Foreign direct investment (FDI) is a lasting investment into a country by an investor located in a different country. There are two types of FDI: inward and outward foreign direct investments. They result in a net FDI inflow, which can be positive or negative. There are many reasons why FDIs can be appealing, for example a company can take advantage of cheaper wages or lower corporate taxes in the target country by purchasing an existing company or financing an expansion of a business there.
Data is latest available from the United Nations Conference on Trade and Development (UNCTAD) on the years from 2008 to 2011.
FDI Flows by Region 2008-2011 (in Millions $US )
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Note/1: For a detailed explanation of the UN system of country classification please see here: http://unstats.un.org/unsd/methods/m49/m49regin.htm
FDI Flows by Country 2008-2011 (in Millions $US)
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The official definition of FDI by the Organization for Economic Co-operation and Development states that, “Direct investment is a category of cross-border investment made by a resident in one economy (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor.”
The “lasting interest” is defined as an investment that allows the investor to own at least 10% of the voting power of the target enterprise. FDIs do not include the purchase of shares.
FDIs are considered a “key driver of international economic integration” that, given the right policy framework, “can provide financial stability, promote economic development and enhance the well being of societies.”
In the context of growing global financial integration in the last few decades, FDI flows have been increasing steadily, at least until the recent economic crisis that began in 2007-2008, when things started to turn sour.
However, according to UNCTAD, which manages worldwide FDI statistics, 2011 saw some growth of global FDI inflows, coming in at US$1,524 billion compared to US$1,309 billion in 2010. It is still a far cry from pre-recession levels. Even in 2008, for example, when the crisis had already begun, global FDI inflows measured US$1,790 billion.
In any case, the strongest growth in 2011 came from Asia and Latin America, but developed countries also registered a small increase in their numbers, which marked a first important step out of the crisis.
However, the situation worsened again in 2012. According to the January 2013 UNCTAD Investment Trends Monitor, FDI inflows declined by 18% in 2012 over 2011, dropping to an estimated US$1.3 trillion, just above 2010 levels. UNCTAD forecasts that, “the FDI recovery that had started in 2010 and 2011 will take longer than expected.” FDI flows are expected to rise in 2013 and 2014, but only moderately so.
