Foreign Direct Investment (FDI) | Types of FDI | Importance/ Need/ Benefits of FDI

Foreign Direct Investment

Foreign direct investment (FDI) is where an individual or business from one nation, invests in another. This could be to start a new business or invest in an existing foreign owned business.

Types of FDI

1. Horizontal FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI.

2. Platform FDI Foreign direct investment from a source country into a destination country for the purpose of exporting to a third country.

3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.

4. Greenfield Investment: It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries like India.

5. Mergers and Acquisition: It occurs when a transfer of existing assets from local takes place.

Importance/ Need/ Benefits of FDI

1. It helps in diversifying investors portfolio

2. It promotes stable long term lending

3. It infuses new technology in developing nations

4. It provides financing to developing countries

5. It brings in technological knowhow and managerial expertise

6. It creates more jobs and opportunities

7. It also helps in improving infrastructure in the developing countries

8. It helps in raising living standards in emerging economies

9. It helps create competitive global capital allocation

10. It facilitates economic growth or repair.