| Code | BM.KLT.DINV.CD.WD |
| Indicator Name | Foreign direct investment, net outflows (BoP, current US$) |
| Long definition | Foreign direct investment refers to direct investment equity flows in an economy. It is the sum of equity capital, reinvestment of earnings, and other capital. Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. Ownership of 10 percent or more of the ordinary shares of voting stock is the criterion for determining the existence of a direct investment relationship. This series shows net outflows of investment from the reporting economy to the rest of the world. Data are in current U.S. dollars. |
| Source | International Monetary Fund, Balance of Payments database, supplemented by data from the United Nations Conference on Trade and Development and official national sources. |
| Topic | Economic Policy & Debt: Balance of payments: Capital & financial account |
| Periodicity | Annual |
| Aggregation method | Sum |
| Statistical concept and methodology | Data on equity flows are based on balance of payments data reported by the International Monetary Fund (IMF). Foreign direct investment (FDI) data are supplemented by the World Bank staff estimates using data from the United Nations Conference on Trade and Development (UNCTAD) and official national sources.The internationally accepted definition of FDI (from the sixth edition of the IMF's Balance of Payments Manual [2009]), includes the following components: equity investment, including investment associated with equity that gives rise to control or influence; investment in indirectly influenced or controlled enterprises; investment in fellow enterprises; debt (except selected debt); and reverse investment. The Framework for Direct Investment Relationships provides criteria for determining whether cross-border ownership results in a direct investment relationship, based on control and influence. Distinguished from other kinds of international investment, FDI is made to establish a lasting interest in or effective management control over an enterprise in another country. A lasting interest in an investment enterprise typically involves establishing warehouses, manufacturing facilities, and other permanent or long-term organizations abroad. Direct investments may take the form of greenfield investment, where the investor starts a new venture in a foreign country by constructing new operational facilities; joint venture, where the investor enters into a partnership agreement with a company abroad to establish a new enterprise; or merger and acquisition, where the investor acquires an existing enterprise abroad. The IMF suggests that investments should account for at least 10 percent of voting stock to be counted as FDI. In practice many countries set a higher threshold. Many countries fail to report reinvested earnings, and the definition of long-term loans differs among countries. BoP refers to Balance of Payments. |
| Development relevance | Private financial flows - equity and debt - account for the bulk of development finance. Equity flows comprise foreign direct investment (FDI) and portfolio equity. Debt flows are financing raised through bond issuance, bank lending, and supplier credits. |
| Limitations and exceptions | FDI data do not give a complete picture of international investment in an economy. Balance of payments data on FDI do not include capital raised locally, an important source of investment financing in some developing countries. In addition, FDI data omit nonequity cross-border transactions such as intra-unit flows of goods and services.The volume of global private financial flows reported by the World Bank generally differs from that reported by other sources because of differences in sources, classification of economies, and method used to adjust and disaggregate reported information. In addition, particularly for debt financing, differences may also reflect how some installments of the transactions and certain offshore issuances are treated.Data on equity flows are shown for all countries for which data are available. |
| General comments | Note: Data starting from 2005 are based on the sixth edition of the IMF's Balance of Payments Manual (BPM6). |
| License URL | https://datacatalog.worldbank.org/public-licenses#cc-by |
| License Type | CC BY-4.0 |
As a seasoned expert in the field of international finance and economic policy, I bring a wealth of knowledge and experience to shed light on the intricacies of the CodeBM.KLT.DINV.CD.WD indicator, specifically addressing the concept of Foreign Direct Investment (FDI) and its associated components.
Firstly, the indicator in question, "Foreign direct investment, net outflows (BoP, current US$)," reflects the net outflows of investment from the reporting economy to the rest of the world, measured in current U.S. dollars. This data is crucial for understanding the economic interactions between countries and provides insights into the flow of capital on a global scale.
The definition of Foreign Direct Investment, as provided by the International Monetary Fund (IMF) and the sixth edition of the Balance of Payments Manual (BPM6), encompasses various components. FDI includes equity capital, reinvestment of earnings, and other capital, all of which contribute to direct investment equity flows in an economy. A key criterion for establishing a direct investment relationship is the ownership of 10 percent or more of the ordinary shares of voting stock, indicating a significant degree of influence or control over the management of an enterprise in another economy.
The Framework for Direct Investment Relationships plays a pivotal role in determining the existence of such relationships based on control and influence. This distinguishes FDI from other forms of international investment, as it is made with the intention of establishing a lasting interest in or effective management control over an enterprise in a foreign country. The lasting interest may involve various forms, such as greenfield investment, joint ventures, or mergers and acquisitions.
The periodicity of the data is annual, and the aggregation method involves the summation of relevant components. The statistical concept and methodology rely on balance of payments data reported by the IMF, supplemented by World Bank staff estimates using data from the United Nations Conference on Trade and Development (UNCTAD) and official national sources.
It's noteworthy that FDI data has limitations. It does not provide a complete picture of international investment, as it excludes capital raised locally, an important source of investment financing in some developing countries. Additionally, nonequity cross-border transactions, such as intra-unit flows of goods and services, are not captured in FDI data.
Understanding the relevance of FDI is crucial in the context of development finance. Private financial flows, including equity and debt, play a substantial role in financing development. Equity flows comprise FDI and portfolio equity, while debt flows encompass financing raised through bond issuance, bank lending, and supplier credits.
In conclusion, the CodeBM.KLT.DINV.CD.WD indicator offers valuable insights into the dynamics of foreign direct investment, serving as a key metric for assessing economic interactions between nations. The intricacies of FDI, as outlined by the IMF and related sources, provide a comprehensive understanding of the indicator and its significance in the realm of international finance and economic policy.
