Foreign direct investment (FDI) is a cross-border investment intended to establish a lasting relationship with a business in another economy. Under the OECD’s 2025 statistical benchmark, direct or indirect ownership of at least 10% of the business’s voting power is evidence of significant influence—and therefore of an FDI relationship. It is not proof of majority ownership or control.
What counts as foreign direct investment?
The OECD defines direct investment as an investment by a resident of one economy in an enterprise resident in another, with the objective of establishing a lasting interest. The relationship implies a long-term connection and the ability to exercise significant influence over management. The OECD Benchmark Definition of Foreign Direct Investment, Fifth Edition uses direct or indirect ownership of at least 10% of voting power as the statistical evidence of that relationship.
The threshold is a statistical convention, not a claim that every investor with 10% controls a company. An investor may have significant influence without owning a majority; control and influence are different concepts.
FDI is also broader than the initial purchase of shares. Once a direct investment relationship exists, statistics can include subsequent transactions and positions such as equity, reinvested earnings, and debt between companies in the relationship.
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How is FDI different from portfolio investment?
The distinction is the intended relationship with the business, not simply whether the investment involves shares. FDI is associated with a lasting interest and significant influence. Portfolio investors generally buy financial assets without seeking to influence the company’s management. The OECD benchmark treats the 10% voting-power threshold as evidence of a direct-investment relationship; a smaller shareholding is not classified as FDI under that statistical rule.
What is an example of FDI?
Suppose a company resident in Country A invests in a manufacturing company resident in Country B and acquires 15% of its voting power. The Country A company is the direct investor and the Country B business is the direct investment enterprise. The 15% holding crosses the OECD’s statistical threshold, but does not by itself show that the investor controls the manufacturer. This is an illustrative example, not a reported real-world transaction.
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What are the potential benefits of FDI?
FDI can connect economies through capital, goods, services, and knowledge. The OECD says that, within a proper policy framework, it can help host economies develop local enterprises, support trade by improving access to markets, and contribute to technology and know-how transfer. These are possible channels, not guaranteed results for every investment.
Whether benefits reach local businesses and workers depends on how an investment operates and on local economic and policy conditions. For example, an investment that builds or expands productive capacity may have different effects from one that primarily changes ownership or routes funds through a financial conduit. The OECD’s fifth edition provides guidance on classifying investment by purpose and identifying ultimate investor and host economies, including pass-through funds.
What are the limitations and risks of FDI?
Potential gains can be unevenly distributed, and investment may not reach the places or sectors where a host economy wants it. A headline flow total can also overstate the strength of productive investment when it includes volatile funds routed through conduit economies.
UN Trade and Development (UNCTAD) reported that global FDI flows rose 4% to $1.5 trillion in 2024. But that headline increase was inflated by volatile financial flows through several European conduit economies. Excluding those flows, comparable global FDI fell 11%, from $1.67 trillion to $1.49 trillion, marking a second consecutive year of double-digit contraction, according to UNCTAD’s World Investment Report 2025. The headline and adjusted measures describe different things and should not be treated as interchangeable.
UNCTAD also reported that international project finance fell 26% in 2024. Investment in renewable energy fell 31%, transport fell 32%, and water and sanitation fell 30%. These sector figures point to uneven investment and pressure on development finance; they do not show that every FDI project causes social or environmental harm. See UNCTAD’s 2025 report on global FDI and investment challenges.
There is no single effect that applies to all projects for local wages, employment, tax revenue, pollution, or domestic competition. Those outcomes require evidence specific to the country, sector, project, and time period; a general FDI figure cannot establish them.
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How should you interpret FDI figures?
- Check what is being counted. FDI statistics cover financial relationships and transactions, not just new factories or other newly built assets.
- Look for the investment purpose. Greenfield projects, capacity expansions, mergers and acquisitions, and corporate or financial restructuring can have different implications for productive capacity.
- Check for conduit flows. Headline cross-border totals may include funds routed through economies that are not the ultimate destination. An adjusted figure can give a different picture of underlying flows.
- Keep the year and measure attached to the number. UNCTAD’s reported 2024 figures are a specific comparison from its 2025 report, not a timeless measure of investment conditions.
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