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Foreign Direct Investment Cheat Sheet

The core ideas of Foreign Direct Investment distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/foreign-direct-investment/cheatsheet

Quick Reference

Greenfield Investment

A form of FDI where a parent company builds its operations in a foreign country from the ground up, including new production facilities, offices, and distribution hubs. This creates entirely new productive capacity in the host economy.

Mergers and Acquisitions (Cross-Border M&A)

A form of FDI in which a foreign investor purchases an existing company or merges with it to gain control. Unlike greenfield investment, cross-border M&A transfers ownership of existing assets rather than creating new ones.

OLI Framework (Eclectic Paradigm)

A theory by John Dunning that explains why firms engage in FDI through three advantages: Ownership advantages (proprietary technology, brand), Location advantages (market access, resources), and Internalization advantages (keeping operations in-house rather than licensing).

Bilateral Investment Treaty (BIT)

An agreement between two countries that establishes the terms and conditions for private investment by nationals and companies of one country in the other, providing protections such as fair treatment, protection from expropriation, and access to international arbitration.

Special Economic Zone (SEZ)

A geographically delimited area within a country that offers more favorable economic regulations, such as tax incentives, reduced tariffs, and streamlined customs procedures, to attract foreign and domestic investment.

Transfer Pricing

The pricing of goods, services, and intangible assets transferred between related entities within a multinational corporation across borders. It can be used strategically to shift profits to low-tax jurisdictions, raising regulatory concerns.

Profit Repatriation

The process by which a multinational corporation transfers profits earned in a foreign host country back to its home country. High levels of profit repatriation can reduce the net benefit of FDI to the host economy.

Crowding Out vs. Crowding In

Crowding out occurs when FDI displaces domestic firms that cannot compete with the superior resources of foreign entrants. Crowding in occurs when FDI stimulates additional domestic investment through supply chain linkages, technology spillovers, and enhanced competition.

Technology Spillover

The unintended transfer of knowledge, skills, and technology from foreign-invested firms to domestic firms and workers in the host country, occurring through labor mobility, supply chain relationships, and demonstration effects.

Investor-State Dispute Settlement (ISDS)

A mechanism in international investment agreements that allows foreign investors to bring arbitration claims directly against a host government if the investor believes the government has violated its treaty obligations, such as through expropriation or discriminatory treatment.

Key Terms at a Glance

Foreign Direct Investment (FDI):A cross-border investment involving a lasting interest and significant control (typically 10%+ ownership) in a foreign enterprise.
Greenfield Investment:Building entirely new operations, facilities, or plants in a foreign country from the ground up.
Brownfield Investment:Purchasing or leasing existing production facilities in a foreign country to launch new production activities.
Cross-Border M&A:Acquiring or merging with an existing foreign company to gain control, transferring ownership rather than creating new assets.
OLI Framework:John Dunning's eclectic paradigm explaining FDI through Ownership, Location, and Internalization advantages.
Bilateral Investment Treaty (BIT):An agreement between two countries establishing terms and protections for cross-border private investment.
Special Economic Zone (SEZ):A designated area offering favorable regulations and incentives to attract foreign and domestic investment.
Transfer Pricing:The pricing of intra-firm transactions between related entities of a multinational corporation across borders.
Profit Repatriation:The transfer of earnings from a foreign subsidiary back to the parent company's home country.
Technology Spillover:The unintended diffusion of knowledge, skills, and technology from foreign firms to the domestic economy.
Crowding Out:The displacement of domestic firms by foreign competitors with superior resources and capabilities.
Crowding In:FDI stimulating additional domestic investment through supply chain linkages and competitive dynamics.
Expropriation:Government seizure of foreign-owned assets, either directly through nationalization or indirectly through regulatory measures.
ISDS:Investor-State Dispute Settlement, a mechanism allowing foreign investors to bring arbitration claims against host governments.
Multinational Corporation (MNC):A company that operates in multiple countries through subsidiaries, branches, or affiliates and is the primary vehicle for FDI.

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Foreign Direct Investment Cheat Sheet - Quick Reference Guide | PiqCue