Edited by Bernard Fingleton
Chapter 10: FDI: A Difficult Connection between Theory and Empirics
10. FDI: a diﬃcult connection between theory and empirics Anna Soci 10.1 INTRODUCTION A good rule of scientiﬁc research should be to deﬁne the subject precisely and then to examine its relevance. In the case of foreign direct investment (FDI) these two tasks are the only straightforward aspect of this complex phenomenon. What is FDI? FDI is a balance of payments concept involving crossborder transfer of funds. Firm k in country i sets up a productive facility in country j by implanting a new ﬁrm (green-ﬁeld investment) or acquiring an existing ﬁrm l or some part of it. The result must be the: obtaining [of] a lasting interest by a resident entity in one country (‘direct investor’) in an entity resident in an economy other than that of the investor (‘direct investment enterprise’). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a signiﬁcant degree of inﬂuence on the management of the enterprise.1 The idea of ‘control’, which was present in earlier deﬁnitions, has been abandoned in favour of a broader though no less vague concept. What ‘lasting interest’ means is ‘a stake of 10% or more of the ordinary shares or voting power of an incorporated enterprise or the equivalent of an unincorporated enterprise’ (OECD, 1996, p. 8). This is the threshold in the United States, whereas the legislation in the European Union is not yet completely uniform. The immediate consequence of an...
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