OECD Benchmark Definition of Foreign Direct Investment (Fifth Edition)

1. Introduction

Abstract

Foreign direct investment (FDI) is an important means of economic and financial integration of economies. The Benchmark Definition sets the international standards for the compilation of FDI statistics. Internationally comparable FDI statistics are an important input into economic and financial analysis. The revision of the Benchmark Definition was carried out in a transparent process and in close cooperation with national and international experts. The concepts, definitions, and recommendations in the Benchmark Definition are consistent with other macroeconomic manuals. This edition of the Benchmark Definition recommends new and revised presentations to enhance the analytical usefulness of FDI statistics. It also includes detailed guidance and numerical examples to support compilers.

1.1. FDI in the global economy

1. Foreign direct investment (FDI) is one of the principal ways that economies integrate into the global economy.1 FDI is not only an important channel for exchanging capital across countries but also for exchanging goods, services and knowledge, and serves to link and organise production across countries. FDI provides a means to create stable and long-lasting relationships between economies, and it can be an important vehicle for local enterprise development under the right policy environment. It may also help improve the competitive position of both the recipient (“host”) and the investing (“home”) economy. FDI provides an opportunity for the host and home economies to promote their products more widely in international markets. FDI is an important source of capital for a range of host and home economies.

2. FDI has grown rapidly in recent decades and both the destinations and sources of FDI have expanded with globalisation. The significant growth in the level of FDI reflects both an increase in the size and number of individual FDI transactions as well as the growing diversification of enterprises across economies and sectors of economic activity (industry). Large multinational enterprises (MNEs) are traditionally the dominant players in cross-border FDI transactions, but it is believed that small and medium-size enterprises have also become increasingly involved in FDI.

3. Internationally harmonised, timely and reliable statistics are essential to assess the trends and developments of FDI activity globally, regionally, and at the country level, and to assist policy makers in dealing with the challenges of global markets. The usefulness of direct investment statistics depends on their compliance with several quality parameters: (a) alignment with international standards; (b) avoiding inconsistencies and reducing global discrepancies; (c) achieving consistent statistical series over time; and (d) timeliness (see also Data Quality Assessment Framework (IMF, n.d[1])).

1.2. Purpose of the Benchmark Definition

4. The Benchmark Definition of Foreign Direct Investment (Benchmark Definition) sets the world standard for direct investment statistics.2 It is fully compatible with the underlying concepts and definitions of the Integrated Balance of Payments and International Investment Position Manual, Seventh Edition (BPM7, (IMF, Forthcoming[2])) and the 2025 System of National Accounts (2025 SNA, (United Nations et al., Forthcoming[3])).3 Within this overall framework, it is important to stress that the main focus of the Benchmark Definition is FDI statistics encompassing direct investment positions and related direct investment financial and income transactions (flows). Moreover, the Benchmark Definition, in terms of detail and disaggregation, goes beyond the aggregate statistics of the functional category of direct investment in the balance of payments and the international investment position.

5. To support these standards for FDI statistics, the Benchmark Definition provides guidance on how to compile comprehensive FDI statistics, consisting of:

• Aggregate FDI financial transaction, position, and income statistics compiled using the asset/liability principle with resident special purpose entities (SPEs) separately identified.

• The integrated FDI position statement (according to the asset/liability presentation), showing the relationship between the opening and ending positions resulting from transactions, revaluations (broken down into exchange rate changes and other price changes), and other changes in volume. Resident SPEs should be separately identified as for aggregate FDI positions.

• FDI financial transaction, income and position statistics disaggregated by immediate partner economy according to the directional principle with resident SPEs separately identified.

• FDI financial transaction, income and positions statistics disaggregated by sector of economic activity according to the directional principle with resident SPEs separately identified.

• Inward FDI positions and income disaggregated by ultimate investing economy (UIE) according to the directional principle.

• Outward FDI positions disaggregated by ultimate host economy (UHE).

• Pass-through funds by identifying outward FDI financial transactions, positions and income broken down by the residency of the ultimate controlling parent.

• Aggregate FDI financial transactions by type: greenfield (new) investment and extensions of capacity, mergers and acquisitions (M&A), and financial and corporate restructuring.

6. The Benchmark Definition serves several objectives. It provides:

• a single point of reference for compilers and users of FDI statistics

• clear guidance for individual countries compiling direct investment statistics as they develop or change their statistical systems

• an international standard taking into account the effects of globalisation that provides the basis for economic analysis, especially for international comparisons

• identification of topics and issues requiring research to further develop FDI statistics

• practical guidance to users of direct investment statistics, including the links of FDI with other macroeconomic statistics

• an objective basis for measuring methodological differences that may exist between national statistics that need to be taken into account both for cross-country and industry analysis of FDI.

7. Since publication of the first edition of the Benchmark Definition, compiling economies have made important progress in revising their FDI measurement systems towards greater compliance with its requirements and definitions. The OECD maintains a database of metadata for members’ FDI statistics to track implementation of the recommendations and to assist users in interpreting the statistics and understanding differences across members’ compilation systems and statistics. In addition, the Working Group on International Investment Statistics (WGIIS) Secretariat will monitor members’ implementation of the recommendations in this Benchmark Definition at regular intervals to ensure members’ alignment with international statistical standards and accurate metadata.

1.3. Why measure FDI?

8. Market opening, technological innovations and cheaper communication tools have allowed investors to diversify further their participation in competitive markets overseas. In consequence, a significant increase in cross-border capital movements, including direct investment, has become a key factor in international economic integration, more generally referred to as globalisation.

9. By the very nature of its motivation, FDI promotes stable and long-lasting economic links between economies through immediate access for direct investors in home economies to production units (businesses/enterprises) of the host economies. Within a proper policy framework, FDI assists host economies in developing local enterprises, promotes international trade through access to markets and contributes to the transfer of technology and know-how. In addition to its direct effects, FDI has an impact on the development of labour and financial markets and influences other aspects of economic performance through its spill-over effects.

10. Therefore, regular analysis of direct investment trends and developments is an integral part of most macroeconomic and cross-border financial analysis. An important element of analysis is international comparability of the statistics, which is supported by the measurement of FDI according to clear and unambiguous guidelines. It is of prime interest to policy analysts to identify the source and destination of this type of investment. In other words, identifying partner economies and industries for inward and outward investment is central to most analysis. There is also increasing interest in identifying FDI by type, as different types of FDI – e.g., M&A, greenfield investment and extensions of capacity – are likely to vary in their impacts, in particular, on the host economy. This Benchmark Definition introduces new analytical breakdowns and develops new concepts to reflect more useful FDI statistics on these dimensions: by partner economy, by industry, and by type.

11. Notwithstanding a number of significant improvements to the measurement of FDI introduced in this edition, there are topics that require additional research. These are topics for which research could not be concluded in time for the publication of this edition as well as new and developing topics that have arisen during the revision process. This further research is described in Annex D.

1.4. Revision of the Benchmark Definition

12. The main objectives of this revision to the Benchmark Definition are to:

• ensure consistency and alignment across all of the updated macroeconomic statistical manuals

• enhance the analytical usefulness of FDI statistics by proposing new and revised presentations of FDI statistics

• support statisticians in compiling FDI statistics by providing detailed guidance and examples

• identify several issues that require further research to enhance FDI statistics.

13. The revision was undertaken through a transparent revision process. The list of topics for research was developed in close cooperation with and based on inputs from the OECD WGIIS. The teams conducting the research consisted of national and international experts. The proposed recommendations were presented at meetings of the OECD WGIIS that endorsed the recommendations included in this Benchmark Definition.

1.5. An overview of foreign direct investment concepts

14. Direct investment is a category of cross-border investment made by a resident in one economy (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor. The motivation of the direct investor is a strategic long-term relationship with the direct investment enterprise to ensure a significant degree of influence by the direct investor in the management of the direct investment enterprise. The “lasting interest” is evidenced when the direct investor owns at least 10% of the voting power of the direct investment enterprise.4 Direct investment may also allow the direct investor to gain access to the economy of the direct investment enterprise, which it might otherwise not be able to do. The objectives of direct investment are different from those of portfolio investment, whereby investors do not generally expect to influence the management of the enterprise.

15. Direct investment enterprises are either corporations, which may either be subsidiaries (in which over 50% of the voting power is held) or associates (in which between 10% and 50% of the voting power is held) or they are quasi-corporations, such as branches (which are effectively 100% owned by their parents). The relationship between the direct investor and its direct investment enterprises may be complex and bear little or no relationship to management structures. Direct investment relationships are identified according to the criteria of the framework for direct investment relationships (FDIR), including both direct and indirect FDI relationships (see Chapter 2).

16. Direct investment statistics cover all cross-border transactions and positions between enterprises that are a part of the same enterprise group as defined in the FDIR. According to the standard (core) and supplementary presentations, FDI statistics include direct investment positions (equity and debt), direct investment income transactions (distributed earnings, reinvested earnings, and interest income) and direct investment financial transactions (equity and debt). Part of the difference between closing and opening FDI positions in a particular reporting period that cannot be explained by financial transactions is referred to as “other changes”. These “other changes” arise from revaluations, resulting from movements in exchange rates and other price changes, and changes in volume (see Chapter 5). Market value is the preferred conceptual basis to measure both direct investment positions and transactions (flows) (see Chapter 4).

17. Direct investment statistics are presented on an aggregate basis in terms of assets and liabilities and also, separately, on a directional basis (both for inward/outward FDI) with a geographical and industry disaggregation (see Chapter 7). For both inward and outward FDI on the directional basis, the allocation by partner economy uses the debtor/creditor principle. Directional data are also classified and analysed according to industrial activity. Directional data for both geographic and industry analysis should be derived from the basic information compiled on FDI assets and liabilities. It is recommended that the compiler separately identifies FDI transactions and positions effected through resident SPEs (see Section 6.2).

18. Cross-border positions/transactions involving pass-through funds (also referred to as “capital in transit”) distort the geographic and industry analysis. Therefore, compilers are strongly encouraged to provide positions data by the ultimate investing economy and the ultimate host economy in addition to the presentation by immediate investing and host economy (see Chapter 8).

19. Direct investment statistics are also disaggregated by major industry sectors based on the International Standard Industrial Classification (ISIC),5 according to the principal activity of the direct investment enterprise (in the reporting economy for inward investment and in the host economy for outward investment).

20. Moreover, considering user needs for information by the type of FDI, which provides an important dimension for economic analysis, compilers are encouraged to provide supplementary disaggregation of FDI transactions into greenfield investment and extensions of capacity, M&A, and corporate and financial restructuring (see Chapter 9).

1.6. Organisation of the Benchmark Definition

21. In providing guidance to national compilers and users of FDI statistics, the Benchmark Definition recommends harmonised standards to measure direct investment and proposes practical solutions to compilation problems. Where appropriate, more detailed information and guidance along with some concrete examples are provided in annexes to demonstrate or supplement the recommendations described in various sections of the main text. The FDI glossary is intended to assist both the compilers and users of direct investment statistics and includes definitions consistent with the BPM and SNA glossary for terms common to these standards. The topics addressed in the chapters are:

• Part 1. Overview of FDI

  • Chapter 2: Main concepts and definitions of foreign direct investment

  • Chapter 3: FDI financial and income transactions

  • Chapter 4: FDI positions

  • Chapter 5: Integrated FDI position statement

  • Chapter 6: Special cases

• Part 2: FDI series

  • Chapter 7: Standard and supplementary FDI series

  • Chapter 8: Disaggregation by economy and by industry

  • Chapter 9: FDI by type

• Part 3: Extending the use of FDI statistics

  • Chapter 10: Links between FDI and other statistics

  • Chapter 11: Communicating and using FDI statistics

References

[1] IMF (n.d), Data Quality Reference Site, https://dsbb.imf.org/dqrs/DQAF (accessed on 7 August 2024).

[2] IMF (Forthcoming), Integrated Balance of Payments and International Investment Position Manual, Seventh Edition (BPM7), International Monetary Fund, Washington D.C.

[3] United Nations et al. (Forthcoming), 2025 System of National Accounts, United Nations et al., New York.

Notes

← 1.  Foreign direct investment is sometimes also referred to simply as direct investment or as international direct investment.

← 2.  OECD Benchmark Definition of Foreign Direct Investment was first issued in 1983.

← 3.  References to BPM7 and 2025 SNA reflect their content as of 2 January 2025. Should relevant text be subject to further revisions, subsequent versions will update the references once they come into effect.

← 4.  While voting power is generally obtained through the purchase of equity, it is possible to have voting power that is not in the same proportion as the equity ownership (for example, share classes with different voting rights or ‘golden shares’ that have greater voting power than other shares).

← 5.  The current version of ISIC is the fifth revision – ISIC5.