Foreign direct investment

Definition

Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, typically by establishing business operations or acquiring assets in the foreign country. FDI plays a significant role in globalization, as it facilitates the flow of capital, technology, and expertise across borders, impacting economies and societies, particularly in a nation like New Zealand where foreign investments can influence local industries and job markets.

5 Must Know Facts For Your Next Test

1. New Zealand has seen a rise in foreign direct investment due to its stable economy and favorable business environment, attracting investors from around the world.
2. FDI can create jobs and stimulate economic growth in New Zealand, but it can also lead to concerns about foreign ownership of local resources and businesses.
3. Key sectors attracting FDI in New Zealand include agriculture, tourism, and technology, which have seen significant investments that enhance innovation and development.
4. The New Zealand government has policies in place to manage FDI, ensuring that foreign investments align with national interests and contribute positively to the economy.
5. FDI impacts cultural exchange and societal dynamics in New Zealand as foreign companies often bring different management styles and practices that can influence local business cultures.

Review Questions

• How does foreign direct investment influence the economic landscape of New Zealand?
  • Foreign direct investment significantly influences New Zealand's economy by creating jobs, boosting innovation, and fostering economic growth. With increased capital inflow from foreign entities, local industries benefit from new technologies and expertise. However, this can also lead to challenges like foreign dominance in certain sectors, which raises questions about local autonomy and sustainability.
• Evaluate the pros and cons of foreign direct investment for New Zealand's society.
  • Foreign direct investment presents both advantages and disadvantages for New Zealand's society. On one hand, FDI contributes to job creation, economic growth, and technological advancement. On the other hand, it may lead to concerns over loss of local control over resources and potential cultural shifts as foreign corporations implement their practices. Balancing these factors is crucial for maximizing benefits while minimizing negative impacts on society.
• Critically assess how foreign direct investment aligns with New Zealand's long-term economic goals and national interests.
  • Assessing the alignment of foreign direct investment with New Zealand's long-term economic goals involves analyzing how FDI complements national interests like sustainable development and regional stability. While FDI can drive growth and innovation, it must be managed strategically to ensure that it supports local industries and communities. This includes setting regulatory frameworks that encourage beneficial investments while protecting local interests from excessive foreign influence or exploitation.

Related terms

multinational corporation: A multinational corporation (MNC) is a company that operates in multiple countries, often having facilities and assets in more than one nation, allowing it to benefit from global markets.

portfolio investment: Portfolio investment refers to the purchase of financial assets such as stocks and bonds in another country, which differs from FDI as it does not involve significant control over businesses.

economic globalization: Economic globalization is the process of increasing economic interconnectedness among countries, resulting in the expansion of international trade, investment, and capital flows.