Understanding the Drop in Foreign Direct Investment in Developing Countries
Investment Hits a 20-Year Low
Foreign Direct Investment (FDI) in developing countries has fallen to its lowest level since 2005. The World Bank says that rising trade and investment barriers are to blame.
What the World Bank Report Tells Us
- Developing countries received only $435 billion in FDI in 2023.
- This is the lowest amount in nearly 20 years.
- FDI made up just 2.3% of these countries’ GDP in 2023.
- This is about half of what it was at its highest point in 2008.
Indermit Gill, the World Bank’s top economist, said, “This is a result of public policy. Public debt is reaching new highs while investment continues to fall.”
Barriers to Investment and Trade
Governments have been putting up barriers to investment and trade. Instead, they should be removing these barriers. The report also showed a big drop in new investment treaties. These treaties used to drive global capital flows.
- Only 380 new investment agreements were made between 2010 and 2024.
- This is less than half the number signed between 2000 and 2009.
Why FDI is Important for Economic Growth
Ayhan Kose, the World Bank’s deputy chief economist, said it’s crucial to turn this slowdown around. It is vital for creating jobs, steady growth, and reaching broader development goals.
The bank also noted that FDI could greatly boost economic growth. However, global economic policy uncertainty and geopolitical risk have soared to the highest level since the turn of the century.
Where FDI is Going
FDI is still highly concentrated. Between 2012 and 2023, nearly two-thirds of flows went to just 10 countries. China, India, and Brazil alone attracted almost half of all investment in emerging and developing markets.
In contrast, the 26 poorest countries received barely 2% of global FDI.
The Need for Global Teamwork
The World Bank called for greater global cooperation. This is needed to direct funding towards developing countries that face the largest investment shortfalls.
