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The Impact of Foreign Direct Investment in a Changing Global Economy

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Analyzing the effects of FDI on economies and investors worldwide.

description: a diverse group of business professionals engaged in a meeting, discussing foreign direct investment strategies and market trends.

Foreign direct investment (FDI) is a crucial component of the global economy, with countries around the world vying to attract foreign capital to fuel growth and development. FDI refers to when a company or individual from one country invests in a business or project in another country, establishing a lasting interest and significant control over the enterprise. This form of investment can take various forms, including mergers and acquisitions, greenfield investments, and joint ventures.

Terminology used by professionals in the foreign direct investment (FDI) world can be confusing. In this video series, the fDi team lifts the veil on FDI jargon, making complex concepts easy to understand for investors and policymakers alike. Understanding the nuances of FDI terminology is essential for navigating the global investment landscape and making informed decisions.

Foreign investment into China turned negative for the first time on record in the third quarter. Why it matters: The outflow of foreign capital from China reflects shifting global economic dynamics and investor sentiment. China has long been a magnet for FDI, but changing market conditions and geopolitical tensions are reshaping the investment landscape.

Building on its experience with the current FDI Screening Regulation over the past three years, the European Commission is proposing that new Regulation be implemented to further monitor and regulate foreign investments in strategic sectors. These Regulation aim to protect European industries and technologies from potential threats posed by foreign investors, particularly those with ties to state-controlled entities.

After years of policy signaling and debate, this week the White House released an executive order to create new Regulation on certain foreign investments in the United States. The order aims to strengthen national security by expanding the scope of investments subject to review and increasing transparency in the process. This move reflects growing concerns about the potential risks associated with foreign influence in critical sectors of the economy.

Marko Ketler, Nina Krajnc, and Monika Jejčič (Ketler & Partners Ltd., member of Karanović) authored this publication. As of July 1, 2023, a new FDI review framework will come into effect in Slovakia, granting authorities broader powers to scrutinize and regulate foreign investments. This legislative change reflects a broader trend towards stricter FDI Regulation globally, as countries seek to safeguard their national interests and strategic assets.

The FDI Act dramatically expands the powers of certain Slovak authorities to scrutinize investments from the perspective of national security and economic stability. This represents a significant shift in the regulatory landscape for foreign investors operating in Slovakia, as the government seeks to strike a balance between attracting foreign capital and protecting domestic interests.

Conventional wisdom on capital flows holds that foreign direct investment is for the long-term, while securities and other flows may be more speculative and volatile. FDI is often seen as a vote of confidence in the host country's economy, as investors commit significant resources and establish a lasting presence. By contrast, portfolio investments can be more easily liquidated and are subject to market fluctuations.

The more surprising development is that foreign direct investment (FDI) into China fell to -US$11.8 billion in Q3. FDI has indeed been shrinking in China, reflecting broader economic trends and shifting investor sentiment. While China remains a major destination for FDI, the recent outflow of capital underscores the evolving dynamics of the global economy and the challenges facing policymakers in attracting and retaining foreign investment.

Ticker: FDI

foreign direct investmentfdiglobal economyregulationsnational securityinvestment landscapeeconomic stabilitycapital flowsmarket dynamicsinvestor sentiment
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