Foreign direct investment flows to developing economies have fallen in 2023 to their lowest level since 2005, totaling $435 billion, as governments erect new trade and investment barriers, the World Bank reported on June 16th, ahead of the Conference on Financing for Development in Seville, Spain. High-income economies also saw foreign direct investment (FDI) flows drop to $336 billion, the lowest since 1996.
The decline comes at a time when economic growth has slowed and public debt has reached record highs. As a share of GDP, FDI inflows to developing economies were just 2.3% in 2023, about half the peak year of 2008. Half of all FDI-related measures announced by governments in developing economies this year have been restrictive, the highest share since 2010.
WB report Foreign Direct Investment in Retreat: Policies to Turn the Tide shows investment treaties boost FDI flows by more than 40% between signatory states, but just 380 new investment treaties came into force between 2010 and 2024, barely a third of the 1990s number. Countries more open to trade receive more FDI, with an extra 0.6% in FDI for each percentage-point increase in the trade-to-GDP ratio. However, new trade agreements signed over the past decade dropped by half.
“It’s not a coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs,” said Indermit Gill, the World Bank Group’s Chief Economist. “Private investment will now have to power economic growth, and FDI happens to be one of the most productive forms of private investment.”
The analysis shows a 10% increase in FDI inflows generates a 0.3% increase in real GDP after three years. The World Bank calls for easing FDI restrictions, improving investment climates, and advancing global cooperation to reverse the decline.
