Foreign Direct Investment (FDI) Seeking
Foreign direct investment (FDI) is a type of investment where a company or individual from one country invests in a business or asset in another country. FDI can be categorized into different types based on the investor’s motivations.
Types of FDI Seeking
Natural resource-seeking investment
This type of FDI is motivated by the investor’s interest in accessing and exploiting natural resources in the host country.
Key Facts
- Types of FDI: FDI seeking can be categorized into different types based on the investor’s motivations:
- Natural resource-seeking investment: Motivated by investor interest in accessing and exploiting natural resources.
- Market-seeking investment: Motivated by investor interest in serving domestic or regional markets.
- Strategic asset-seeking investment: Motivated by investor interest in acquiring strategic assets (brands, human capital, distribution networks, etc.) through mergers and acquisitions.
- Efficiency-seeking investment: FDI that comes into a country seeking to benefit from factors that enable it to compete in international markets.
- Characteristics and advantages of efficiency-seeking FDI:
- Export-oriented: Efficiency-seeking FDI is not only focused on domestic markets but also plays a key role in export diversification.
- Job creation and productivity: Efficiency-seeking FDI can create new jobs that are more diversified and have greater productivity and value.
- Technology and expertise transfer: It can lead to the transfer of knowledge, technology, and expertise, which can boost research and development (R&D) and economic upgrading.
- Industry growth: Efficiency-seeking FDI has been critical in kick-starting the growth of technology-intensive industries in certain countries.
- Importance for developing countries: Efficiency-seeking FDI can help developing countries integrate into the global economy, move up the value chain, and reduce the gap between the richest and poorest countries. It can contribute to economic growth, export diversification, job creation, and technology transfer.
Market-seeking investment
This type of FDI is motivated by the investor’s interest in serving domestic or regional markets in the host country.
Strategic asset-seeking investment
This type of FDI is motivated by the investor’s interest in acquiring strategic assets (such as brands, human capital, or distribution networks) in the host country, often through mergers and acquisitions.
Efficiency-seeking investment
This type of FDI is motivated by the investor’s desire to benefit from factors in the host country that enable it to compete in international markets.
Characteristics and Advantages of Efficiency-Seeking FDI
Efficiency-seeking FDI is often export-oriented and plays a key role in export diversification. It can also lead to the creation of new jobs that are more diversified and have greater productivity and value. Additionally, efficiency-seeking FDI can facilitate the transfer of knowledge, technology, and expertise, which can boost research and development (R&D) and economic upgrading. In some cases, efficiency-seeking FDI has been critical in kick-starting the growth of technology-intensive industries in certain countries.
Importance for Developing Countries
Efficiency-seeking FDI can be particularly important for developing countries looking to integrate into the global economy and move up the value chain. It can contribute to economic growth, export diversification, job creation, and technology transfer. By attracting efficiency-seeking FDI, developing countries can reduce the gap between the richest and poorest countries.
Citations
- Why does efficiency-seeking FDI matter?
- A guide to the key FDI drivers
- Foreign Direct Investment into Developing Asian Countries: The Role of Market Seeking, Resource Seeking and Efficiency Seeking Factors
FAQs
What is FDI seeking?
FDI seeking refers to the motivations of foreign investors when they invest in a business or asset in another country.
What are the different types of FDI seeking?
The four main types of FDI seeking are natural resource-seeking, market-seeking, strategic asset-seeking, and efficiency-seeking.
What are the characteristics of efficiency-seeking FDI?
Efficiency-seeking FDI is often export-oriented, creates new jobs, and facilitates the transfer of knowledge and technology.
What are the advantages of efficiency-seeking FDI?
Efficiency-seeking FDI can contribute to economic growth, export diversification, job creation, and technology transfer, particularly in developing countries.
Why is efficiency-seeking FDI important for developing countries?
Efficiency-seeking FDI can help developing countries integrate into the global economy, move up the value chain, and reduce the gap between the richest and poorest countries.
What are some examples of efficiency-seeking FDI?
Examples of efficiency-seeking FDI include investments in export-oriented manufacturing, research and development facilities, and technology-intensive industries.
How can developing countries attract efficiency-seeking FDI?
Developing countries can attract efficiency-seeking FDI by creating a favorable investment climate, investing in infrastructure, and developing a skilled workforce.
What are the challenges to attracting efficiency-seeking FDI?
Challenges to attracting efficiency-seeking FDI include political instability, corruption, and a lack of skilled labor.