2.1 The BPM5 defines FDI as a category of international investment that reflects the objective of a resident in one economy (the direct investor) obtaining a lasting interest in an enterprise resident in another economy (the direct investment enterprise). The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise, and a significant degree of influence by the investor on the management of the enterprise. A direct investment relationship is established when the direct investor has acquired 10 percent or more of the ordinary shares or voting power of an enterprise abroad.
2.2 Direct investment comprises not only the initial transaction establishing the FDI relationship between the direct investor and the direct investment enterprise but all subsequent capital transactions between them and among affiliated enterprises resident in different economies. The key concepts in the measurement of FDI are elaborated in Chapter 5.
2.3 There are a number of popular misconceptions about FDI.
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FDI does not necessarily imply control of the enterprise, since only a 10 percent ownership is required to establish a direct investment relationship.
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FDI does not constitute a “10 percent ownership” (or more) by a group of “unrelated” investors domiciled in the same foreign country—FDI involves only one investor or a “related group” of investors in one or more countries.
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FDI is not based on the nationality or citizenship of the direct investor—FDI is based on the residence of the direct investor.
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Borrowings by direct investment enterprises from unrelated parties abroad that are guaranteed by direct investors are not FDI.
2.4 Statistics that measure the operations of the foreign affiliates of multinational enterprises—such as sales, employment, and assets—do not form part of the traditional balance of payments and international investment position (IIP) statistics,1 which capture only the net investment of the direct investor in foreign affiliates. Statistics on the operations of foreign affiliates are referred to as foreign affiliate trade statistics. In recent years, the relevance of statistics on the operations of foreign affiliates has been acknowledged, and efforts are under way to encourage and assist countries in compiling these data. The new interagency Manual on Statistics of International Trade in Services, published in 2002 by the United Nations, provides a framework for developing foreign affiliate trade in services statistics (United Nations and others, 2002). Other organizations—notably the OECD and the United Nations Conference on Trade and Development (UNCTAD)—maintain databases on the activities of foreign affiliates. Box 2.1 highlights some of the types of data produced on the activities of foreign affiliates. The discussion of FDI in this report focuses on the traditional balance of payments and IIP statistics.
Foreign affiliate trade statistics measure the operations of affiliates of foreign firms in an economy and the operations of the affiliates of domestic firms that are domiciled abroad. Typically, the data cover the majority-owned affiliates (ownership of more than 50 percent). The United States has, for many years, compiled data in this area of statistics, and other countries, such as Canada and France, have more recently begun to produce them. Many other industrial countries, as well as Eurostat, OECD, and UNCTAD, are doing work in this area. At present, except in the area of services transactions, there are no internationally agreed guidelines on how foreign affiliate trade statistics should be recorded.
Foreign affiliate trade statistics complement the residency-based foreign direct investment statistics of the balance of payments in that they provide a measure of the impact of direct investment on an economy. Questions that can be addressed include: How much employment do foreign affiliates generate in the host economy? What levels of sales and types of sales are generated by foreign affiliates? How much does intrafirm trade contribute to world trade? What are the sources of financing in addition to cross-border flows from the direct investor or affiliates that are part of the parent group? How much of the value added generated in an economy can be attributed to foreign affiliates?
The data in the table show global FDI balance of payments and IIP data compared with some of the additional level of detail available through foreign affiliate trade statistics (outward investment).
The data are extrapolations based on the shares of a very limited number of countries covered in the worldwide outward FDI stocks.
| Item | 2001 (Billions of U.S.dollars) |
|---|---|
| Balance of payments | |
| FDI inflows | 729 |
| FDI outflows | 621 |
| International investment position | |
| FDI inward stock | 6,846 |
| FDI outward stock | 6,582 |
| Foreign affiliate trade statistics * | |
| Sales of foreign affiliates | 18,517 |
| Gross product of foreign affiliates | 3,495 |
| Total assets of foreign affiliates | 24,952 |
| Exports of foreign affiliates | 2,600 |
| Employment of foreign affiliates (thousands) | 53,581 |
The data are extrapolations based on the shares of a very limited number of countries covered in the worldwide outward FDI stocks.
| Item | 2001 (Billions of U.S.dollars) |
|---|---|
| Balance of payments | |
| FDI inflows | 729 |
| FDI outflows | 621 |
| International investment position | |
| FDI inward stock | 6,846 |
| FDI outward stock | 6,582 |
| Foreign affiliate trade statistics * | |
| Sales of foreign affiliates | 18,517 |
| Gross product of foreign affiliates | 3,495 |
| Total assets of foreign affiliates | 24,952 |
| Exports of foreign affiliates | 2,600 |
| Employment of foreign affiliates (thousands) | 53,581 |
The data are extrapolations based on the shares of a very limited number of countries covered in the worldwide outward FDI stocks.
The IIP is the balance sheet of the stock of external financial assets and liabilities. The terms “stocks” and “positions” are used interchangeably in this report.