NUEVO MILENO: DEL 2000 HASTA NUESTROS DÍAS

There are several di ferent types of investment which may be broadly referred to as international investment (synonymously "foreign investment," or "cross- border investment"). The principal categories of these are:

Foreign direct investment (FDI) is one type of cross-border investment. FDI is defined as the result of an individual or enterprise of one country (Country A) investing in an entity in another country (Country B) with the aim of establishing a strategic, long-term interest in and management control or in luence over that Country B entity. An FDI investor is commonly referred to as the parent company and the foreign entity may be referred to as a subsidiary, a branch, or more generally an a filiate. Given the di ficulty in determining intent or fact of management control or in luence, su ficient degree of control to qualify as FDI is generally assumed to exist when the foreign entity owns 10% or more of the foreign entity.

For example, a car company engages in foreign direct investment when it:

> establishes (and owns) a new manufacturing facility in another country;

> establishes and owns an a filiate in a tax haven country, even though it may not conduct much, if any business, in that a filiate;

> acquires 10% or more of an existing foreign firm.

FDI is di ferent from other types of international investment such as portfolio investment and non-equity investment.

Portfolio investment is considered to be a more limited and liquid investment than FDI. The portfolio investor may own shares in a foreign company, but does not have a significant or lasting interest in that company, neither does it exercise control over that company. Similarly a foreigner may hold private or sovereign debt issued by a firm or the government of Country B. The portfolio investor can relatively easily sell its shares or bonds, especially if they are traded in a market, moving money out of the foreign company if, for instance, it loses faith in the company’s management or the broader economic environment or simply sees better opportunities to profit from other investments. Flows of portfolio investment are generally considered to be more volatile than FDI, and can rather suddenly and dramatically reverse course, sometimes wreaking havoc on the host country in the process.

Contract-based business is sometimes considered as contract-based investment since it can create payment obligations similar to dividends from equity investment. Companies such as hotel chains and fast food companies may want to expand into foreign markets by franchising their operations: foreign-based individuals or enterprises will pay the hotel chain or fast food company for the right to use the company’s established brand, access its networks, and employ its know-how, but not actually own those operations abroad. Similarly, a firm with a patent or other intellectual property may grant a license to a foreign company to use its know-how or name in exchange for future payments. These types of contractual relationships can be quite similar to FDI in a number of

ways, for example by enabling cross-border economic engagement, transferring standards and technologies, creating or supporting jobs in the host country, and even enabling the Country A company to control aspects of the Country B company, but non-equity investments do not involve actual ownership of the Country B business by the Country A firm.

There are more questions about whether some other contractual arrangements should be considered as foreign investment. When a clothing company wants to reduce costs, it could move its existing manufacturing operations to a country with lower labor costs; this is clearly an example of FDI, or the company could find a garment manufacturer in the low-labor-cost country and contract to buy clothes from that manufacturer. Similarly, an agricultural company could establish its own farms in foreign countries to grow its crops (an example of FDI), or it could contract with local growers and agree to purchase their products, perhaps even providing technical assistance. Most observers would not consider these to be foreign investment since no capital crosses borders and no payment obligations similar to license fees or franchise fees result. Yet, they may nevertheless transfer technology and management skills similar to those expected of foreign direct investment.

Di ferent forms of cross-border capital lows include, among others:

> trade credit (credit o fered by suppliers, allowing purchasers to buy goods or services now, but pay later);

> loans (debt held by a bank to finance overseas companies, debt held by multilateral or regional financial institutions, corporate or sovereign bonds held by foreigners);

DIAGRAM What distinguishes FDI from other types of foreign investment?

Di ferent countries send and receive di ferent mixes of investment lows; di ferent types of investment lows can have di ferent impacts and warrant di ferent policy treatment in the countries sending and receiving it.