Introduction and Why FDI is so Important for Local and Regional Economic Development
Note: the full slide deck and course briefing PDF documents are available at the links below:
Full slide deck
Course briefing
The links to the course assignment and workbook are in the fourth course video.
What is Foreign Direct Investment?
Foreign Direct Investment (FDI) occurs when a company establishes or acquires business operations in another country with an active management role. The International Monetary Fund defines it as investment that adds to, or acquires, a lasting interest in an enterprise operating in an economy other than that of the investor, with the purpose of having an effective voice in management. Modern practice treats all mobile investment similarly, whether foreign or domestic, using 'inward investment' to encompass capital flowing into a locality.
Forms of FDI
Mergers and Acquisitions (M&A): Purchasing or merging with existing companies
Greenfield Investments: Building new facilities from the ground up
Joint Ventures: Partnerships with local companies to establish new enterprises
Why Inward Investment Matters
Global FDI totalled $1.332 trillion in 2023. For context, the UK attracted $44 billion and the US $310 billion in recent years. This represents thousands of investment projects that localities compete to secure. Research demonstrates clear benefits: between 2010-2014, increased FDI stock in the UK led to £19 billion net increase in GVA, 355,000 jobs created, average wages increased by £280, and £448 million additional R&D expenditure.
Key Benefits
Job Creation: Inward investors pay wages 25% higher than local averages
Technology Transfer: Access to advanced management, production techniques, and R&D
Productivity Enhancement: Higher productivity levels raise overall regional performance
Supply Chain Development: Primary investments trigger additional supplier investments
Export Growth: Foreign-owned affiliates account for 19% of US exports