Direct investment

The intention of a domestic economic entity to acquire a lasting interest (this means the existence of a long-term relationship between the direct investor and the direct investment enterprise) in an enterprise abroad, usually by acquiring at least ten percent of the voting shares. – The ECB breaks these down into – equity capital, which also includes mergers and acquisitions, – reinvested earnings, i.e. earnings that are not paid out to the investor in the form of a profit distribution, and – other investments, which mainly include loans within affiliated enterprises. The monitoring and breakdown of the corresponding flows is important for longer-term monetary policy. – In German balance of payments statistics, direct investment is defined somewhat differently; see the explanations in the monthly Statistical Supplement to the Monthly Report of the Deutsche Bundesbank; there, statistics “Capital transactions with foreign countries.” – Direct investment is basically always an export of capital. This is reflected either by the outflow of capital of domestic enterprises abroad or by the direct use of earnings generated locally. The impact of foreign investment on the flow of goods depends on whether, in the respective case, production steps are shifted abroad as a result or whether market development abroad is promoted. Empirical studies suggest that German direct investment tends to strengthen foreign trade. – See foreign trade, distribution principle, internationalization, investment, capital, capital flows, reverse flows, interest burden ratio. – Cf. the current values broken down by several characteristics in the annex “Euro area statistics,” section “External sector” of the respective ECB Monthly Report as well as ECB Monthly Report of July 2002, p. 71, Deutsche Bundesbank Monthly Report of January 2005, p. 29 et seq. (German banks’ investments abroad; p. 23 on the [difficult] definition criteria), Deutsche Bundesbank’s Monthly Report of March 2005, p. 43 (the statistics do not cover investments financed by local branches abroad), ECB Monthly Report of July 2005, pp. 62 et seq. (here also breakdown of capital flows; overviews), ECB Monthly Report of October 2005, p. 12 et seq. (breakdown of direct investment in the EU according to various criteria), Deutsche Bundesbank Monthly Report of January 2006, p. 28 et seq. (correlation between trade balance and direct investment), ECB Monthly Report of July 2006, pp. 83 ff. (here also on the question of when direct investment complements or replaces trade), Deutsche Bundesbank Monthly Report of September 2006, pp. 45 ff. (textbook presentation; rich in information, many overviews). ECB Monthly Bulletin of August 2008, p. 75 (impact of subprime crisis on direct investment small; overview 2004 to 2007), Deutsche Bundesbank Monthly Bulletin of December 2011, pp. 59 ff. (German direct investment since 2004; many overviews; important correlations; references in notes), Deutsche Bundesbank Annual Report 2013, p. 50 f. (direct investment and balance of payments; breakdown of German direct investment since 2000; explanatory notes), Deutsche Bundesbank Monthly Report of March 2014, pp. 49 ff. (relationship between direct investment and domestic investment activity; overview; references), Deutsche Bundesbank Monthly Report of June 2014, pp. 66 f. (new coverage¸ transition from the directional principle to the asset-liability principle), Deutsche Bundesbank Monthly Report of July 2014, p. 65 (German direct investment worldwide: overview).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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