Foreign Direct Investment Concept
In a wider spectrum, foreign direct investment is the acquisition of assets by a foreign individual or company. The components of FDI are equities, reinvested earnings and intra-company loans. It offers an amount of shares and loans to the domestic firm for long term. |
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Over a period of time, the concept has been changed and modified. Balance of payment does not walk through the direct investment theory. The stocks and flow in the market of FDIs is relatively different.
As per the Foreign Investment Promotion Act, there are some prominent criteria to satisfy the need to be a FDI. It is calculated by the investment made by a foreign investor to the FDIs. The investment ratio is divided by the foreign investor when it’s got completed. To meet the requirements, a fifty million of investment is needed in the initial period. More than 10% of share should be kept with the foreign entrepreneur.
And it is more necessary when there are more foreign investors. Besides this compulsion, there is no restriction for more investments by the registered investors. Foreign direct investment flows has gained importance and popular among the developing economies’.
In the late nineteenth century, it was the US who played the vital role in the growth of FDIs. In 1960, the US was the prevailing supplier investment to the other third world countries directly. And now, the US is the chief recipient of direct investment. With a broader aspect, the foreign investors do not play alone in some others domestic economy. They have to work also with local firms and government. The government keeps an eye in the work of FDIs to controls the adverse situation. However it strengthen the 2nd country’s economy by employment but the external pressure are always at the priority by the investors. The flows are in a long term basis, so no speculation can be drawn by the experts and researchers regarding the shares and profits. Likely the property right is in the first country’s hand.
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The word investment refers to the money used for some specific purpose with the mind to make some profit. In more specific way, it is the capital used for the purchase of financial assets in any form to make profits. It can be in any form like Rate of interest, capital gains and dividends.