What does foreign direct investment (FDI) involve?

Foreign direct investment (FDI) specifically pertains to investments made by a company or individual in business interests that are located in another country. This definition encompasses a variety of activities, including establishing business operations, acquiring business assets, or forming joint ventures in a foreign market. FDI is characterized by the investor gaining a significant degree of control over the foreign business, typically indicated by substantial equity ownership (usually at least 10%).

The primary motivation for FDI is often to expand market access, capitalize on lower production costs, or tap into local resources and talent, thereby fostering greater integration into the global economy. Such investments can significantly impact both the investing nation and the host country by promoting development, creating jobs, and facilitating knowledge transfer.

In contrast, the other options do not accurately capture the scope of foreign direct investment. Investments in local markets exclusively would refer to domestic transactions, while exporting goods pertains to trade rather than investment activities. Focusing on investments solely for acquiring patents neglects the broader purpose of FDI, which is to establish or expand business operations rather than just securing intellectual property.