GEOG 2000 Lecture Notes - Lecture 2: Foreign Direct Investment, Foreign Portfolio Investment, Portfolio Investment
23 Sep 2018
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What are the different kinds of foreign investment?
1. Commercial loans
2. Official flows: loans from developed country to developing country
3. Foreign direct investment (FDI): a firm invests directly in foreign facilities. A firm that
engages in FDI becomes a multinational enterprise (MNE). Involves ownership of entity
abroad for: production, marketing/ service, research and development, and access of
raw materials or other resource. Parent has direct managerial control: depending on its
extent of ownership.
4. Foreign portfolio investment (FPI)
Differences between FPI and FDI:
● How do they differ?
● Why would a country prefer one type over another?
● In Saudi Arabia, US firms are not allowed to hold majority interest in oil production
activities. Why do you think the Saudi government has created this restriction?
● How might the threat of recession in a foreign country affect portfolio investment in that
country?
● Can you think of some examples of foreign direct investment in the US? Which
industries seem to have the highest levels of FDI in the US? Why do you think that is so?
○ Bank and insurance industries.
○ Manufacturing industry is the highest level of FDI. Even though, a lot of this
industry has moved abroad.
Why do companies invest overseas? (first 2 reasons are most important)
1. Market seeking: higher demand of a specific market abroad.
2. Resource seeking: more resources even human resources (labor) are available abroad
and for lower wages.
3. Strategic asset seeking
4. Efficiency seeking
Document Summary
What are the different kinds of foreign investment: commercial loans, official flows: loans from developed country to developing country, foreign direct investment (fdi): a firm invests directly in foreign facilities. A firm that engages in fdi becomes a multinational enterprise (mne). Involves ownership of entity abroad for: production, marketing/ service, research and development, and access of raw materials or other resource. Parent has direct managerial control: depending on its extent of ownership: foreign portfolio investment (fpi) In saudi arabia, us firms are not allowed to hold majority interest in oil production activities. Manufacturing industry is the highest level of fdi. Even though, a lot of this industry has moved abroad. North korea has the lowest amount of foreign investment due to their policies. Us is the number one attractor of international investment. Possibilities to gain managerial and labor skills. Higher incomes and economic development (taxation for public sector)
