The term FDI is an abbreviation for “Foreign Direct Investment” and refers to the direct investment that any foreign company makes in another country, by the act of buying that company or by expanding some existing business in the country.
The ways of making foreign investment include, setting up an associate of the company in the foreign country, acquiring shares of the company or via a merger etc. Unlike, the indirect investments where the institutions abroad invest in the equities listed on a nation’s stock exchange, direct investment allows entities a higher degree of control over the company wherein it invests. A larger amount of FDI is a characteristic of an open economy which has good prospects of growth.
From the view point of the accounts of a country, FDI also refers to the net incoming investment (incoming-outgoing investment) in acquisition of minimum management interest of 10% or more of voting stock in the economy where the investment is being done.