What are the basics of foreign direct investment

Anthropocene

US dollars to trillions

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OECD
The Organization for Economic CO-operation and Development (OECD) comprises 35 member states (as of 2017). Most of the countries with a globally high per capita income are represented in the OECD. While their share in the → world population is only 18%, their share in the → global gross domestic product is 74% (as of 2010).


BRICS
The BRICS states are an informal union of five states (Brazil, Russia, India, China and South Africa) that have enjoyed relatively high economic growth (of 5-10%) over the past few decades. Around 43% of the → world population live in the BRICS countries, while their share in the → global gross domestic product is 16% (as of 2010).

Rest
The number of all non-OECD and BRICS countries includes 154 countries. Their share in the → world population is 39%, while their share in the → global gross domestic product is only 10% (as of 2010).

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introduction

Foreign direct investment (FDI) refers to investments made by a company (or by state governments) in order to acquire a permanent stake in a company domiciled abroad. The basic criterion is a share of at least 10% of the shares with voting rights through which the investor exercises his influence on the foreign company. The various reasons for ADI include the development of new sales markets, the use of inexpensive production locations or tax advantages.

Historical development

The rapid development of foreign direct investment began in the 1980s. The global financial crisis of 2008 can be clearly seen. The rapid recovery in FDI is just as evident. Its increase can be seen as an indicator of economic globalization. As with the development of the → real gross domestic product, the dominance of the OECD countries and thus an economic power imbalance on a global level is evident.

FDI and economic growth

Even if the majority of foreign direct investment takes place between the OECD countries, the proportion of investment that flows into the so-called developing countries is rising steadily. According to development economics studies, whether FDI has a positive effect on economic development in the target country and leads to an improvement in living standards depends primarily on the extent to which the people in the target country are involved in the company.

A low level of education, for example, often means that many positions are filled with skilled workers who do not come from the target country. As a result, the build-up of human capital necessary for economic development does not take place.

Foreign large-scale agricultural investments

Foreign direct investments are increasingly also agricultural investments. Well-funded investors such as Saudi Arabia or China secure large areas, especially in Africa, in order to produce food and bioenergy there by means of industrial agriculture in order to compensate for their own national deficits or to make profits.

Such large-scale projects are often non-transparent and usually take place without the participation of the population, which often leads to land use conflicts, which worsen the living conditions of local smallholders but also the general food security in the affected country.

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FAO - Food and Agriculture Organization of the United Nations, IIED - International Institute for Environment and Development and IFAD - International Fund For Agricultural Development (2009): Land Grab or Development Opportunity? Agricultural Investment and International Land Deals in Africa. FAO, IIED, IFAD, Rome and London.

Krüger, R., and Ahlfeld, S. (2005): Foreign Direct Investment in Developing Countries: An Overrated Determinant of Growth? Contributions to the discussion on development economics, University of Giessen, No. 31.

Steffen, W., Broadgate, W., Deutsch, L., Gaffney, O., & Ludwig, C. (2015): The trajectory of the Anthropocene: The Great Acceleration. The Anthropocene Review, 2 (1), 81-98.

Scientific Advisory Council of the Federal Government on Global Change - WBGU (2011): Hauptgutachten. World in Transition - Social Contract for a Great Transformation. WBGU, Berlin.