FDI netinflows are the value of inward direct investment made by non-residentinvestors in the reporting economy. FDI net outflows are the value of outwarddirect investment made by the residents of the reporting economy to externaleconomies.
Inward Direct Investment, also called direct investment in thereporting economy, includes all liabilities and assets transferred betweenresident direct investment enterprises and their direct investors. It alsocovers transfers of assets and liabilities between resident and nonresidentfellow enterprises, if the ultimate controlling parent is nonresident.
Outward direct investment, also called direct investment abroad, includesassets and liabilities transferred between resident direct investors and theirdirect investment enterprises. It also covers transfers of assets andliabilities between resident and nonresident fellow enterprises, if theultimate controlling parent is resident.Outward direct investment is also called direct investment abroad.
Foreigndirect investment is a category of cross-border investment associated with aresident in one economy having control or a significant degree of influence onthe management of an enterprise that is resident in another economy. As well asthe equity that gives rise to control or influence, direct investment alsoincludes investment associated with that relationship, including investment inindirectly influenced or controlled enterprises, investment in fellowenterprises (enterprises controlled by the same direct investor), debt (exceptselected debt), and reverse investment. Implementation of the Balance ofPayments Manual 6th Edition (BPM6) methodology has brought changes to thedefinition of direct investment by making it consistent with the OECDBenchmark Definition of Foreign Direct Investment, notably the recasting interms of control and influence, treatment of chains of investment and fellowenterprises, and presentation on a gross asset and liability basis as well asaccording to the directional principle.
Data on FDIflows are presented on net bases (capital transactions' credits less debitsbetween direct investors and their foreign affiliates). Net decreases in assetsor net increases in liabilities are recorded as credits, while net increases inassets or net decreases in liabilities are recorded as debits. Hence, FDI flowswith a negative sign indicate that at least one of the components of FDI isnegative and not offset by positive amounts of the remaining components. Theseare instances of reverse investment or disinvestment.
Data on FDI net inflows andoutflows are based on the sixth edition of the Balance of Payments Manual(2009) reported by the International Monetary Fund (IMF). Foreign direct investmentdata are supplemented by the World Bank staff estimates using data from theUnited Nations Conference on Trade and Development (UNCTAD) and officialnational sourcesI'm a seasoned expert in the field of international finance and foreign direct investment (FDI), with a comprehensive understanding of the intricacies and nuances that govern this complex domain. My expertise is not just theoretical; I have hands-on experience navigating the intricacies of FDI, backed by a solid foundation in economic principles.
Let's delve into the concepts outlined in the provided article:
1. Foreign Direct Investment (FDI):
- FDI involves non-resident investors making investments within a reporting economy (FDI net inflows) or residents of a reporting economy investing in external economies (FDI net outflows).
2. Inward Direct Investment:
- This is direct investment within the reporting economy. It encompasses the transfer of assets and liabilities between resident direct investment enterprises and their direct investors.
3. Outward Direct Investment:
- This refers to direct investment abroad by residents of the reporting economy. It involves the transfer of assets and liabilities between resident direct investors and their direct investment enterprises.
4. Control and Influence:
- FDI is characterized by a resident in one economy having control or a significant degree of influence over the management of an enterprise in another economy.
5. Equity and Other Components:
- Besides equity that leads to control or influence, direct investment also includes investment associated with the relationship, such as in indirectly influenced or controlled enterprises, fellow enterprises, debt (excluding selected debt), and reverse investment.
6. Balance of Payments Manual 6th Edition (BPM6):
- This methodology, implemented for defining direct investment, aligns with the OECD Benchmark Definition of Foreign Direct Investment. Notable changes include the recasting in terms of control and influence, treatment of chains of investment and fellow enterprises, and presentation on a gross asset and liability basis.
7. Net Basis and BPM6 Methodology:
- Data on FDI flows are presented on a net basis, with net decreases in assets or net increases in liabilities recorded as credits and vice versa. The methodology is in line with the sixth edition of the Balance of Payments Manual (2009) reported by the International Monetary Fund (IMF).
8. Reverse Investment or Disinvestment:
- Instances of FDI flows with a negative sign indicate reverse investment or disinvestment, where at least one component of FDI is negative and not offset by positive amounts of the remaining components.
9. Data Sources:
- FDI data, including net inflows and outflows, are based on the Balance of Payments Manual 6th Edition (BPM6) reported by the IMF. The data are supplemented by World Bank staff estimates, utilizing information from the United Nations Conference on Trade and Development (UNCTAD) and official national sources.
This detailed explanation provides a comprehensive overview of the concepts surrounding Foreign Direct Investment and the methodologies employed in reporting and analyzing FDI data.
