Foreign Direct Investment ( Fdi )

5393 Words22 Pages
CHAPTER 1

INTRODUCTION

1.1 RESEARCH BACKGROUND

Research on FDI has been one of the most popular topics among the scholars in finance and economics field. In order to start the study, the definition of FDI should be clarified first.

1.1.1 Definition of Foreign Direct Investment (FDI)

Foreign Direct Investment, popularly known by its acronym FDI, is a particular type of foreign capital, as opposed to domestic investment. In general, FDI is refers as a long-term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based. According to Fu (2000), he argues that it does not include loan capital provided by international organizations, foreign
…show more content…
The International Monetary Fund (1977) defines FDI as investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of the enterprise.

While Organization for Economic Cooperation and Development (OECD)’s benchmark definition of FDI identifies FDI’s objective is to obtain a lasting interest by a resident entity (“direct investor”) in one economy other than that of the investor (“direct investment enterprise”). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprise; both incorporated and unincorporated (OECD, 1996).

Thus, in line with the definition of IMF and OECD, Malaysia has chosen an arbitrary value, holding of at least 10 per cent of the total equity in a resident company by a non-resident direct investor (www.investopedia.com, 2014).

1.1.2 Overview of Foreign Direct Investment in Malaysia

During the last three decades, the world economy has increasingly integrated with foreign direct investment (FDI). FDI itself has become a particularly significant driving force
Get Access