foreign direct investment

Private-
sector investments that are made by a company into a foreign country. Foreign direct investments create a strong demand for a local currency and help boost the economy. With money coming into a country, strong foreign direct investment is one way governments can finance current account deficits. However, just as funds flow in, they also can flow out, creating economic turmoil.

Levels of foreign direct investment are closely watched to determine how attractive a country is to investors. If foreign direct investment levels drop, then other investors may become cautious about investing in that country. As a result, others may limit their foreign direct investment activities and also limit their purchases of stock or bonds issued by the country’s corporations.