What Is Foreign Investment?

What Is Foreign Investment?

Do you realize that the apartment building across the street could be owned by a company from another country? Your current or future employer may also be partially owned by a firm from Japan, Europe, or China. As the economies of nations become more global, and information and money can change hands easier, the popularity and level of foreign investments has dramatically risen over the last several decades.

Foreign investment is when a company or individual from one nation invests in assets or ownership stakes of a company based in another nation. As increased globalization in business has occurred, it's become very common for big companies to branch out and invest money in companies located in other countries. These companies may be opening up new manufacturing plants and attracted to cheaper labor, production, and fewer taxes in another country. They may make a foreign investment in another firm outside of their country because the firm being purchased has specific technology, products, or access to additional customers that the purchasing firm wants. Overall, foreign investment in a country is a good sign that often leads to growth of jobs and income. As more foreign investment comes into a country, it can lead to even greater investments because others see the country as economically stable.

Foreign investment can be split into direct and indirect investments. Direct investments are when companies make physical investments and purchases in buildings, factories, machines, and other equipment outside of their home country.Indirect investments are when companies or financial institutions purchase positions or stakes in companies on a foreign stock exchange. This type of investment isn't as favorable as direct investment because the home country can sell their investment very easily, on the next day if they choose. Direct investments are usually a longer-term investment in the economy of a foreign country. It's not nearly as easy to sell factories, machines, and buildings as it is to sell shares of stock.