Foreign Trade vs Foreign Investment – Difference and Comparison

What is Foreign Trade?

The exchange of commodities and services between nations is known as “foreign trade.” This kind of trading creates a global financial system where supply and demand for specific items and prices are influenced by happenings worldwide.

The market can be impacted by political stability, catastrophic events, and the weather. Global trading can be risky, but it can also present new possibilities for expansion.

The term refers to the transfer of products, services, or capital between nations. Foreign commerce is essential to the development and growth of companies.

Foreign trade has a number of advantages, including the chance to find new customers, the chance to find new products, and the possibility to boost profitability. Foreign trade comes with some dangers: exposure to currency swings and political unpredictability.

What is Foreign Investment?

An investment made in another country by a company with its headquarters in one nation is referred to as a “foreign investment.” The entity has substantial influence over the company in question.

The goal of foreign investment is to acquire a financial stake in the company, which can be accomplished in a number of ways, including ownership, voting rights, or even just a cash loan.

When investors from one country invest in firms in another, this is known as “foreign investment.” A firm investor may purchase stocks or bonds through a portfolio.

Foreign investment is seen as a way to spur economic growth, create jobs, and transfer technology. It can also be a source of political tension as countries worry about losing control of their businesses and resources.

Difference Between Foreign Trade and Foreign Investment

Although the terms “foreign trade” and “foreign investment” are frequently used interchangeably, they have very different meanings.

Foreign investment refers to foreigners owning property in another nation; foreign trade refers to the exchange of products and services between two nations. Foreign commerce boosts economic growth and development for both of the involved nations.

Comparison Between Foreign Trade and Foreign Investment

Parameters of comparisonForeign TradeForeign Investment  
DefinitionThe exchange of commodities and services between two nations is called “foreign trade.”A foreign investment is an investment made by a person or entity in one country in business interests in another country.
PurposeThe primary goal of international trade is to boost a nation’s economy.They frequently get access to new markets, acquire resources, or benefit from cheaper labor.
BenefitsForeign commerce contributes to economic prosperity. It promotes competition and results in higher-quality goods and services.  It can also aid in employment creation and income growth. It may even result in the transfer of best practices from one country to another in rare situations.
The flow of resourcesThere are several reasons, one of which is that the global economy has become more integrated. As a result, the movement of resources across countries has become a major concern.Foreign investment has numerous benefits, including the transfer of technology and the creation of new jobs.    
Foreign Portfolio Investment
Foreign Institutional Investment
Foreign Direct Investment