What is 'foreign direct investment' (FDI)?

Foreign direct investment (FDI) refers to the investment made by a company or individual in business interests in another country. This typically involves the establishment of business operations, such as subsidiaries, joint ventures, or acquisitions that allow the investor to exert significant control or influence over the foreign business entity.

FDI is distinct in that it represents a long-term interest and a substantial investment in a foreign market, contrasting with portfolio investments, which are more passive and often limited to financial assets like stocks and bonds. The ability to actively manage and participate in foreign operations is a key aspect of what defines FDI, making it a vital topic in international business discussions.