About the data
Definitions
Data sources
The data on foreign direct investment (FDI) are based on balance of payments data reported by the International Monetary Fund (IMF), supplemented by data on net foreign direct investment reported by the OECD and official national sources. The data suffer from deficiencies relating to definitions, coverage, and cross-country comparability.
The internationally accepted definition of FDI is that provided in the fifth edition of the IMF's Balance of Payments Manual (1993). To ensure a common definition of FDI, the OECD has also published a definition, in consultation with the IMF, Eurostat, and the United Nations. Both definitions describe FDI as having three components: equity investments, reinvested earnings, and short- and long-term intercompany loans between parent firms and foreign affiliates. But many economies report data that exclude at least one of these components—often reinvested earnings—and that can lead to serious underestimation. In addition, the definition of "long-term" differs among economies. And the balance of payments data on FDI do not include capital raised in the host economies, which has become an important source of financing for FDI projects. Because of the widely differing definitions and collection methods used, relying on a variety of sources for FDI data can lead to very different results for a single economy. There is also increasing awareness that FDI data are limited because they capture only cross-border investment flows involving equity participation and omit nonequity cross-border transactions such as intrafirm flows of goods and services.
Despite the drawbacks, the data on FDI are invaluable for analytical purposes. For a detailed discussion of FDI data issues see the World Bank's World Debt Tables 1993–94 (volume 1, chapter 3).
Portfolio flow data are compiled from several official and market sources, including Euromoney databases and publications, Micropal Inc., Lipper Analytical Services, published reports of private investment houses, central banks, national securities and exchange commissions, national stock exchanges, and the World Bank's Debtor Reporting System (DRS).
Gross statistics on international bond and equity issues are produced by aggregating individual transactions reported by market sources. The net values of public and publicly guaranteed bonds are reported through the DRS by member economies that have received either IBRD loans or IDA credits. Information on private nonguaranteed bonds is collected from market sources, since official national sources reporting to the DRS are not asked to report the breakdown between private nonguaranteed bonds and private nonguaranteed loans. Information on transactions by nonresidents in local equity markets is gathered from national authorities, investment positions of mutual funds, and market sources.
The volume of portfolio investment reported by the World Bank generally differs from that reported by other sources because of differences in the classification of economies, in the sources, and in the method used to adjust and disaggregate reported information (there are differences in particular with the balance of payments data reported by the IMF; see table 4.22). Differences in reporting arise particularly for foreign investments in local equity markets, where there is a lack of clarity, adequate disaggregation, and comprehensive and periodic reporting in many developing economies. By contrast, capital flows through international debt and equity instruments are well recorded, and the differences in reporting lie primarily in differences in the classification of economies, in the exchange rates used, in whether particular tranches of the transactions are included, or in the treatment of certain offshore issuances.
Definitions
• Net private capital flows consist of private debt and nondebt flows. Private debt flows include commercial bank lending, bonds, and other private credits; nondebt private flows are foreign direct investment and portfolio equity investment.
• Foreign direct investment is net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.
• Portfolio investment flows are net and include non-debt-creating portfolio equity flows (the sum of country funds, depository receipts, and direct purchases of shares by foreign investors) and portfolio debt flows (bond issues purchased by foreign investors).
• Bank and trade-related lending covers commercial bank lending and other private credits.
The principal source of information for the table is reports to the World Bank's DRS from member economies that have received IBRD loans or IDA credits. These data are compiled and published in the World Bank's annual Global Development Finance (formerly World Debt Tables). Additional information has been drawn from the data files of the World Bank and the IMF.
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