Foreign direct investment facts for kids

Foreign direct investment, often called FDI, is when a person, company, or even a government from one country invests money and resources into a business in another country. This isn't just about sending money; it often means sharing knowledge, technology, and even people to help build or run a business abroad.

FDI is a big part of how countries connect economically. It helps businesses grow, creates jobs, and can bring new ideas and skills to different parts of the world. Most of this type of investment happens between countries that are already well-developed, like those in Western Europe, the US, and Japan. However, many developing countries also receive a lot of FDI, which helps their economies grow.

What is Foreign Direct Investment?

Foreign direct investment (FDI) is a type of investment where an investor from one country creates or buys a lasting interest in a business in another country. This means they don't just buy a few shares of a company; they want to have a real say in how the business is run.

How FDI Works

Imagine a car company in Germany decides to build a new factory in the United States. This is an example of FDI. The German company is investing its money, technology, and expertise in a business in another country.

FDI can happen in a few ways:

• Starting a new business: A foreign company might build a brand-new factory, office, or store in another country. This is called a "greenfield investment."
• Buying an existing business: A foreign company might buy a large part or all of an existing company in another country. This is often called a "merger" or "acquisition."
• Expanding an existing business: If a foreign company already has a business in another country, they might invest more money to make it bigger or add new products.

Who Makes FDI?

An investor who makes FDI can be:

• A company: Most FDI comes from large international companies.
• An individual: Sometimes, a wealthy person might invest directly in a foreign business.
• A government body: Less common, but a government might invest in a business in another country, often through a state-owned company.

Why is FDI Important?

FDI plays a big role in the global economy. It helps countries grow and develop in several ways:

Creating Jobs

When a foreign company builds a new factory or office, it needs workers. This creates new jobs for people in the country where the investment is made. These jobs can be in manufacturing, services, or other areas.

Bringing New Technology and Skills

Foreign companies often bring advanced technology, new ways of doing things, and specialized skills with them. This can help local businesses learn and improve, making the entire economy more efficient and competitive.

Boosting Economic Growth

FDI can lead to more production, more trade, and more income for a country. This helps the economy grow stronger and can improve the standard of living for its citizens. It can also help a country earn more foreign currency.

Where Does FDI Go?

While FDI happens all over the world, some countries are bigger players than others.

Leading Countries for FDI

Historically, a lot of FDI has flowed between the world's most developed economies. For example, companies from the United States invest a lot in Europe, and European companies invest a lot in the US. Japan is also a major source and receiver of FDI.

In recent years, countries like China and India have become very popular destinations for foreign direct investment. Many international companies want to set up businesses there because of their large populations and growing economies. The United States also continues to be a top country for receiving FDI.

Images for kids

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  World Foreign Direct Investment

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  Foreign Direct Investment by Country

See also

In Spanish: Inversión extranjera directa para niños