Go Back   ManagementParadise.com | Management & Business Education Learning Platform Resolve Your Query - Get Help and discuss Projects > Financial Management ( FM )

Role of FDI

Discuss Role of FDI within the Financial Management ( FM ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; Due to FDI there is an increase in productivity, which occurs due to technology transfer or due to improved managerial, ...

Reply

 

Thread Tools Display Modes
Role of FDI
Old
 (1 (permalink))
Sunanda K. Chavan
sunandaC has a spectacular aura aboutsunandaC has a spectacular aura aboutsunandaC has a spectacular aura about
 
sunandaC
Management Paradise Guru
 
Status: Offline
Posts: 6,680
Join Date: Jul 2010
Role of FDI - October 11th, 2010

Due to FDI there is an increase in productivity, which occurs due to technology transfer or due to improved managerial, technical skills. Also, there is an unemployment reduction in the host country.

Also there is a possibility of earning foreign exchange with sale/export of FDI produced goods abroad (generally, foreign investors may help introduce and integrate the economy of the host country in to the global market place). All this leads to increase in a competitive market leading to increase in overall GDP of the nation.

The two main definitions of FDI are contained in the Balance of Payments Manual (Washington, D.C., International Monetary Fund, 1977 and 1993) and the second edition of the Detailed Benchmark Definitions of Foreign Direct Investment (Paris, Organisation for Economic Co-operation and Development, 1992 and 1996).

According to the Balance of Payments Manual, FDI refers to investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. Further, in cases of FDI, the investor's purpose is to gain an effective voice in the management of the enterprise.

The foreign entity or group of associated entities that makes the investment is termed the "direct investor". The unincorporated or incorporated enterprise – a branch or subsidiary, respectively, in which direct investment is made – is referred to as a "direct investment enterprise".

Some degree of equity ownership is almost always considered to be associated with an effective voice in the management of an enterprise; in the revised edition of the Manual, IMF suggests a threshold of 10 per cent of equity ownership to qualify an investor as a foreign direct investor.

Once a direct investment enterprise has been identified, it is necessary to define which capital flows between the enterprise and entities in other economies should be classified as FDI.
Since the main feature of FDI is taken to be the lasting interest of a direct investor in an enterprise, only capital that is provided by the direct investor-either directly or through other enterprises related to the investor-should be classified as FDI.

The forms of investment by the direct investor which are classified as FDI are equity capital, the reinvestment of earnings and the provision of long- and short-term Intra-company loans (between parent and affiliate enterprises).

According to the benchmark definition of the OECD, a direct investment enterprise is an incorporated or unincorporated enterprise in which a single foreign investor either owns 10 per cent or more of the ordinary shares or voting power of an enterprise (unless it can be proved that the 10 per cent ownership does not allow the investor an effective voice in the management) or owns less than 10 per cent of the ordinary shares or voting power of an enterprise, yet still maintains an effective voice in management.

An effective voice in management only implies that direct investors are able to influence the management of an enterprise and does not imply that they have absolute control. The most important characteristic of FDI, which distinguishes it from portfolio investment, is that it is undertaken with the intention of exercising control over an enterprise.

There is a notorious lack of comparability of the FDI data of different economies. This lack of comparability usually results in discrepancies between total outflows and total inflows or between outward stocks and inward stocks. There are three main causes for the lack of comparability and discrepancies,

First, economies differ in their definitions of FDI, since most depart in one way or another from the conventions recommended by the IMF or OECD.

Second, economies differ in their methods of data collection; a principal problem is the difficulty of identifying the ultimate beneficiary as opposed to the immediate beneficiary of FDI.

Third, corporate accounting practices and valuation methods differ between economies.
Advertisements

Friends: (0)
Reply With Quote
Re: Role of FDI
Old
 (2 (permalink))
Rose Marry
rosemarry2 is an unknown quantity at this point
 
rosemarry2
Management Paradise Guru
Status: Offline
Posts: 2,125
Join Date: Apr 2016
Re: Role of FDI - April 18th, 2016

Quote:
Originally Posted by sunandaC View Post
Due to FDI there is an increase in productivity, which occurs due to technology transfer or due to improved managerial, technical skills. Also, there is an unemployment reduction in the host country.

Also there is a possibility of earning foreign exchange with sale/export of FDI produced goods abroad (generally, foreign investors may help introduce and integrate the economy of the host country in to the global market place). All this leads to increase in a competitive market leading to increase in overall GDP of the nation.

The two main definitions of FDI are contained in the Balance of Payments Manual (Washington, D.C., International Monetary Fund, 1977 and 1993) and the second edition of the Detailed Benchmark Definitions of Foreign Direct Investment (Paris, Organisation for Economic Co-operation and Development, 1992 and 1996).

According to the Balance of Payments Manual, FDI refers to investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. Further, in cases of FDI, the investor's purpose is to gain an effective voice in the management of the enterprise.

The foreign entity or group of associated entities that makes the investment is termed the "direct investor". The unincorporated or incorporated enterprise – a branch or subsidiary, respectively, in which direct investment is made – is referred to as a "direct investment enterprise".

Some degree of equity ownership is almost always considered to be associated with an effective voice in the management of an enterprise; in the revised edition of the Manual, IMF suggests a threshold of 10 per cent of equity ownership to qualify an investor as a foreign direct investor.

Once a direct investment enterprise has been identified, it is necessary to define which capital flows between the enterprise and entities in other economies should be classified as FDI.
Since the main feature of FDI is taken to be the lasting interest of a direct investor in an enterprise, only capital that is provided by the direct investor-either directly or through other enterprises related to the investor-should be classified as FDI.

The forms of investment by the direct investor which are classified as FDI are equity capital, the reinvestment of earnings and the provision of long- and short-term Intra-company loans (between parent and affiliate enterprises).

According to the benchmark definition of the OECD, a direct investment enterprise is an incorporated or unincorporated enterprise in which a single foreign investor either owns 10 per cent or more of the ordinary shares or voting power of an enterprise (unless it can be proved that the 10 per cent ownership does not allow the investor an effective voice in the management) or owns less than 10 per cent of the ordinary shares or voting power of an enterprise, yet still maintains an effective voice in management.

An effective voice in management only implies that direct investors are able to influence the management of an enterprise and does not imply that they have absolute control. The most important characteristic of FDI, which distinguishes it from portfolio investment, is that it is undertaken with the intention of exercising control over an enterprise.

There is a notorious lack of comparability of the FDI data of different economies. This lack of comparability usually results in discrepancies between total outflows and total inflows or between outward stocks and inward stocks. There are three main causes for the lack of comparability and discrepancies,

First, economies differ in their definitions of FDI, since most depart in one way or another from the conventions recommended by the IMF or OECD.

Second, economies differ in their methods of data collection; a principal problem is the difficulty of identifying the ultimate beneficiary as opposed to the immediate beneficiary of FDI.

Third, corporate accounting practices and valuation methods differ between economies.
Hello friend,

Here I am uploading Role of FDI in Economic Development, so please download and check it.
Attached Files
File Type: pdf Role of FDI in Economic Development.pdf (204.0 KB, 0 views)
Friends: (0)
Reply With Quote
Reply

Bookmarks

Tags
fdi, role
Related to Role of FDI
 

Similar Threads

Thread Thread Starter Forum Replies Last Post
Role of hr Gargi Naik Human Resources Management 1 January 16th, 2018 03:40 PM
Role of FDI Sunanda K. Chavan Financial Management ( FM ) 1 April 16th, 2016 01:35 PM
role of wto in ssi fear_chirag Management of Small Scale Industries ( MSSI ) 1 April 5th, 2016 12:09 PM
Hrm role sanjay.patro123 HOT Debates - The Big Fight 1 February 24th, 2010 03:11 PM
role of IR shashank_jajurley PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT 1 September 10th, 2009 11:39 AM
 


Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On
Trackbacks are On
Pingbacks are On
Refbacks are Off


ManagementParadise.com is not responsible for the views and opinion of the posters. The posters and only posters shall be liable for any copyright infringement.



Search Engine Optimization by vBSEO ©2011, Crawlability, Inc.