Part V The International Law of Foreign Investment, XXXI Foreign Investment in Practice

Subject(s):

Corporations — International investment law — International monetary law — Standards of treatment

This chapter gives an overview of foreign investment, as it is a crucial factor for economic and social development, sustained economic growth, poverty reduction, improved infrastructure, and financial stability. Favourable conditions for foreign (and domestic) investments include a legal framework with reliable protection of property rights, an independent and effective judicial system, legal certainty, and well-defined rules both for governmental interference and for entrepreneurial activities. In addition, foreign investment is divided into direct investment and portfolio (indirect) investment. Various elements distinguish direct investment from other forms of investing capital: transfer of funds to an enterprise with a long-term perspective, some degree of control over the management, and the assumption of entrepreneurial risk. By contrast, portfolio investment means the acquisition of shares, stocks, and bonds by foreign investors under terms which do not imply significant control over the respective business or other entrepreneurial functions of the investor.