The Definitions of Foreign Direct Investment - Term Paper Example

As already mentioned, there is an ocean of literature on FDI and related matters but different economic writers, research institutes, economists and even Governments have been differently interpreting the meaning of FDI. The perception of FDI, therefore, varies from country to country.  European Union Direct Investment Yearbook 1997 (Bora, 2003,    P 245) defines foreign direct investment as “an incorporated or unincorporated enterprise in which a foreign investor owns 10% or more of the ordinary shares or voting power of an incorporated enterprise or the equivalent of an unincorporated enterprise or has an effective voice in the management of the enterprise”.

According to United Nations Organisation ( UNO, 2003, P 88), India’s definition of FDI does not cover earnings reinvested by foreign investors, investments between direct investors, associates, branches and subsidiaries, and investments by offshore and domestic venture capital funds set up by foreigners. Mexico’s definition of FDI is on the lines of IMF definition (Oecd,   2004, P 426). It refers to FDI as “investments done by the non-residents aiming to participate in a permanent and effective basis in the management of enterprises located within the country borders.

” In Mexico’s view, this definition includes capital investment, profit reinvestment, and inter-company operations. Goldberg and Klein (Goldberg et al, 1998, P 81) point out that the FDI phenomenon has direct contact with the real foreign exchange rates and incomes of both investing and FDI inviting countries. Going by these various definitions, we can describe foreign direct investments as those investments planned and invested by the multinational and cash-rich companies in countries other than their own to internationalize their production and marketing activities.

In the backdrop of a rapidly changing scenario of globalization, the phenomenon of FDI has become a hot topic of discussion throughout the globe.