Legal Definitions - foreign direct investment

Foreign Direct Investment (FDI) is when a company or individual from one country invests in and has control or significant influence over the management of a company in another country. This is different from portfolio investment, which is a passive form of investment.

FDI is important for globalization because it creates direct and long-lasting links between economies and encourages the transfer of technology and knowledge. It is supported by many countries around the world.

Both domestic and international laws govern FDI. Domestic laws may include provisions to attract FDI and protect investors, such as tax incentives and dispute resolution options. International laws include multilateral treaties, bilateral investment treaties, customary international law, and judicial decisions.

There are risks associated with FDI, such as nationalization and political instability. To address these risks, there are options for private insurance and government agencies, such as the Overseas Private Investment Corporation, to insure against political risks.

For example, if a company from the United States invests in a company in China and the Chinese government decides to nationalize the company, the American company may be entitled to compensation under international law. Additionally, the American company may have purchased insurance to protect against this risk.