Difference Between Foreign Trade and Foreign Investment

Edited by Diffzy | Updated on: August 26, 2022


Difference Between Foreign Trade and Foreign Investment Difference Between Foreign Trade and Foreign Investment

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Globalization has had an impact on marketplaces all over the world, changing their structure in the process, as well as how commerce has been conducted in recent years. One of the most significant changes brought about by globalization is foreign commerce, which describes the exchange of goods and services across country boundaries. The subsequent considerable development brought about by globalization is foreign investment, in which individuals and businesses invest money in companies with headquarters in other countries. Foreign investment and commerce both bring outside capital into the country, which sparks the development of the economy.

People frequently confuse the two concepts of trading and investing, which are two separate things. Trading refers to purchasing or selling a specific item, whereas investing refers to investing your money in another person's business or retaining their stock in exchange for a profit. Therefore, international trade and investment guide starting or growing a firm abroad. Foreign commerce encompasses any products that a nation or person imports or exports. On the other hand, foreign investments refer to businesses or people who put their capital, resources, or money into a foreign nation. For a country's growth, international commerce and foreign investment are crucial.

Foreign Trade Vs. Foreign Investment

Every nation in the world depends on imports in one way or another. In a similar vein, they also overproduce some goods to export. In the world, hardly a single nation produces what it needs. As a result, a country imports other goods while making the ones where it has a competitive advantage. The trading of goods between nations is regarded as the nation's foreign trade. Although there are significant distinctions between foreign trade and foreign investment, both are necessary to boost a nation's economy. Both of these economic strategies must be utilized by a government.

Difference Between Foreign Trade And Foreign Investment in Tabular Form

Table: Foreign Trade Vs. Foreign Investment
Parameters Of Comparison
Foreign Trade
Foreign Investment
Foreign commerce refers to exchanging products, services, and capital between two nations.
An investment in a firm made from a source outside the nation is referred to as a "foreign investment."
To prosper in the global economy and generate money.
To provide long-term returns.
Integration of international marketplaces.
More financial, technological, and other resource investments.
The manufacturers are given a chance to reach out to global markets.
It provides the business with long-term capital.
Asset endowment
Capital necessary
Gives a person or company an immediate profit.
Provides a firm, a person, or a country with long-term profit.
For Example
Consider the trade of crude oil from the Gulf States to the rest of the globe.
For instance, Ford Motors of Britain sold Land Rover and Jaguar to Tata Motors of India.
Movement of resources
Both the import and export of raw materials and completed goods are made possible by international trade.
The entry of cash and technology into a nation is made possible by foreign investment.

What Is Foreign Trade?

The act of exchanging goods and services on international marketplaces is known as foreign commerce. It makes products more readily available in markets in nations other than those in which they were created. Due to the almost comparable costs of similar items, there is a rise in the selection of commodities. As a result, the producers conflict with one another. A nation needs foreign commerce to meet its resource needs, which means that trade between countries occurs since no nation is self-sufficient. Therefore, it engages in business with the government that has these resources in large quantities to fulfill its natural or man-made resources needs.

Additionally, nations who are wealthy in certain minerals or other goods see it as profitable to export them to other countries. Import, export, and entrepot are the primary forms of international trade. Commerce Policy, which consists of the guiding principles and restraints that aid in managing the nation's exports and imports, is subject to international trade.

Features Of Foreign Trade

  1. Unfavorable Trade: There are many different things, including heavy machinery, metals, mineral oil, and agricultural tools. These products must be imported in large quantities from foreign nations by India. However, India's exports could not keep up with the demand. We ended up with unfavorable and adverse trading as a result.
  2. Adjusting Imports: India used to import manufactured items and food grains till recent years solely. However, oil is presently India's most important import. There has also been an upsurge in imports and exports of pearls and precious stones. Other imported goods include edible oils, paper, iron and steel, fertilizers, and fertilizers.
  3. Variation in Exports: Previously, India transported goods like jute, tea, cotton textiles, etc. However, the diversity of Indian exports is increasingly apparent. India now exports more than 7000 different items. India has also been recognized as a significant computer software supplier since 1991.
  4. Utilizing Selected Ports for Trading: There are just 12 significant posts on the Indian coast, yet more than 90% of the country's foreign trade occurs here. The remaining small and medium ports handle the minimal amount of international work that India conducts.
  5. Foreign Trade: Only Britain and a few other carefully chosen nations had trading relations with India before its independence. However, India has recently increased its trading ties with several other countries. As a result, nearly every area of the world has commercial connections. Additionally, India imports from more than 140 nations while exporting to more than 190 others.
  6. India's position in international trade: India has a population that makes up more than 16% of the world's total. However, less than 1% of world trade is conducted in India. As a result, it highlights how little India's role in international business is. However, this may be explained by the country's extensive size and internal commerce, which provide a stable foundation for domestic trade.

Foreign Trade Types

Foreign commerce may be divided into three categories, which are as follows:

  1. Import Trade: is when a nation buys products and services from another government. Here, the movement of products is from a foreign country to the country of origin. When a nation needs raw resources to produce goods or a finished good for domestic use, it imports such commodities and services.
  2. Export Trade: Selling products and services to another nation is known as export commerce. Here, the movement of products is from the country of origin to a foreign country. For example, when a country has an oversupply of a specific item or service, it exports it to another country.
  3. Entrepots Trade: This procedure is also known as re-export. In this type of commerce, a company buys items or services from one nation, processes them, and then sells them to a different government.

What Is Foreign Investment?

Capital is transferred from one nation to another through foreign investment, giving the foreign investors significant ownership holdings in domestic businesses and assets. Foreign investment means that foreigners have ownership holding powerful enough to allow them to influence corporate strategy or active involvement in management as part of their investment. Globalization is a contemporary trend, with international corporations investing across several nations. The term "foreign investment" describes foreign investments in other countries domestic businesses and assets. Large multinational firms will build new branches and increase their investments in other nations to find new prospects for economic growth.

Long-term physical investments made by a corporation in another nation, including buying property or opening factories, are referred to as foreign direct investments. In addition, corporations, financial institutions, and private investors who buy stock in foreign companies that trade on foreign exchange are engaged in foreign indirect investment. Another sort of foreign investment is commercial loans, which are bank loans given by local financial institutions to organizations or governments abroad.

Foreign Investment Types

A firm from one country can invest in another country in three possible ways. These investment strategies are as follows:

  1. A foreign corporation injects funds into another nation's businesses or manufacturing facilities in foreign direct investment. A firm's commercial attempt is referred to as an "FDI," or foreign direct investment, or an individual that owns a business or corporation in one nation while exercising financial influence over that nation. FDI may involve the planning of business projects, partnerships through mergers and acquisitions, the construction of new offices, etc.
  2. Foreign Portfolio Investment (FPI): is an investment made in Indian securities such as shares, government securities, corporate securities, convertible securities, framework securities, and so on by non-residents of India. With flexibility for entry and leave, the objective is to ensure a controllable revenue in India at a lower cost than FDI.
  3.  Investment by Foreign Institutions (FII): Investments made in real estate and other speculative resources by foreign businesses or individuals are known as a foreign institutional investment (FII). Common asset groups, flexible investment organizations, and other entities serve as financial supporters. The primary goal is to expand the portfolio to support and secure unusually high returns rather than to gain control of the situation in a short period of time.

The Advantages of Foreign Investment

The following are the principal benefits of foreign investment:

  1. Economic Expansion: Foreign capital infusion aids domestic businesses in boosting output and creating jobs. Since the staff at those enterprises would have more purchasing power, it might also increase market consumption. It assists in the economics of a nation's overall expansion.
  2. Transfer of Resources: Foreign investment delivers funds and enables local workers to acquire cutting-edge knowledge and abilities. It will aid in raising both their output and the caliber of the goods and services produced.
  3. Cost Aadvantages: Access to improved technology made possible by foreign investment can assist domestic businesses in increasing production efficiency and cutting costs.

Main Difference Between  Foreign Trade And Foreign Investment in Points

  • Foreign commerce is the movement of commodities and services outside the country's boundaries. Contrarily, foreign investment refers to a sort of investment made by a firm or individual from a country in the stock of a business based in a different country.
  • Since no nation has all the resources it needs, trading with other countries is necessary to meet global demand for the help a government lacks. In contrast, foreign investment typically provides the company's funds required from sources outside of the nation.
  • Markets in several nations are linked via international commerce. In contrast, foreign investment increases the company's acquisition by supplying it with more capital, technological advancements, and other resources.
  • Foreign commerce offers domestic producers a solid chance to seize international markets and broaden their market reach. But instead, foreign investment tends to provide long-term capital, and that too in a foreign currency, to the firm.
  • Gaining a profit and making a name for oneself on the global market are the main goals of international trade. Unlike a foreign investment, which is done to make money over the long term and acquire stock in a firm situated abroad.
  • Both the import and export of raw materials and completed goods are made possible by international trade. At the same time, the foreign investment allows for the transfer of capital and technological resources into a nation.
  • The primary goal of international commerce is to assist nations in gaining access to the commodities and services they require from global marketplaces. To make money abroad by selling their goods in such markets. Gaining access to the demand of another nation by investing money and acquiring stock in a local business is the primary goal of foreign investment. Make money by conducting business using that access.


Although their operations may differ slightly, international trade and foreign investment help a nation's economy and raise its GDP gradually. Better job possibilities, new and sophisticated technology, company promotion, etc., are all benefits of foreign direct investment. Foreign investment and trade increase a nation's Gross Domestic Product (GDP), which is a crucial driver of economic growth. In conclusion, foreign commerce entails purchasing and selling products and services; foreign investment, on the other hand, is the long-term financial commitment foreign businesses make.


  • https://www.toppr.com/guides/general-awareness/industrial-development-and-foreign-trade/foreign-trade/


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"Difference Between Foreign Trade and Foreign Investment." Diffzy.com, 2023. Mon. 20 Mar. 2023. <https://www.diffzy.com/article/difference-between-foreign-trade-and-foreign-investment-930>.

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