Foreign Direct Investment

Abstract

Abstract Foreign direct investment (FDI) refers to firms' investments in foreign countries where new production and other physical facilities are built in order to conduct new business operations, including selling and servicing the firms' products. Such foreign expansions are often demanded by the firms' growth‐seeking shareholders, as the firms' domestic markets saturate. The focus is on firms' FDI rather than on their overseas portfolio investments in financial assets (e.g., stocks, bonds). Discussed here are certain factors that characterize firms' FDI‐driven foreign operations vis‐à‐vis their domestic operations. These are political, economic, and other factors that affect the riskiness of foreign operations for those who own these operations (e.g., is the investing firm the sole owner of the operations?) and the implications of foreign operations for firms' home countries and for the countries that host their FDIs.