Direct

Investment

Meaning
It

refers to investment in a
foreign country where the
investor keeps control over the
investment.
It refers to acquiring ownership in
an overseas business entity. FDI
occurs when an investor based in
one country ( home country)
acquires an asset in another
country. ( host country) with an
intention to manage it.

Thus

FDI refers to an investment in a

foreign country that involves some
degree of control and participation in
management.
FDI are governed by long term
considerations because these
investments cannot be easily
liquidated. Hence factors like long term
political stability, government policy
economic prosperity etc influence the
FDI decisions.

The

returns of FDI are generally

in the form of profit i.e. retained
earnings, profits, dividends,
royalty payments management
fees etc.

Factors

influencing FDI:
Supply Factors: Firms invest
capital in foreign countries due to
lower costs of business in foreign

A.

Production Costs: Companies

invest in foreign countries in
order to get the benefits of lower
production costs like labour costs,
land prices, tax rates etc.
B. Logistics: if the transportation
cost from the domestic country to
a foreign market is high, the time
of transportation of the products
to a foreign market is long, then
the firms undertake FDI.

C.

Availability of natural
resources: companies locate their
production facilities close to the
source of critical inputs.
D. Access to key technology: In
order to have access to existing
key technology rather than
developing technologies, firms go
for FDI.

E.

Availability of quality human

resources at low cost: which
attracts FDI.
DEMAND FACTORS: