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FDI glossary

58 key terms in foreign direct investment statistics, economics and policy, in plain English. Statistical terms follow the IMF's Balance of Payments Manual (BPM6) and the OECD Benchmark Definition of FDI (BMD4).

58 terms

A

Absorptive capacity
The ability of local firms and workers to recognise, adopt and build on knowledge brought by foreign investors. It depends on skills, domestic R&D, management quality, access to finance and the size of the technology gap. Where absorptive capacity is low, FDI tends to generate fewer spillovers.
SpilloversBackward linkages
Aftercare
Services an investment promotion agency provides to foreign investors once they are established — problem-solving, regulatory help, supplier introductions. Because much new investment is expansion by existing investors, aftercare is often among the most cost-effective promotion activities.
Investment promotion agencyInvestment facilitation
Asset/liability principle
A way of presenting direct investment by whether it is a financial asset or liability of the reporting economy, regardless of which way the ownership runs. It is used for headline balance-of-payments and IIP totals — including the World Bank FDI flow series on this site. Because loans from foreign affiliates to their parents are recorded as assets rather than netted off, totals can differ from the directional presentation.
Directional principleBalance of paymentsInternational investment positionHow this affects the data

B

Backward linkages
Purchases by a foreign affiliate from local suppliers. They are a main channel for knowledge spillovers, as multinationals often help suppliers meet quality, delivery and technical standards. Forward linkages are the reverse: local firms buying inputs from foreign affiliates.
SpilloversAbsorptive capacityVertical FDI
Balance of paymentsalso: BoP
The statistical record of all economic transactions between residents of an economy and the rest of the world over a period. FDI flows appear in the financial account; FDI income appears in the primary income account of the current account.
International investment positionFDI flowsFDI income
Bilateral investment treatyalso: BIT
An agreement between two countries setting standards for how each treats investors from the other — typically national treatment, most-favoured-nation treatment, fair and equitable treatment, compensation for expropriation and free transfer of funds. Most BITs let investors enforce these rights through investor–state arbitration.
Investor–state dispute settlementNational treatmentMost-favoured-nation treatment
Brownfield investment
Foreign investment that takes over or substantially redevelops existing facilities, rather than building new ones from scratch. The term is used loosely: sometimes for acquisitions generally, sometimes for major expansions of acquired sites.
Greenfield investmentMergers and acquisitions

C

CFIUSalso: Committee on Foreign Investment in the United States
The US interagency committee, chaired by the Secretary of the Treasury, that reviews foreign investments for national security risks. It can require mitigation measures or recommend that the President block a transaction. Its jurisdiction was widened by the Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018.
Investment screeningFIRBNational interest test
Current vs constant US dollars
Current (nominal) dollars are values at the prices and exchange rates of each year; constant dollars remove the effect of inflation. FDI data are almost always published in current US dollars, so long-run growth partly reflects inflation, and exchange-rate movements can change a country’s figures even when local-currency investment is flat.
FDI flowsWhy we show current US$

D

Direct investment enterprisealso: affiliate, subsidiary
A company in which a foreign direct investor owns at least 10% of the voting power. Subsidiaries (more than 50% owned) and associates (10–50%) are both direct investment enterprises; so are unincorporated branches.
Direct investorLasting interest (10% threshold)
Direct investor
An entity or group resident in one economy that has acquired at least 10% of the voting power of an enterprise resident in another economy. It can be a company, individual, government, fund or other institution.
Direct investment enterpriseMultinational enterprise
Directional principle
A presentation of FDI organised by the direction of the controlling relationship: inward (foreign investors in the reporting economy) or outward (resident investors abroad). Reverse investment — an affiliate lending to or owning part of its parent — is subtracted. Breakdowns by partner country and industry are published on this basis.
Asset/liability principleFDI position (stock)Bilateral positions (directional)
Double tax agreementalso: DTA, tax treaty
A treaty between two jurisdictions that allocates taxing rights to prevent the same income being taxed twice, often lowering withholding taxes on dividends, interest and royalties. Treaty networks influence how multinationals route investment, contributing to conduit flows.
Special purpose entityTransfer pricing

E

Eclectic paradigm (OLI)also: OLI framework, Dunning
John Dunning’s framework explaining why firms invest abroad. A firm needs an Ownership advantage (technology, brand, know-how), a Location advantage in the host (markets, resources, costs), and an Internalisation advantage that makes owning the operation better than licensing or contracting.
Multinational enterpriseHorizontal FDIVertical FDI
Efficiency-seeking FDI
Investment aimed at lowering costs or rationalising production across countries — exploiting differences in wages, skills or infrastructure within a regional or global value chain.
Vertical FDIMarket-seeking FDIResource-seeking FDIStrategic asset-seeking FDI
Equity capital
The component of FDI covering the purchase of shares or other ownership interests in a direct investment enterprise, including funding new companies and capital injections. Together with reinvested earnings and debt instruments it makes up total FDI.
Reinvested earningsIntra-company debt
Export-platform FDI
Investment in a host country to serve third markets rather than the host or home market — for example, a plant in one country of a free-trade area supplying the whole region.
Horizontal FDIVertical FDISpecial economic zone

F

FDI flows
Transactions in direct investment during a period, usually a year: new equity, reinvested earnings and net lending between related companies. Published figures are net — new investment minus disinvestment — so they can be negative.
Net flows and negative FDIFDI position (stock)Equity capitalFDI inflow rankings
FDI income
The return on direct investment: dividends, the investor’s share of reinvested earnings, and interest on intra-company debt. It appears in the current account and, for many host economies, is a large outflow.
Reinvested earningsBalance of payments
FDI position (stock)also: FDI stock
The value of direct investment held at a point in time, usually year-end: accumulated equity plus net intra-company debt. Positions change with new flows but also with price and exchange-rate movements, so they are not simply the sum of past flows.
FDI flowsInternational investment positionDirectional principleBilateral FDI positions
FDI Regulatory Restrictiveness Indexalso: FDIRRI, OECD FDI restrictiveness
An OECD index scoring statutory restrictions on FDI in 22 sectors, from 0 (open) to 1 (closed). It covers four types of measure: foreign equity limits, screening and approval requirements, restrictions on foreign key personnel, and other operational restrictions. It measures rules on the books, not how they are applied in practice.
Investment screeningNational treatmentFDI openness by country
FIRBalso: Foreign Investment Review Board
The non-statutory Australian body that examines foreign investment proposals and advises the Treasurer, who decides whether a proposal is contrary to the national interest (or national security) under the Foreign Acquisitions and Takeovers Act 1975. Treasury administers the framework day to day.
National interest testInvestment screeningCFIUSAustralia investment data
Foreign direct investmentalso: FDI
Cross-border investment in which an investor resident in one economy acquires a lasting interest in, and a significant degree of influence over, an enterprise resident in another. The international statistical threshold is ownership of at least 10% of voting power. FDI differs from portfolio investment in that the investor is expected to have a say in management.
Lasting interest (10% threshold)Foreign portfolio investmentFDI flowsFDI position (stock)World map of FDI
Foreign portfolio investmentalso: FPI, portfolio investment
Cross-border purchases of equity below the 10% threshold, and of debt securities, that do not give the investor influence over management. Portfolio flows are typically more liquid and volatile than FDI.
Foreign direct investmentLasting interest (10% threshold)FDI vs portfolio flows

G

Global minimum tax (Pillar Two)also: GloBE, Pillar Two
Rules agreed through the OECD/G20 Inclusive Framework to ensure large multinational groups — those with consolidated revenue of at least €750 million — pay an effective tax rate of at least 15% in each jurisdiction where they operate. Many jurisdictions began applying the rules from 2024. They reduce the value of low-tax incentives such as tax holidays for affected investors.
Tax holidayInvestment incentivesSpecial purpose entity
Greenfield investment
FDI in which a foreign company builds a new operation from the ground up — a new plant, office or facility. Greenfield project announcements are tracked commercially (for example by fDi Markets); they are intentions, not balance-of-payments flows.
Brownfield investmentMergers and acquisitionsJoint ventureGreenfield data sources

H

Horizontal FDI
Investment that replicates abroad the same activity a firm carries out at home, usually to serve the host market directly and avoid trade costs or tariffs. It is typically market-seeking.
Vertical FDIExport-platform FDIMarket-seeking FDI

I

Immediate investing economyalso: immediate counterpart
The economy of residence of the first foreign owner in an ownership chain. Standard bilateral FDI statistics are compiled this way, which is why financial centres that host holding companies can appear as large investors.
Ultimate investing economySpecial purpose entityTransshipping (capital in transit)Who invests where
International investment positionalso: IIP
A balance sheet of an economy’s external financial assets and liabilities at a point in time, including direct investment, portfolio investment, other investment and reserve assets. FDI positions are one component.
Balance of paymentsFDI position (stock)
Intra-company debtalso: debt instruments, intercompany lending
Loans and trade credit between a direct investor and its affiliates, or between fellow affiliates in the same group. It is part of FDI. Debt between related banks and other financial intermediaries is generally excluded, except for permanent capital.
Equity capitalReinvested earnings
Investment facilitation
Practical measures that make it easier to establish and operate an investment: transparent rules, streamlined permits, one-stop shops, e-government and grievance mechanisms. Distinct from promotion (marketing a location) and protection (treaty guarantees). A plurilateral Investment Facilitation for Development Agreement was negotiated at the WTO.
Investment promotion agencyAftercare
Investment incentives
Fiscal or financial benefits offered to attract or retain investment — tax holidays, reduced rates, investment allowances, grants, subsidised land or infrastructure. Evidence suggests they matter most at the margin between otherwise similar locations and can be costly when they reward investment that would have happened anyway.
Tax holidaySpecial economic zoneGlobal minimum tax (Pillar Two)
Investment promotion agencyalso: IPA
A government or government-backed body that markets a location to investors, facilitates their entry, provides aftercare and advocates for improvements to the investment climate. Examples include Austrade, Invest India and IDA Ireland.
AftercareInvestment facilitationInvestment incentives
Investment screening
Government review of proposed foreign investments before they proceed, on grounds such as national security, public order or the national interest. Screening regimes have been expanded in many economies since the late 2010s, particularly for critical infrastructure, technology and data.
National interest testFIRBCFIUSFDI Regulatory Restrictiveness IndexFDI openness index
Investor–state dispute settlementalso: ISDS
A mechanism in many investment treaties letting a foreign investor bring a claim directly against a host state before an international arbitral tribunal, commonly under ICSID or UNCITRAL rules. Supporters see it as protection against political risk; critics question its effect on regulatory space and its consistency.
Bilateral investment treatyNational treatment

J

Joint venture
An enterprise owned jointly by two or more parties, often a foreign investor and a local partner. It counts as FDI when the foreign partner holds at least 10% of the voting power.
Greenfield investmentMergers and acquisitions

L

Lasting interest (10% threshold)
The long-term relationship and significant influence that define direct investment. By statistical convention it exists when an investor owns 10% or more of the voting power of an enterprise abroad.
Foreign direct investmentForeign portfolio investment

M

Market-seeking FDI
Investment made to serve customers in the host country or region — for example, retail, telecoms or local assembly.
Horizontal FDIEfficiency-seeking FDIResource-seeking FDIStrategic asset-seeking FDI
Mergers and acquisitionsalso: M&A, cross-border M&A
FDI through the purchase of, or merger with, an existing foreign company. M&A transfers ownership rather than immediately adding new capacity, and large deals drive much of the year-to-year volatility in FDI statistics.
Greenfield investmentBrownfield investment
Most-favoured-nation treatmentalso: MFN
A treaty commitment to treat investors from a partner country no less favourably than investors from any third country.
National treatmentBilateral investment treaty
Multinational enterprisealso: MNE, multinational
A company group that owns or controls operations in more than one country. FDI statistics record the financial links within MNE groups.
Direct investorEclectic paradigm (OLI)

N

National interest test
A case-by-case assessment of whether a foreign investment proposal is acceptable, used in Australia, Canada, New Zealand and elsewhere. It is broader than a national security review, covering factors such as competition, the economy and the character of the investor.
Investment screeningFIRBCFIUS
National treatment
The principle that foreign investors should be treated no less favourably than domestic investors in like circumstances. Treaties often apply it after establishment only, or with lists of exceptions.
Most-favoured-nation treatmentBilateral investment treatyFDI Regulatory Restrictiveness Index
Net flows and negative FDIalso: disinvestment
FDI flows are recorded net: new investment minus disinvestment, repayments of intra-company loans and negative reinvested earnings (when affiliates pay out more than they earn). A negative figure means capital was withdrawn on balance — it does not necessarily mean foreign firms are leaving.
FDI flowsReinvested earningsIntra-company debtReading negative flows

P

Performance requirements
Conditions imposed on foreign investors, such as minimum local content, export targets, technology transfer or local hiring. Some are prohibited by WTO rules (the TRIMs Agreement) or by investment treaties.
National treatmentBackward linkages
Phantom FDI
Direct investment that passes through empty corporate shells with no real business activity, typically for tax or legal reasons. IMF researchers Damgaard, Elkjaer and Johannesen (2019) estimated that almost 40% of global FDI positions were phantom investment of this kind.
Special purpose entityRound-trippingTransshipping (capital in transit)Conduits and SPEs

R

Reinvested earnings
The direct investor’s share of an affiliate’s profits that are not paid out as dividends. Statistics treat them as if paid to the parent and reinvested, so they count both as FDI income and as an FDI flow. When dividends exceed profits, reinvested earnings are negative.
FDI incomeNet flows and negative FDIEquity capital
Resource-seeking FDI
Investment to access natural resources — minerals, energy, agricultural land — or, sometimes, low-cost labour.
Market-seeking FDIEfficiency-seeking FDIStrategic asset-seeking FDI
Round-tripping
Capital that leaves an economy and returns as “foreign” direct investment, usually via a holding company abroad — for example, to benefit from incentives reserved for foreign investors, or for tax or legal protection. It inflates both outward and inward FDI.
Special purpose entityPhantom FDIUltimate investing economy

S

Special economic zonealso: SEZ, free zone, export processing zone
A geographically defined area with its own rules on customs, tax, land or regulation, designed to attract investment. Results vary widely: success depends on location, infrastructure, links with the wider economy and the quality of zone management more than on incentives alone.
Investment incentivesExport-platform FDI
Special purpose entityalso: SPE
A legal entity with little or no employment or physical presence in its host economy, owned by non-residents and used mainly to channel funds between other countries — holding, financing or intellectual-property companies. The OECD recommends that FDI statistics show SPEs separately, but many sources, including the World Bank flow series, include them.
Phantom FDITransshipping (capital in transit)Round-trippingImmediate investing economyConduits and SPEs
Spillovers
Benefits from FDI to firms and workers other than the investor: local firms imitating technologies, workers carrying skills to new jobs, suppliers upgrading to meet multinational standards, and greater competition. Evidence is strongest for vertical spillovers to suppliers; within-industry effects are mixed.
Backward linkagesAbsorptive capacity
Strategic asset-seeking FDI
Investment to acquire capabilities a firm lacks — technology, brands, distribution networks, research teams — usually through acquisitions.
Mergers and acquisitionsMarket-seeking FDIEfficiency-seeking FDIResource-seeking FDI

T

Tax holiday
A temporary exemption from, or reduction in, corporate income tax for a new investment, often for five to ten years. Tax holidays are simple to administer but tend to favour short-lived, footloose projects, and are less valuable to large multinationals under the global minimum tax.
Investment incentivesGlobal minimum tax (Pillar Two)Special economic zone
Transfer pricing
The prices set for goods, services, loans and intellectual property traded within a multinational group. Tax rules require arm’s-length prices, but transfer pricing strongly influences where profits — and so reinvested earnings — are recorded.
Double tax agreementReinvested earningsGlobal minimum tax (Pillar Two)
Transshipping (capital in transit)also: pass-through capital, conduit FDI
Direct investment that flows into an economy only to flow straight out again to a third country, typically through SPEs in financial centres. It inflates both the inward and outward FDI of the conduit economy without creating local activity.
Special purpose entityPhantom FDIImmediate investing economyConduits and SPEs

U

Ultimate investing economyalso: UIE, ultimate controlling parent
The economy of the entity at the top of an ownership chain — the one that ultimately controls the investment. The OECD recommends publishing inward FDI positions by ultimate investor as well as by immediate counterpart; the two can differ greatly for economies whose investment arrives via financial centres.
Immediate investing economyRound-trippingSpecial purpose entity

V

Vertical FDI
Investment that places different stages of production in different countries — for example, research at home, component manufacturing in one country and assembly in another. It is typically efficiency- or resource-seeking and generates intra-firm trade.
Horizontal FDIExport-platform FDIEfficiency-seeking FDI

New to FDI? Start with FDI explained. For how these concepts affect the numbers on this site, see sources & methods.