Investment in which a resident of one country obtains a lasting
interest in, and a degree of influence over, the management of a
business enterprise in another country. In the United States, the criterion used to
distinguish direct investment from other types of investment is
ownership of at least 10 percent of the voting securities of an
incorporated business enterprise or an equivalent ownership interest
of an unincorporated business enterprise. Related terms: foreign
direct investment in the United States, U.S.
direct investment abroad.
Equity capital increases and decreases. Equity
capital increases consist of payments by parent companies to third
parties abroad for the purchase of capital stock or other equity
interests when they acquire an existing business, payments made to
acquire additional ownership interests in their affiliates, and
capital contributions to their affiliates. Equity capital decreases
are funds that parent companies receive (except from distributions
of earnings) when they reduce their equity interest in their
affiliates. Related terms: direct
investment capital flows.
Loans, trade credits, and other transactions
in intercompany account payables or receivables between U.S.
parent companies and their foreign
affiliates, or between U.S.
affiliates and their foreign
parents or other members of their foreign
A parent company’s claim on the current-period
undistributed after-tax earnings of its affiliates. Related
investment capital flows.
The purchase of a controlling interest in a company or at least enough interest to have enough influence to direct the course of the company.
A foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country.
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Direct investment is defined in the International Monetary Fund's Balance
of Payments Manual as "investment that is made to acquire a lasting
interest in an enterprise operating in an economy other than that of the
investor, the investor's purpose being to have an effective voice in the
management of the enterprise."
In the United States, direct investment is defined for statistical purposes
as the ownership or control, directly or indirectly, by one person of 10
percent of more of the voting securities of an incorporated business
enterprise or an equivalent interest in an unincorporated business
enterprise. Direct investment transactions are not limited to transactions
in voting securities. The percentage ownership of voting securities is
used to determine if direct investment exists, but once it is determined
that it does, all parent-affiliate transactions, including those not
involving voting securities, are recorded under direct investment.
When an investor participates in the management of the business the investment was made in.
See DIRECT LABOR, DIRECT LIABILITIES, DIRECT OVERHEAD .
Cross-border investment for the purpose of obtaining a lasting interest in an enterprise resident in another economy (assumed, in practice, for ownership of at least 10% of the ordinary shares or voting power). Included are equity capital, reinvested earnings and other capital associated with inter-company loans.
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