Slide 5

INTERNATIONAL INVESTMENT

INTERNATIONAL FINANCIAL
FLOWS (CONT.)

Slides by Cao Thi Hong Vinh – FTU

1


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
2/12/2012

2


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