Inward Investment

An inward investment (the opposite of an outward investment) involves an external or foreign entity either investing in or purchasing the goods of a local economy. A common type of inward investment is a foreign direct investment (FDI). This occurs when one company purchases another business or establishes new operations for an existing business in a country different than the one of its origin.

Inward investments or foreign direct investments often result in a significant number of mergers and acquisitions. Rather than creating new businesses, inward investments often occur when a foreign company acquires or merges with an existing company. Inward investments tend to help companies grow and can open borders for international integration.

According to the Bureau of Economic Analysis (BEA), which tracks expenditures by foreign direct investors into U.S. businesses, total FDI into U.S. businesses in 2016 was $373.4 billion. This was a 15% decrease from the prior year. One third of the total figure consisted of manufacturing investments ($129.4 billion). This was the largest industrial share. Within manufacturing, $64.7 billion consisted of chemicals. Additional notable expenditures included professional, scientific, and technical services, along with finance and insurance. Finally, greenfield investments, which help establish new businesses or expand existing foreign-owned businesses, comprised around $7.7 billion.

As an international example: in both 2017 and so far in 2018 Bangko Sentral ng Pilipinas (BSP).announced strong inward investments into the country, surpassing expectations. Preliminary data that the BSP announced on April 10, 2018 showed $919 million in FDI flows in January 2018 alone. This figure is up 56.7% from the $587 million recorded in January 2017.

While many believe that inward investment brings an influx of wealth into a country, helping diversify its base of revenues, potentially generating additional tax revenue, and offering jobs and the opportunity to build skills for many of its residents – a particular boon for several emerging market economies – with new investments can also come unwanted changes. These can consist of unsustainable development, such as poorly planned and rapidly built infrastructure projects and/or a lack of regard for local practices and customs.

While not everyone agrees on which markets are officially emerging, common countries that the main ratings organizations (IMF, MSCI, S&P, and Dow Jones) classify include: Brazil, Chile, China, Colombia, Hungary, Indonesia, India, Malaysia, Mexico, Peru, Philippines, Poland, Russia, South Africa, Thailand and Turkey.