What is foreign direct investment (FDI)?

Foreign direct investment (FDI) refers specifically to the investment made by individuals or companies in business operations in a foreign country. This typically involves acquiring a lasting interest in an enterprise located in another nation, which may include establishing new business ventures, acquiring existing businesses, or expanding operations. FDI is characterized by the investor's ability to exert significant influence or control over the foreign business operations, distinguishing it from other forms of investment, such as portfolio investment, where no such control is sought.

The other options highlight investments that do not align with the definition of FDI. For example, investing in domestic stocks only pertains to financial markets within one's own country and does not involve cross-border business operations. Government investments, while they may sometimes occur as FDI, do not encapsulate the broader and more common understanding of FDI as it pertains to private individuals and companies. Lastly, investing in real estate within the home country does not represent foreign investment, as FDI necessitates investment outside of the investor's own country. Understanding FDI is essential for grasping how businesses engage in the global economy.