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Foreign Direct Investment

  • By: Sharmistha Bagchi-Sen & Dipti Saletore
  • In: Encyclopedia of Geography
  • Edited by: Barney Warf
  • Subject:General Geography, Earth & Environmental Science

Foreign direct investment (FDI) occurs when a foreign investor exerts direct control over domestic assets. It normally consists of an international capital flow from the home country to a host country for the purpose of acquiring partial or full ownership of tangible business activity. Technically, it is the book value of the equity held by the foreign investor that is attached to the asset. In most cases, the asset is a firm in a developed country, such as the United States, and the equity consists of two components: ordinary (common stock) and retained earnings. If both foreign and domestic investors own the common stock, then only a portion held by foreign investors is considered to be FDI, and if only a threshold percentage is attained, ...

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