Foreign direct investment (FDI) is the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country). The International Monetary Fund’s Balance of Payments Manual defines FDI as “an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of the enterprise”. The United Nation’s 1999 World Investment Report (UNCTAD, 1999) defines FDI as “an investment involving a longterm relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise, affiliate enterprise or foreign affiliate)”. The term “long-term” is used in the last definition in order to distinguish FDI from portfolio investment, which we dealt with in the previous chapter. FDI does not have the portfolio investment characteristic of being short term in nature, involving a high turnover of securities.