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Foreign direct investment

Foreign Direct Investment refers to an international investment whereby resident entities of one economy acquire or have acquired a lasting interest in a resident entity of an economy other than that of the investor. The notion of lasting interest implies the existence of a long-term relationship between the direct investor and the target company, and the exertion of influence of the former on the management of the latter. The direct investment includes both the initial transaction between the two entities and all the subsequent financial transactions between them and other companies belonging to the same international group. By convention, there is considered to be a foreign direct investment when one company holds at least 10% of the capital or voting rights of a resident company in a country other than its own.

The last edition of the Balance of Payments manual, released by the IMF in 2008, introduces some methodological changes in the compiling and presentation of FDI statistics. After briefly explaining what the main changes between the present and the forthcoming methods are, this article analyses the new French FDI data. According to the new IMF methodology, French FDI are averagely reduced by € 30 bn a year since 1999 compared to the present one. Besides, their actual evolution is different. According to the new presentation, in 2009 French DI flows abroad decreased sharply on the previous years to come back to the 2005 level. On the other hand, Foreign DI flows became negative in 2009 what had never been seen for the past 10 years.

Since 2009, the method used to estimate the market value of unquoted foreign direct investment equity stocks has been changed. It is now based on a single conceptual framework for inward and outward FDI stocks, in accordance with recommendations of the IMF and the OECD. The implementation of the new methodology for estimating stocks at end-2008, and also for the years 2002 to 2007, leads to a substantial change of the FDI assets and liabilities' market value for the whole period. Nevertheless, the net FDI position at the end of 2008 was still broadly positive at EUR 196 billion, equivalent to 10% of GDP.

According to the IMF, the OECD, UNCTAD and all the organizations that publish direct investment statistics, there has been a continuous rise in direct investment flows worldwide in recent years (except in 2008 and 2009 due to the financial crisis). This increase may partly be linked to certain phenomena such as the constitution of ever more powerful multinational groups through cross-border merger and acquisition operations or the spread of globalization to new emerging and developing countries.

However, in some countries, including France, there has been a rise in both inward and outward direct investment, in particular with respect to intercompany loans. These characteristics reflect the impact on statistics of the setting-up by a large number of international groups of continent-wide or worldwide financing special purpose entities for the financing of investment.

Updated on: 02/01/2017 11:15