How is the Foreign Direct Investment (FDI) calculated?

Foreign Direct Investment (FDI) is calculated by considering the inflows and outflows of investment between countries. The calculation involves tracking the amount of investment made by foreign entities into a country's economy, as well as the investment made by domestic entities into foreign economies.

To calculate FDI, the following steps are typically followed:

1. Identify the inflows: Inflows refer to the investment made by foreign entities into a country. This includes investments in various forms such as equity capital, reinvested earnings, and intra-company loans. The data for inflows is usually obtained from official sources like central banks or national statistical agencies.

2. Determine the outflows: Outflows represent the investment made by domestic entities into foreign economies. Similar to inflows, outflows can be in the form of equity capital, reinvested earnings, or intra-company loans. The data for outflows is also obtained from official sources.

3. Calculate the net FDI: Net FDI is obtained by subtracting the outflows from the inflows. This provides an indication of the overall direction and magnitude of foreign investment in a country's economy.

4. Express FDI as a percentage of GDP: To understand the significance of FDI in relation to the size of the economy, it is often expressed as a percentage of Gross Domestic Product (GDP). This ratio helps in comparing FDI across different countries and assessing its impact on economic development.

It is important to note that FDI calculations may vary slightly depending on the specific methodology used by different organizations or countries. However, the general approach involves tracking the inflows and outflows of investment to determine the net FDI and its relative importance to the economy.