Statistical Definition of Foreign Direct Investment

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2.1 The BPM5 defines FDI as a category of international investment that reflects the objective of a resident in one economy (the direct investor) obtaining a lasting interest in an enterprise resident in another economy (the direct investment enterprise). The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise, and a significant degree of influence by the investor on the management of the enterprise. A direct investment relationship is established when the direct investor has acquired 10 percent or more of the ordinary shares or voting power of an enterprise abroad.

2.2 Direct investment comprises not only the initial transaction establishing the FDI relationship between the direct investor and the direct investment enterprise but all subsequent capital transactions between them and among affiliated enterprises resident in different economies. The key concepts in the measurement of FDI are elaborated in Chapter 5.

2.3 There are a number of popular misconceptions about FDI.

- FDI does not necessarily imply control of the enterprise, since only a 10 percent ownership is required to establish a direct investment relationship.

- FDI does not constitute a "10 percent ownership" (or more) by a group of "unrelated" investors domiciled in the same foreign country-FDI involves only one investor or a "related group" of investors in one or more countries.

- FDI is not based on the nationality or citizenship of the direct investor-FDI is based on the residence of the direct investor.

- Borrowings by direct investment enterprises from unrelated parties abroad that are guaranteed by direct investors are not FDI.

2.4 Statistics that measure the operations of the foreign affiliates of multinational enterprises-such as sales, employment, and assets-do not form part of the traditional balance of payments and international investment position (IIP) statistics, ¹ which capture only the net investment of the direct investor in foreign affiliates. Statistics on the operations of foreign affiliates are referred to as foreign affiliate trade statistics. In recent years, the relevance of statistics on the operations of foreign affiliates has been acknowledged, and efforts are under way to encourage and assist countries in compiling these data. The new interagency Manual on Statistics of International Trade in Services, published in 2002 by the United Nations, provides a...