FDI stands for :

The correct answer is Foreign Direct Investment.

Key Points

• FDI Stands for Foreign Direct Investment.
• It is an investment made by a firm or individual in one country into business interests located in another country.
• However, FID's are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies.
• It plays an important role in the economic development of a country. 
• There are 3 types of FDI:
  • Horizontal FDI
  • Vertical FDI
  • Conglomerate FDI
• Horizontal FDI: 
  • It is where funds are invested abroad in the same industry.
  • In other words, a business invests in a foreign firm that produces similar goods.
  • For example, a US-based firm may purchase Puma, a Germany-based firm.
  • They are both in the industry of sportswear and therefore would be classified as a form of horizontal FDI.
• Vertical FDI:-
  • Vertical FDI is where an investment is made within the supply chain, but not directly in the same industry.
  • In other words, a business invests in a foreign firm that it may supply or sell too. For example, Hershey's, a US Manufacturer may look to invest in cocoa products in Brazil.
  • This is known as backward vertical integration because the firm is purchasing a supplier, or potential supplier, in the supply chain.
• Conglomerate FDI:
  • It is where an investment is made in a completely different industry. In other words, it is not linked in any direct way to the investor's business.
  • For Example, Walmart, a US retailer, may invest in BMW, a German automobile manufacturer.

Important Points

• Advantages of FDI:
  • Boost to International Trade.
  • Reduced Regional and Global Tensions
  • Sharing of Technology, Knowledge, and Culture.
  • Diversification
  • Lower Costs and increased efficiencies
  • Tax Incentives
  • Employment and Economic Boost
• Disadvantages of FDI:
  • Foreign Control
  • Loss of Domestic Jobs
  • Risk of Political or Economic Change