INTERNATIONAL INVESTMENT INTERNATIONAL FINANCIAL FLOWS (CONT.) Slides by Cao Thi Hong Vinh – FTU I NT E RNAT I ONAL FL OW OF FI NANCI AL RE SOURCE S Official Flows FOREIGN AID ODA Grants OA Concessional loans Private Flows OOFs Non-Concessional Loans FDI fpi Porftoli o Equity Flows Private loans Bond Debt Flows Commercial Loans Bond Debt Flows X 2/12/2012 PRIVATE FLOWS Foreign direct investment (FDI) Foreign portfolio investment (FPI) (International) private loans (IPL) FDI - Definition OECD Benchmark Definition of FDI: Foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (‘‘direct investor’’) in an entity resident in an economy other than that of the investor (‘‘direct investment enterprise’’) FDI – Definition (cont.) Lasting interest: - The existence of a long-term relationship - A significant degree of influence on the management of the enterprise Via ownership of ≥ 10% voting power of incorporated enterprise, or equivalent of an unincorporated enterprise FDI – Definition (cont.) Incorporated vs Unincorporated enterprises - Formation cost - Formality level - Liability - Taxation - Ease of raising capital FDI – Definition (cont.) Vu Chi Loc (1997): Foreign direct investment is the category of international investment that an investor in one country invest the whole or a substantial part of a project's capital amount in another country to control or join in controlling activities of that project FDI – Characteristics A voice in management Threshold-equity ownership - OECD (IMF) - UNCTAD - Vietnam FDI – Characteristics (cont.) Return of investors Technology transfer FDI – Components Equity capital Reinvested earnings Other capital FPI – Definitions IMF, Balance of Payment: Portfolio investment is the category of international investment that covers investment in equity and debt securities, excluding any such instruments that are classified as direct investment or reserve assets FPI – Definitions (cont.) Vu Chi Loc (1997), Foreign Investment: Foreign portfolio investment is the category of international investment that an investor in one country buy securities of enterprises in another country equal to or below a certain threshold to gain profit but not control those security issuers FPI – Characteristics - No voice in management Sornarajah (2004) UNCTAD - Return of investors FPI – Characteristics (cont.) - Less stable - No technology transfer FPI – Puzzle Home bias puzzle in equity portfolio investment Vo, X V., (2010), The determinants of home bias puzzle in equity portfolio investment in Australia Transaction costs, cross-border capital controls, trade, government and market size IPL – Definitions Vu Chi Loc (1997), Foreign Investment: International Private Loan is the category of international indirect investment that investors lend their money and gain profits via interest IPL – Characteristics - Relation between investors and recipients - Usage right of invested money - Return of investor