Foreign Direct Investment (FDI) is the outcome of the mutual interest of multinational firms and hosts countries. FDI is generally defined as a form of long term international capital movement, made for the purpose of productive activity and accompanied by the intention of managerial control or participation in the management of a foreign firm.
FDI flows are usually preferred over other forms of external finance because they are non-debt creating, non-volatile and their returns depend on the performance of the projects financed by the investors. FDI also facilitates international trade and transfer of knowledge, skills and technology. In a world of increased competition and rapid technological change, their complimentary and catalytic role can be very valuable.
GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources.
Overall, Dunning concludes that foreign countries that attract investments by multinational firms have a large and growing market, a high gross domestic product (GDP), low production costs, and political stability.
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