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Unit 7: Foreign Direct Investment
Pooja, Lovely Professional University

unit 7: foreign Direct investment notes

contents

Objectives
Introduction
7.1 Overview of Foreign Direct Investment
7.2 Types of FDI
7.2.1 Horizontal FDI
7.2.2 Vertical FDI

7.2.3 Implications of FDI
7.3 Reasons for FDI
7.4 Benefits of FDI
7.4.1 FDI Benefits to Host Countries

7.4.2 Benefits and Costs of FDI to Home Countries
7.5 Trends in FDI
7.6 Foreign Direct Investment in India
7.6.1 Sectoral Inflows of FDI in India
7.6.2 India’s Share in Global Scenario

7.6.3 Measures Adopted to Attract FDI
7.7 Summary
7.8 Keywords
7.9 Review Questions

7.10 Further Readings
objectives

After studying this unit, you should be able to:
l z Discuss the importance of direct investments specially when, for example, a company
builds a manufacturing plant in another country
l z Know how to evaluate foreign direct investments, including the discount rate and tax rate
to employ

introduction

Through Foreign Direct Investment a firm invests directly in facilities to produce and/or market
a product in a foreign country. For example, in the early 1980’s Honda, a Japanese automobile
company, built an assembly plant in Ohio and began to produce cars for the North American
market. These cars were substitutes for imports from Japan. Once a firm undertakes FDI, it
becomes a Multinational Enterprise (The meaning of Multinational being “more than one
country”).

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