Investment
12-1. Investment : is the production per unit time of goods which are not consumed but are to be used for future production
12-2. Investment function: Investment is often modeled as a function of income and interest rates, given by the relation:
I = f(Y, r).
An increase in income encourages higher investment, whereas a higher interest rate may discourage investment as it becomes more costly to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an opportunity cost of investing those funds rather than loaning them out for interest.
12-3. Foreign direct investment (FDI): is defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy .
12-4. Types of FDI:
12-4.1. By Direction:
12-4-1.1. Inward: Inward foreign direct investment is when foreign capital is invested in local resources.
12-4-1.2. Outward: Outward foreign direct investment, sometimes called "direct investment abroad", is when local capital is invested in foreign resources.
12-4.2. By Target:
12-4.2.1. Greenfield investment:Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the main target of a host nation’s support efforts because they create new production capacity and jobs, transfer technology, and can lead to linkages to the global marketplace.
12-4-2.2. Mergers and Acquisitions: Transfers of existing assets from local firms to foreign firms takes place; the main type of FDI. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity.
12-4.2.3.Horizontal FDI: It is investment in the same industry abroad as a firm operates in at home.
12-4.2.4. Vertical FDI:
12-4.2.4.1. Backward Vertical FDI: Where an industry abroad provides inputs for a firm s domestic production process.
12-4.2.4.2. Forward Vertical FDI: Where an industry abroad sells the outputs of a firm s domestic production.
12-4.3. By Motive:
12-4.3.1.Resource-Seeking: Investments which seek to get factors of production that are more efficient than those obtainable in the home economy of the firm.