Foreign direct investment transactions inform about inward and outward investments within a given period. Both inflows and outflows are estimated after deducting disinvestments and reimbursement of intercompany loans from new investments. The difference between inflows and outflows indicates whether a country is a net exporter or importer of capital in the form of FDI; this is referred to as total net flows. As shown in figure D.1.1, the OECD area is traditionally an exporter of FDI capital as total FDI outflows from the region are higher than total inflows.

Foreign direct investment comprises three types of transactions: equity finance, reinvestment of earnings and intercompany loans.

The underlying motivation of direct investment is to establish a long-term relationship between the direct investor and the direct investment enterprise. FDI stocks provide the basis for structural analysis of investments accumulated over time. Expressed as a percentage of GDP, FDI stocks provide comparative analysis across countries of the extent of the FDI relationship between the direct investor and the direct investment enterprise.

The analysis by partner country indicates the interdependence of economies. OECD countries’ overseas investments are traditionally concentrated on investments in non-resident enterprises located within the OECD area. Non-OECD countries attract only a smaller portion of OECD capital and their share in the total outward investment position of OECD countries has grown more slowly than overall investments in the OECD area.

Detailed foreign direct investment positions classified by industry sectors are compiled by the OECD. These series enable measures of the contribution of various sectors of individual countries to the global economy, as well as measures of the dependence of host economies on sectors of investment from abroad. For the convenience of the present document, industries are aggregated into two main categories: a) manufacturing; and b) services (see next section). A sector not covered in the analysis is the primary sector. In addition, confidential data which cannot be disclosed to the public are included in category “unallocated”.

The relative decline in investments in manufacturing industries (see previous section) was offset by increase of investments in services sector. The share of investments became more pronounced as from the mid 1990s, accounting for around 40% of total OECD investment stocks (inward investments at USD 760 bil lion and outward investments at USD 950 billion).

Net direct investment income is measured after netting income of resident direct investment enterprises (debits) and income of affiliates abroad (credits). Equity income forms the largest share of direct investment income.

The rate of return on direct investment is calculated as a ratio of direct investment income to direct investment positions at a given point in time. This indicator contributes to the analysis of the profitability of enterprises even though other information is necessary for a complete assessment.

This indicator usually contributes to the assessment of the profitability of direct investment enterprises, along with the analysis of reinvestment of earnings. It is calculated: a) as a ratio of dividends paid by resident enterprises to their non-resident direct investors (debits) over inward FDI positions; and b as a ratio of dividends received by resident investors from foreign affiliates (credits) over outward FDI positions. Increases in the ratios generally imply improvements in the profitability of enterprises. However, a complete assessment of the profitability of enterprises cannot be based solely on statistical observations but have to be complemented by other factors.

Mergers and acquisitions (M&As) refer to the change of ownership in existing enterprises to achieve strategic and financial objectives. Enterprises engage in cross-border M&As for several reasons: to strengthen their market position by expanding their businesses to other opportunities on the global market; to obtain a critical size in the world market; to exploit other firms’ complementary assets such as innovations, technology, etc.; to access other advantages such as company reputation, economies of scale, brands or design; to diversify products and markets, etc.