What is the difference between Free Trade Agreement(FTA) vs Foreign direct investment (FDI)?

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Shrikant Mishra asked 22-Feb-2021 in Business & Finance by Shrikant Mishra

What is the difference between Free Trade Agreement(FTA) vs Foreign direct investment (FDI)?

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Anonymous User answered 15-Jul-2021 by Anonymous User

Free trade agreement and Foreign Direct Investment are both internationally recognized means of trading & investing across various borders. 

  • It is a  pact between two or more nations to reduce barriers to imports and exports among them.
  • It is an investment made by a firm or individual in one country into business interests located in another country
  • There is little or no interference of Governments, tariffs, quotas, subsidies, or prohibitions during exchange of goods and services across international borders.
  • Governments levies some charge or share percentage in FDI, as they are the defining entity. 
  • The concept of free trade is the opposite of trade protectionism or economic isolationism
  • It works on some kind of protectionism by the government. For example, in India, the govt. gives only 51% share of FDI.
  • It allows countries to trade those products which are unavailable domestically, i.e. it encourages countries for foreign participation.
  • It establishes either effective control of or at least substantial influence over the decision-making of a foreign business. This is to restrict its domestic industries from falling into uncontrolled competition
  • Example: European Union is the biggest example of FTA. The member nations form an essentially borderless single entity for the purposes of trade, and the adoption of the euro as their trading currency. 

  • Example: Examples of foreign direct investments include mergers, acquisitions, retail, services, logistics, and manufacturing, etc.

China's economy has been fueled by an influx of FDI targeting the nation's high-tech manufacturing and services