Appendix II. Foreign Direct Investment Terms and Definitions


A. Aggregate Basis. All-Inclusive Concept. Asset/Liability Principle. B. Balance of Payments Statistics. Bonds and Money Market Instruments. Book Value. Business Register. C. Compulsory Reporting Requirements. Current Operating Performance Concept (COPC). D. Data Dissemination. Debtor/Creditor Principle. Debt Securities. Direct Investment. Direct Investment Enterprise. Direct Investment Income.... (see full summary)


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The purpose of this glossary is to provide additional information and clarifications to national compilers and users of FDI statistics.

Aggregate Basis

Data collected on this basis show the total transactions made by respondents during specified reporting periods, such as information obtained through enterprise surveys.

All-Inclusive Concept

The application of this concept is one of the two main approaches to measuring earnings. The concept is explained in the International Accounting Standard No. 8, "Unusual and Prior Period Items and Changes in Accounting Policy." When earnings are measured on the basis of this concept, income is considered to be the amount remaining after all items (including write-offs and capital gains and losses and excluding dividends and any other transactions between the enterprise and its shareholders or investors) causing any increase or decrease in the shareholders' or investors' interests during the accounting period, are taken into account. (See also Current operating performance concept. )

Asset/Liability Principle

The Financial Account of the balance of payments records an economy's transactions in external financial assets and liabilities. The transactions are classified by (1) functional type of investment ( direct investment, portfolio investment, other investment, and reserve assets ); (2) assets and liabilities or, in the case of direct investment, direction of investment; (3) type of instrument; and in some cases, (4) domestic sector; and (5) original contractual maturity. This distinction between external assets and liabilities is of primary importance for the functional types of investment other than direct investment. Transactions should be recorded on a straight asset/liability basis. Even when a net basis is used, transactions in financial assets should be shown separately from transactions in financial liabilities.

Balance of Payments Statistics

The term refers to the statistical system through which economic transactions occurring during specific time periods between an economy and the rest of the world can be summarized in a systematic way. The fifth edition of the IMF's Balance of Payments Manual (BPM5) provides conceptual guidelines for compiling balance of payments statistics according to the international standards.

Bonds and Money Market Instruments

These include bonds, debentures, commercial paper, promissory notes, certificates of deposit, and other tradable nonequity securities (with the exception of financial derivatives). For the purposes of the SIMSDI survey, the category also includes Treasury bills.

Book Value

The value at which an equity or other capital asset or liability is recorded in the balance sheet of an entity is the book value. Book value can reflect one of the following valuation methods:

- historical cost;

- replacement cost;

- an interim adjusted price, which is not the current market price;

- fair market value; or

- current market price.

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Business Register

This is a register of enterprises or establishments involved in foreign direct investment, which is maintained by countries to assist in the compilation of their direct investment data.

Compulsory Reporting Requirements

The term refers to a situation where legislation creates a legal obligation for reporters to provide the requested information (and usually an appropriate penalty for noncompliance).

Current Operating Performance Concept (COPC)

The application of this concept is one of the two main approaches to measuring earnings. The concept is explained in the International Accounting Standard No. 8, "Unusual and Prior Period Items and Changes in Accounting Policy." When earnings are measured on the basis of this concept, such earnings consist of income from normal enterprise operations before nonrecurring items (such as write-offs) and capital gains and losses are taken into account. (See also All-inclusive concept. )

Data Dissemination

The term encompasses all the means by which data are made available to the public, including dissemination on the Internet.

Debtor/Creditor Principle

There are two principles that may serve as the basis for geographic allocation of direct investment financial flows: the debtor/creditor principle and the transactor principle. Under the debtor/creditor principle, transactions resulting from changes in financial claims of the compiling economy are allocated to the country or residence of the nonresident debtor, and transactions resulting in changes in financial liabilities are allocated to the country of residence of the nonresident creditor, even if the amounts are paid to or received from a different country. (See also Transactor principle. )

Debt Securities

These cover all tradable securities except those classified as equity securities. Debt securities include bonds, debentures, notes, etc., money market or negotiable debt instruments.

Direct Investment

The term describes a category of international investment made by a resident entity in one economy (direct investor) with the objective of establishing a lasting interest in an enterprise resident in an economy other than that of the investor (direct investment enterprise). "Lasting interest" implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the direct investor on the management of the direct investment enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated.

Direct Investment Enterprise

The term refers to an incorporated enterprise in which a foreign investor owns 10 percent or more of the ordinary shares or voting power or an unincorporated enterprise in which a foreign investor has equivalent ownership. Ownership of 10 percent of the ordinary shares or voting stock is the criterion for determining the existence of a direct investment relationship.

Direct investment enterprises comprise those entities that are

- subsidiaries (an enterprise in which a nonresident investor owns more than 50 percent),

- associates (an enterprise in which a nonresident investor owns between 10 and 50 percent), and

- branches (unincorporated enterprises wholly or jointly owned by a nonresident investor), and are either directly or indirectly owned by the direct investor.

When the 10 percent ownership requirement for establishing a direct investment link with an enterprise is met, certain other enterprises that are related to the first enterprise are also regarded as direct investment enterprises. Hence the definition of direct investment enterprise extends to the branches and subsidiaries of subsidiaries of the direct investor (so- called "indirectly owned direct investment enterpris- es"). The OECD's Benchmark Definition of Foreign Investment and the IMF's Balance of Payments Compilation Guide describe the scope of enterprises, both directly and indirectly owned, that should be included in the definition. The OECD's specification of this group of enterprises is referred to as the "Fully Consolidated System." (See also Fully consolidated system. )

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Direct Investment Income

Comprises income on equity and income on debt. (See also the separate entries for these two elements.)

Direct Investment Relationship

A direct investment relationship is created when an enterprise resident in one economy owns 10 percent or more of the ordinary shares or voting power for an incorporated enterprise, or the equivalent for an unincorporated enterprise, that is resident in another economy. Direct investment enterprises that are considered to be in a direct investment relationship with a direct investor are also considered to be in direct investment relationships with each other.

Direct Investor

The term refers to an individual, an...

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