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Is foreign direct investment (FDI) included in gross fixed capital formation?

Gross capital formation consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories, while foreign direct investment (FDI) relates to financing—that is, the purchase of shares in foreign companies where the buyer has a lasting interest (10 percent or more of voting stock). FDI can be used to finance fixed capital formation, however it can also be used to cover a deficit in the company or paying off a loan. Thus, you cannot say FDI is always included in gross fixed capital formation.

Note that some countries, such as Luxembourg, have large figures for FDI because they serve mainly as financial intermediaries, offering very favorable conditions such as tax exemptions for holding companies and corporate headquarters.

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