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What are Foreign Investment Policies?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 04 December 2016
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Foreign investment policies are government regulations aimed at controlling the rate of foreign investments, including foreign direct investment. These regulations may be lax or very strict, depending on the nation and its overall economic goals. They are regularly updated to reflect changing economic conditions and trends, and are often available to the public through government websites and informational pamphlets, if people are curious to learn more. Economists also regularly discuss and analyze foreign investment policies in trade publications.

Most nations want to promote foreign investment to some degree, but not at the cost of domestic companies and economic activities. They may limit the kinds of investments available, as well as restricting the total funds permitted for use in foreign investments. Foreign investment policies cover both government-level investment and that conducted by institutional and corporate investors. Governments may use investment as a tool for foreign relations, as well as security, doing things like investing in infrastructure in another nation to increase stability.

Economists are involved in the development of foreign investment policies. They may work with foreign relations specialists, as well as representatives of investors and other governments. Typically, certain kinds of investments are always allowed, others require government permission, and some may be forbidden. A nation may ban foreign investment in a political enemy, for example, to avoid providing economic assistance to hostile nations. Restrictions on a nation-by-nation level can be seen in many policies, reflecting differing levels of friendliness between investment partners.

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As politics and economic conditions change, foreign investment policies usually need to be adjusted as well. Sometimes, countries receive mandates to do so in treaties, with one nation requesting a more open policy to promote investment, for example. Nations with very strict policies are generally considered isolationist. A country with limits on foreign investment may be targeted with reciprocal policies, making it harder for the nation to attract foreign investment to help it develop projects and programs.

In addition to being implemented on a national level, a slightly different kind of foreign investment policy can also be seen at other levels. Individual investment companies may have internal policies on how much they invest overseas and where. Certain people may also be advised by their employers to avoid foreign investments that might cause embarrassment or security risks for the employer; employees of the government, for example, may be barred from investing money in nations considered hostile.

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