Investment in the businesses of another country which often takes the form of the setting up of local production facilities or the purchase of existing businesses. It is to be contrasted with PORTFOLIO INVESTMENT, which is the acquisition of securities. FDI has been much criticized, in the case of MULTINATIONAL CORPORATIONS, as a form of neo-colonialism.
In its favour it can be said that it increases the level of investment in countries which otherwise would be undercapitalized and, as dividends vary with the prosperity of an industry (and a high proportion is reinvested in the local economy), it can be less burdensome than the servicing of fixed interest borrowing. For political reasons in the past, a disproportionate amount of direct investment in Third World countries went to Brazil, Mexico and South Africa, as well as to the EUROPEAN COMMUNITY to escape the COMMON EXTERNAL TARIFF. Some advanced economies fear the takeover of their industries by stronger, foreign economies, e.g. the USA is anxious about Japanese investment in many parts of the US economy
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