Direct investment, more commonly referred to as foreign direct investment, refers to an investment in a foreign business enterprise. Direct investment is one of two categories of foreign investment. Direct investment refers to financial investments in a company in order to gain control or ownership, while portfolio investment refers to financial investment for the purpose of interest or dividends.
Foreign direct investment is distinguished from foreign portfolio investment, a passive investment in the securities of another country such as public stocks and bonds, by the element of "control". Foreign direct investment is defined as a company from one country making a physical investment in another country.
Foreign direct investment is a measure of foreign ownership of productive assets. Growth in foreign investment can be used as one measure of growing economic globalization.
The Social Impact of Foreign Investment
Multinational Enterprises (MNEs) or Multinational Corporations (MNCs) have become one of the key drivers of the world economy and their importance continues to grow around the world. Today, developing countries account for almost one-third of the global stock of inward foreign direct investment.
The increased role of foreign direct investment in developing and emerging economies has raised expectations about its potential contribution to their development. Foreign direct investment can bring significant benefits by creating high-quality jobs and introducing modern production and management practices.
However, the activities of multinational enterprises abroad have also aroused much controversy and social concerns. For example, multinational enterprises have been accused of practicing unfair competition when taking advantage of low wages and labour standards abroad. In some cases, multinational enterprises have also been accused of violating human and labour rights in developing countries where governments fail to enforce such rights effectively.