Foreign investment consists of flows of capital from one nation to another in exchange for symbolic ownership stakes in domestic companies or other domestic assets. Ordinarily, foreign investment implies that foreigners take a somewhat active role in management as a part of their investment. Foreign investment typically works both ways, especially between countries of relatively equal economic stature.
To put it mildly, foreign investment is when a company or individual from one nation invests in assets or ownership stakes of a company based in another nation. Currently, there is a trend toward globalization whereby large multinational firms often have investments in a great variety of countries. It’s become very common for the big /multinational companies to branch out and invest money in companies located in other countries. These companies may be opening up new manufacturing plants and attracted to cheaper labour, production, and fewer taxes in another country. They may make a foreign investment in another firm outside of their country because the firm being purchased has specific technology, products, or access to additional customers that the purchasing firm wants. Overall, foreign investment in a country is a good sign that often leads to growth of jobs and income. As more foreign investment comes into a country, it can lead to even greater investments because others see the country as economically stable.
Foreign investment can be split into direct and indirect investments. Direct investments are when companies make physical investments and purchases in buildings, factories, machines, and other equipment outside of their home country. Indirect investments are when companies or financial institutions purchase positions or stakes in companies on a foreign stock exchange. This type of investment isn’t as favourable as direct investment because the home country can sell their investments very easily on the next day if they choose to do so. Direct investments are usually a longer-term investment in the economy of a foreign country. It’s not nearly as easy to sell factories, machines and buildings as it is to sell shares of stock.