International guidelines for compiling statistics on foreign direct investment allow for two different measurement principles to be used. This explainer highlights how these statistics are calculated for the stock of investment using illustrative survey responses.

1. Foreign direct investment
(FDI) measurement
principles explained
October 2018

2. FDI statistics can be presented using one of two principles: the directional principle and
the asset and liability principle. Both principles are consistent with international guidance
on compiling FDI statistics.
What this explainer covers
• What is foreign direct investment?
• Directional principle
• Asset and liability principle
• Summary
• Notes
Introduction

3. What is foreign direct
investment (FDI)?

4. What is foreign direct investment? Step 1 of 3
UK direct investment
UK-based Company A owns at
least 10% of the voting shares
of overseas Company B; this
is outward UK direct
investment.
Overseas Company C owns at
least 10% of the voting shares
of UK-based Company D,
which is inward UK direct
investment.Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad
Inward
Outward

5. What is foreign direct investment? Step 2 of 3
Data collected by ONS
The outward FDI survey
records information from
Company A on its
transactions with overseas
subsidiary Company B.
The inward FDI survey
records information from
Company D on its
transactions with overseas
parent Company C.
Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad

6. What is foreign direct investment? Step 3 of 3
Example transactions
FDI positions include equity,
debt and other capital.
In this example, we focus on
inter-company loans and
ignore all other financial
instruments in FDI positions.
Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad
£200 billion loan
£100 billion loan
£100 billion loan
£20 billion loan

7. Directional principle

8. Directional principle: Step 1 of 3
Outward debt position
The directional principle looks
at net transactions of the
parent company and uses
data from one survey only.
Outward FDI looks at
transactions between
UK-based parent companies
and their overseas
subsidiaries. The example
outward debt position is £80
billion.
Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad
£100 billion loan
£20 billion loan
£80 billion

9. Directional principle: Step 2 of 3
Inward debt position
Inward FDI looks at
transactions between
overseas parent companies
and their UK-based
subsidiaries.
In this case, the inward debt
position is £100 billion.
Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad
£200 billion loan
£100 billion loan
£100 billion

10. Directional principle: Step 3 of 3
Net FDI position
The UK’s net FDI position is
the value of the outward
position less the inward
position.
Here, the net FDI position
according to the directional
principle is -£20 billion (£80
billion from the outward
position less £100 billion from
the inward position).Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad
-£20 billion
£100 billion
Inward position
£80 billion
Outward position

11. Asset and liability principle

12. Asset and liability principle: Step 1 of 3
Assets
Assets include all loans made
by UK-based companies to
their foreign parents or
subsidiaries.
Therefore, data from the
outward survey on Company
A and data from the inward
survey on Company D are
used. The total assets here
are £200 billion.
Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad
£100 billion loan
£100 billion loan
£200 billion

13. Asset and liability principle: Step 2 of 3
Liabilities
Liabilities include all loans
received by UK-based
companies from overseas
parents and subsidiaries.
Data from the outward
survey on Company B and
data from the inward survey
on Company C are used,
making the total liabilities
£220 billion.
Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad
£20 billion loan
£200 billion loan
£220 billion

14. Asset and liability principle: Step 3 of 3
Net FDI position
The UK’s net FDI position is
the value of assets less
liabilities.
In the example, the net FDI
position according to the
asset and liability principle is
-£20 billion (£200 billion assets
less £220 billion liabilities).
Company D
Subsidiary
Company B
Subsidiary
Company A
Parent
Company C
Parent
UK Abroad
-£20 billion
Liabilities
£220 billion
Assets
£200 billion

15. Summary: Part 1 of 2
£200 billion
– £220 billion
= -£20 billion
Outward position
Inward position
Net FDI position
Directional
Asset and
liability
£100 billion
+ £100 billion
= £200 billion
£20 billion
+ £200 billion
= £220 billion
£100 billion
– £20 billion
= £80 billion
£200 billion
– £100 billion
= £100 billion
£80 billion
– £100 billion
= -£20 billion
The net FDI position should
be the same whichever
principle is used.

16. Directional principle
This principle focuses on the direction of
influence, where the parent-affiliate
relationship is of interest
FDI positions, income and flows are shown
as net values, meaning that reverse
investments are deducted
These statistics are useful for country and
industry analysis
Asset and liability principle
This principle uses the residency of the
investor and its cross-border investments,
ignoring the direction of control
FDI positions, income and flows of both
parent and affiliate companies are grossed,
that is, added together
These statistics are consistent with the
balance of payments
Summary: Part 2 of 2

17. The term "subsidiary" strictly refers to investment relationships where the parent holds at
least 50% of voting shares of an overseas business. FDI also includes investment relationships
where between 10% and 49% of the voting shares are held; these are associate or affiliate
relationships.
The example only focuses on debt, but reverse investment can technically also include
reverse equity investment even though this is rare.
The example explains the differences between the investment principles for FDI positions.
Similar differences exist for FDI flows and earnings depending on the principle used, although
the net values should still be the same using either principle for all FDI statistics.
Notes