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What is Foreign Direct Investment?

As businesses are widespread all over the world, the role of FDI in shaping the global economy continues to grow. FDI plays an important role in driving economic growth and development by creating new jobs, increasing productivity, and good relationships between businesses and countries globally.

The decision to invest in a particular country depends on several factors, including political situations, economic conditions, infrastructure, business growth, etc. Governments also play a significant role in attracting foreign investors by offering subsidies or tax concessions.

This blog is intended to give you a comprehensive understanding of FDI and its impact on the economic landscape.

Table of Contents:

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What is FDI?

Foreign Direct Investment refers to the investment made by a company or an individual from one country to a business located in another country. This investment can be of various forms, including the creation of a new business, the acquisition of an existing company, or a joint shareholder of a foreign company.

FDI also provides businesses with an opportunity to adopt new technologies, and different business practices, which are not available in their own country. Moreover, it gives the option to expand the business in different parts of the world. The main goal of FDI is to generate earnings and get returns on investment.

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What is the importance of FDI?

What is the importance of FDI

Foreign Direct Investment, also known as FDI, has a big impact on the economy, employment opportunities, and competitiveness, which in turn contributes to a country’s growth and development.

Below are several reasons that support how the uses of FDI can be important in today’s economic situation worldwide:

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What are the types of FDI?

What are the types of FDI

Foreign Direct Investment(FDI), is mainly categorized into three main types. They are discussed below:-

Horizontal FDI:-

When a company invests overseas to begin the same kind of business operations as in its nation of origin, this is known as Horizontal FDI. The primary motive for Horizontal FDI is to access new markets and technologies.

Vertical FDI:-

Vertical FDI is another type of investment that occurs when a company invests in a foreign country to gain control over the supply chain. In vertical FDI, the individual or a company invests in a foreign company that is either a supplier or a distributor. This results in creating a vertical relationship between the companies.

Conglomerate FDI:-

Conglomerate FDI is defined as an investment made by an individual or organization from one nation to another that has no connection to its current core businesses.  The primary goal for Conglomerate FDI is to benefit the companies from the growth potential of new markets and diversify the company’s portfolio.

Examples of Foreign Direct Investment

Examples of Foreign Direct Investment

FDI have become a key component of economic growth and the success of many countries. FDI benefits both host countries and foreign investors and its effects can be seen in various industries right from manufacturing to technology. 

Here in the below points, we will be discussing some FDI examples.

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The impact of FDI can vary depending on the factors such as the host country’s institutional capacity, regulatory environment, and level of economic development. 

Countries must have a well-designed investment policy that balances the benefits and risks associated with FDI. These policies should be aimed at maximizing the benefits for the country’s economies while minimizing external costs.

FDI has the potential to be a valuable investment plan for economic development. However, governments must adhere to several rules and regulations and make sure FDI is compatible with the nation’s development goals.

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