Foreign direct investment (FDI) is an investment strategy used by global businesses. This type of investment allows for the creation of jobs, expanding local technical expertise, and raising overall economic standards. Many governments are encouraging FDI, as it has many benefits for their countries. Singapore and Hong Kong, for example, have seen the benefits of FDI. Before the Chinese took over Hong Kong, it was one of the easiest places to establish a business, with businesses able to set up an office there within a few days.
FDI comes in many forms. One type is vertical FDI, in which an investor acquires a business in a different country that complements its own. For example, Walmart might invest in a foreign company that produces raw materials. Another type of FDI is conglomerate FDI, in which a foreign company invests in other countries. These types of investments can be made through mergers, acquisitions, and joint ventures. They can also be in the manufacturing, retail, and service industries.
A number of studies have examined the relationship between FDI and exports in a particular country. The US is the world’s largest recipient of FDI. In some countries, the relationship between FDI and exports is positive, with less inbound investment resulting in greater outward FDI. In Taiwan and South Korea, however, a 1998 working paper published by the Peterson Institute for International Economics found little or no relationship between inward and outward direct investment. However, in both countries, inward and outward investment was complementary to exports.