Difference between fdi and fii posted on november 26, 2012 by legal india admin the foreign investment pertains to those investments which made by the residents of a country in the financial assets and production processes of another country. The 1990s saw global flows of foreign direct investment increase some. Fdi stands for foreign direct investment, which means the investment made by a company or individual entity into an entity or a company based in another country. It is often contrasted with foreign institutional investment fii, which is an investment fund, based in the country, other than the country, in which investment is made. Hence, fdi rather than fpi would be highly beneficial to the longterm economic growth. Foreign direct investment targets a specific enterprise. The fii increasing capital availability in general. Fii is the abbreviation for foreign international investor, which means the investment made by an investor or an investment fund, into the financial markets of another nation. The foreign direct investment is considered to be more stable than foreign institutional investor. Foreign direct investment and foreign portfolio investment. Has the foreign direct investment boosted economic growth. An informationbased trade off between foreign direct.
Economists tend to favor the free flow of capital across national borders, because it allows. In contrast to fdi, a portfolio investment is an investment made by an investor who is not involved in the management and daytoday. The primary research question addresses what factors motivate, attract, and sustain the fdi and fpi in thailand. While fdi and fpi both involve putting money into a foreign country, the two investment options differ considerably. Turkish fdis, analyzing why and how those companies chose outward countries for fdi, their competitors, and their performances in those countries. Relationship between foreign direct investment stock and. An fdi can be set up through a number of ways, such as through a subsidiary, joint venture, merger, acquisition, or through a foreign associate partnership. It is thus distinguished from a foreign portfolio investment by a notion of direct. This is a type of international investment in which the investor of a different country will have long. But the imf recommends using this percentage as the basic dividing line between direct investment and portfolio investment in the form of. In part a, i would like you understand the differences between fdi and fpi and why fpi has been the main culprit behind nearly all the financial crises that took place in the last 2530 years. Foreign direct investment in august dipped by about 60 per cent to approx. Both fdi and fpi involve the acquisition of a stake in an enterprise which is domiciled in another country. A foreign direct investment fdi is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.
We highlighted a key difference between the two types of investments. What are the pros and cons of foreign direct investment. There are differences, but they are not to the extent that is worth mentioning in this qu. As a result inflow of foreign direct investments has become a striking measure of. Finally a brief description of the main available sources of fdi is found in an annex. Section 6 reports on onward fdi flows for spain, with particular attention to the financial sector.
Foreign direct investment and foreign portfolio investment are two of the most common roads investors take to invest in an offshore economy. Difference between fdi and fii compare the difference. Foreign portfolio investment fpi refers to investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange. We now go into the details on the difference between fdi and fpi and. Direct investors are more informed about the fundamentals of their projects. A onetime careful reading of part a and paying attention to the class discussion maybe sufficient.
It does not include foreign investment into the stock markets. Scribd is the worlds largest social reading and publishing site. Although fdi and fpi are similar in that they both involve foreign investment, there are some very fundamental differences between the two. Foreign direct investment fdi vs foreign portfolio. S pardhasaradhi abstractunprecedented globalizations have witnessed double digit economic growth resulting in fierce competition and accelerated pace of innovation. Difference between foreign portfolio investment fpi and foreign direct investment fdi and sebi. On the contrary, fpi connotes a route to funds into a nation, where foreign residents can buy securities from the countrys stock or bond market. Come, lets understand the difference between fdi and fpi. Foreign direct investment fdi and foreign portfolio investment fpi kanchan kandel bba 2. Difference between foreign portfolio investment fpi and. Given all these considerations, it is important to differentiate between the growth effect of fdi and fpi inflows into the.
Key differences between fdi and fpi india infoline. No answer is posted for this question be the first to post answer. The model describes an informationbased trade off between direct investments and portfolio investments. The two models coincide in part with each other in this case and it may go down to choosing between flexibility and returns on investment. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. The paper investigates the impact of foreign direct investment fdi on economic growth using detailed sectoral data for fdi inflows to indonesia over the period 19972006. Definitions and sources structures owned by government entities, and or immovable equipment and objects directly owned by a foreign resident. Pdf foreign direct investment fdi and foreign portfolio investment fpi have been long considered as.
Pdf foreign direct and portfolio investment in the contemporary. Goldstein and razin 2006 analyse this question from the investors point of view. The paper develops a model of foreign direct investments fdi and foreign portfolio investments fpi. Which leads to the questions is there any connection between them, any causal relationship, and any time gap before the causal effect sets in, any long run association etc. Fdi stands for foreign direct investment, as the name suggests it is a direct investment made by an investor in a foreign country business in which they will have direct control, stake and will work together in achieving the longterm goals of the organization. Fii can enter the stock market easily and also withdraw from it easily.
In this paper, we propose such a framework, and provide a model of a trade o. Difference between fdi and fii with comparison chart. Foreign portfolio investment fpi is similar to fdi in a way that this is also direct investment but investment in only financial assets such as stocks, bonds etc. Basically foreign companies investing in india to expand their operations.
The main difference between fdi and fpi origins from a tradeoff between profitability and liquidity. Mohmmad iftekhar khan and amit banerji2014 conducted the study on drivers, impact and pattern of foreign direct investment in india. Foreign portfolio investment whereas fdi involves an investment in a foreign business, fpi involves the purchase of securities that can be easily bought or sold. Foreign direct investment and foreign portfolio investment in the. A comparison of inward and outward foreign direct investment.
Aim is to increase enterprise capacity or productivity or change management control. However on a whole, the difference between fdi and fpi may be hard to establish, especially if it is a relatively big foreign investor considering investing in stock options. Difference between fdi and fpi with comparison chart. Fdi stands for foreign direct investment, a component of a countrys national financial accounts. In the aggregate level, fdi is observed to have a positive effect on economic growth. For a country on the rise, fpi can bring about rapid development, helping an emerging economy move quickly to take advantage of economic opportunity, creating many new jobs and significant wealth. Fdi foreign direct investment is when a company such as british petroleum invests in building oil refineries in india, or telenor investing in cell phone infrastructure etc. However, when accounting for the different average growth performance across sectors.
Section 5 gives a quick overview of trends in fdi inward flows and stocks for the period 19802001. Unlike fdi, it is very easy to sell off the securities and pull out the foreign portfolio investment. Fdi and international portfolio investment complements. The difference between the two, which will become the cornerstone of his whole. What is the difference between fdi and fii legal india. Pdf foreign direct investment and foreign portfolio investment in. In addition, this study also examines the effects of the 1997 asian financial crisis on the inflows of fdi and fpi into. The unit root test and times series analysis shows that fpi and fdi are nonstationary. The real difference between the two is that while fdi aims to take control of the company in which investment is made, fpi aims to reap profits by investing in shares and bonds of the invested entity without controlling the company. The fundamental question is how investors decide whether to engage in fdi or fpi or in both types of investment. It also examines the fdi flows between different locations and their geographical distances in thailand.