Manual on Statistics of International Trade in Services

 
Box 7.   Measuring foreign direct investment 
Following BPM5 and BD3, direct investment is the category of international investment that reflects the 
objective, by a resident entity in one economy, of obtaining a lasting interest in an enterprise resident in another 
economy (the resident entity is the direct investor and the enterprise is the direct investment enterprise).  The 
lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a 
significant degree of influence on the management of the enterprise.  Direct investment comprises not only the 
initial transaction between the investor and the enterprise but also all subsequent transactions between them and 
among affiliated enterprises. 
For statistical purposes, a direct investment enterprise is defined as an incorporated or unincorporated enterprise 
in which a direct investor, who is resident in another economy, owns 10 per cent or more of the ordinary shares or 
voting power (for an incorporated enterprise) or the equivalent (for an unincorporated enterprise).  Direct 
investment enterprises comprise those entities that are subsidiaries (a non-resident investor owns more than 50 per 
cent), associates (a non-resident investor owns from 10 to 50 per cent), and branches (wholly or jointly owned 
unincorporated enterprises) either directly or indirectly owned by the direct investor.  By encompassing enterprises 
that are not majority owned by the direct investor, the concept of direct investment is broader than the concept of 
majority-owned affiliate used by the present Manual in defining the universe of firms covered by FATS statistics. 
Direct investors may be individuals; incorporated or unincorporated private or public enterprises; associated 
groups of individuals or enterprises; Governments or government agencies;  or other organizations that own
 

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direct investment enterprises in economies other than those in which the direct investors reside.  The members of 
an associated group of individuals or enterprises are, through their combined ownership of 10 per cent or more, 
deemed to have an influence on management that is similar to the influence of a single individual or enterprise with 
the same degree of ownership. 
Compilation of statistics on direct investment will entail collection or estimation of three broad types of data - 
direct investment income, direct investment financial transactions and direct investment position (stock). 
Direct investment income consists of income on equity and income on debt, and covers income accruing to a 
direct investor in one economy from the ownership of direct investment capital (see below) in an enterprise in 
another economy.  Income on direct investment is presented on a net basis for both direct investment abroad and 
direct investment in the reporting economy (i.e., receipts of income on equity and income on debt less payments of 
income on equity and income on debt for each).  Income on equity is subdivided into (a) distributed income 
(dividends and distributed branch profits) and (b) reinvested earnings and undistributed branch profits.  Income on 
debt consists of interest payable (i.e., accrued) between direct investors and direct investment enterprises; both 
interest payable by the direct investor to the direct investment enterprise and interest payable by the direct 
investment enterprise to the direct investor are included. 
Direct investment financial transactions consist of (a) capital provided (either directly or through other related 
enterprises) by a direct investor to a direct investment enterprise or (b) capital received from a direct investment 
enterprise by a direct investor.  For the economy in which the investment is located, such capital includes funds 
provided directly by the direct investor and funds provided by other direct investment enterprises associated with 
the same direct investor.  For the economy of the direct investor, such capital includes only funds provided by the 
resident investor.  Direct investment financial transactions are recorded primarily on a directional basis––resident 
direct investment abroad and non-resident direct investment in the reporting economy––and are broken down into 
equity capital, reinvested earnings and other capital, the last category being associated with various inter-company 
debt transactions. 
The  direct investment position measures the value of the stock of direct investment.  In principle, the position 
should be measured at current market prices as of the dates involved (that is, beginnings or ends of reference 
periods).  In practice, however, there may be some departures from the market price principle.  In many cases, book 
values from the balance sheets of direct investment enterprises (or of direct investors) will be used to determine the 
value of the stock of direct investments. 
Following BD3, in both inward and outward direct investment statistics, the direct investment enterprise should, 
if feasible, be analyzed both by its own industrial activity and by the industrial activity of the direct investor.  The 
minimum level of detail recommended by BD3 is that of nine major divisions of ISIC.
a
 For the purposes of 
consistency with FATS statistics compiled as recommended by the present Manual, a further breakdown to the 
level of the Manual’s ISIC Categories for Foreign Affiliates (see paras. 4.41-4.43 below) would be desirable. 
BPM5 and BD3 provide additional details on the treatment of direct investment, including special instructions for 
the treatment of intercompany transactions between affiliated banks (depository institutions) and between affiliated 
financial intermediaries (e.g., security dealers).  Compilation hints can be found in the IMF Balance of Payments 
Compilation Guide (Washington, D.C., 1995). 
a
 
See BD3, para. 49 and ISIC, Rev.3, para. 133.
 
 
4.10.  Interest in FATS statistics has arisen from two 
primary sources.  The first is GATS. By including 
commercial presence and presence of natural persons as 
modes of supply, it has created a new need for 
information describing the activities of foreign-owned or 
-controlled firms in host economies. The information 
will mainly relate to commercial presence. However,