Post on 26-Oct-2014
Slides by Cao Thi Hong Vinh – FTU 1
INTERNATIONAL FINANCIAL
FLOWS (CONT.)
INTERNATIONAL INVESTMENT
05/04/2012 2
Official Flows
FOREIGN AID
Private Flows
FDI fpi Private
loans
Porftolio
Equity
Flows
Bond
Debt
Flows
Commercial
Loans
Bond Debt Flows X 2
ODA OA OOFs
Non-Concessional
Loans Grants Concessional
loans
PRIVATE FLOWS
Foreign direct investment (FDI)
Foreign portfolio investment (FPI)
(International) private loans (IPL)
FDI - Definition
OECD Benchmark Definition of FDI:
Foreign direct investment reflects the
objective of obtaining a lasting interest
by a resident entity in one economy
(‘‘direct investor’’) in an entity resident in
an economy other than that of the
investor (‘‘direct investment enterprise’’)
FDI – Definition (cont.)
Lasting interest:
- The existence of a long-term relationship
- A significant degree of influence on the management of the enterprise
Via ownership of ≥ 10% voting power of
incorporated enterprise, or equivalent of an unincorporated enterprise
FDI – Definition (cont.) Incorporated vs. Unincorporated enterprises
OECD definition: http://stats.oecd.org/glossary/detail.asp?ID=2800
- An unincorporated enterprise is a producer unit which is not
incorporated as a legal entity separate from the owner
(household, government or foreign resident);
- the fixed and other assets used in unincorporated
enterprises do not belong to the enterprises but to their
owners, the enterprises as such cannot engage in
transactions with other economic units nor can they enter
into contractual relationships with other units nor incur
liabilities on their own behalf;
- their owners are personally liable, without limit, for any
debts or obligations incurred in the course of production.
FDI – Definition (cont.) Incorporated vs. Unincorporated enterprises
OECD definition: http://stats.oecd.org/glossary/detail.asp?ID=455
An incorporated enterprise (or a corporation) is a legal entity,
created for the purpose of producing goods or services for the
market, that may be a source of profit or other financial gain to
its owner(s); it is collectively owned by shareholders who have
the authority to appoint directors responsible for its general
management.
FDI – Definition (cont.)
Incorporated vs. Unincorporated
enterprises
- Formation cost
- Formality level
- Liability
- Taxation
- Ease of raising capital
FDI – Definition (cont.)
Vu Chi Loc (1997):
Foreign direct investment is the category
of international investment that an
investor in one country invest the whole
or a substantial part of a project's
capital amount in another country to
control or join in controlling activities of
that project.
FDI – Characteristics
A voice in management
Threshold-equity ownership
- OECD (IMF)
- UNCTAD
- Vietnam
FDI – Characteristics (cont.)
Return of investors
Technology transfer
FDI – Components
Equity capital
Reinvested earnings
Other capital
13
Types of FDI
Moosa, I.A. (2002), Foreign Direct Investment: Theory,
Evidence and Practice
Perspectives of investor:
+ Horizontal FDI:
to produce the same or similar kinds of
products abroad (in host country) as in home
country
14
Types of FDI (cont.)
Perspectives of investor (cont.):
+ Vertical FDI:
. Exploit raw materials (Backward vertical FDI) or
. Be nearer to the consumers through the
acquisition of distribution outlets (Forward vertical
FDI)
+ Conglomerate FDI:
Manufacture products not manufactured by the
parent company at home
15
Types of FDI (cont.)
Perspectives of host country:
+ Import-substituting FDI
+ Export-increasing FDI
+ Government-initiated FDI
16
Modes of FDI entry
Greenfield vs. M&A
Greenfield: (UNCTAD)
undertaken to set up a new production
venture in a host country
17
Modes of FDI entry (cont.)
M & A: (UNCTAD)
Investing firm merge with or acquire an
existing firm
transfer of assets from domestic to
foreigner investors
18
Modes of FDI entry (cont.)
M & A: (UNCTAD)
- Acquisition: transfer of assets and
operations from a local to a foreign
company.
- Merger: Assets and operations of two
firms are combined to set up a new
legal entity.
19
Modes of FDI entry (cont.)
M & A: (UNCTAD)
- Advantages:
+ speed of attaining desired goals
(market, production capacity, profit)
+ strategic assets,
+ others (market, gains via synergies,
risk reduction…)
20
Modes of FDI entry (cont.)
M & A (cont.):
- Concerns:
+ economic (no productive capacity,
lay-offs and closing, dominance..),
+ social..(culture, identity,
sovereignty..)
FPI – Definitions
IMF, Balance of Payment:
Portfolio investment is the category of
international investment that covers
investment in equity and debt
securities, excluding any such
instruments that are classified as direct
investment or reserve assets
FPI – Definitions (cont.)
Vu Chi Loc (1997), Foreign Investment:
Foreign portfolio investment is the
category of international investment that
an investor in one country buy
securities of enterprises in another
country equal to or below a certain
threshold to gain profit but not control
those security issuers.
FPI – Characteristics
- No voice in management
Sornarajah (2004)
UNCTAD
- Return of investors
FPI – Characteristics (cont.)
- Less stable
- No technology transfer
IPL – Definitions
Vu Chi Loc (1997), Foreign Investment:
International Private Loan is the category
of international indirect investment that
investors lend their money and gain
profits via interest.
IPL – Characteristics
- Relation between investors and
recipients
- Usage right of invested money
- Return of investor