Wednesday, July 21, 2010

FDI terms!

Just for my own note...suka lupa beza antara dua terms nih...nampaknya terms2 nih kena copy masuk sini la...senang nak review bila lupa...

 FDI Flows

For associates and subsidiaries, FDI flows consist of the net sales of shares and loans (including non-cash acquisitions made against equipment, manufacturing rights, etc.) to the parent company plus the parent firm´s share of the affiliate´s reinvested earnings plus total net intra-company loans (short- and long-term) provided by the parent company.

For branches, FDI flows consist of the increase in reinvested earnings plus the net increase in funds received from the foreign direct investor.

FDI flows with a negative sign (reverse flows) indicate that at least one of the components in the above definition is negative and not offset by positive amounts of the remaining components.

 FDI Stock

For associate and subsidiary enterprises, it is the value of the share of their capital and reserves (including retained profits) attributable to the parent enterprise (this is equal to total assets minus total liabilities), plus the net indebtedness of the associate or subsidiary to the parent firm. For branches, it is the value of fixed assets and the value of current assets and investments, excluding amounts due from the parent, less liabilities to third parties.

FDI has three components:

- equity capital;
- reinvested earnings, the investor's share of earning not distributed as dividends by affiliates, in proportion to its share in the equity (say for instance 50% in a certain joint venture);
- intra-company loans, when the investor borrows funds to the affiliate, usually without the intention of asking the money back.(bleh jd bila ada transactions between a parent co and its affiliates)

To better understand their defining characteristics, you should consider that FDI are flows of capital that share the following features:

- they are long-term (in contrast to portfolio investment in bonds and in short-term speculation in shares);
- they give rise to a property right on the asset built or bought (in contrast to foreign aid).

However, FDI is quite heterogeneous and one should distinguish several kinds, e.g. by looking at the following factors:

a. whether the activity in the host country is just an intermediate phase in a longer production chain or it gives rise to a finished good;
b. the production phase performed in the host country (design, manufacture, distribution);
c. where the outcome of the process in the host coutry will be sold (there or abroad).

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