From countries focused on modernizing to the richest members of the Organization for Economic Cooperation and Development (OECD), the world is awash with opportunities for development.
While central bankers have control over an economy’s monetary levels and politicians control fiscal affairs, these two groups often cannot jumpstart growth without outside help. Enter foreign direct investment (FDI).
In simple terms, FDI is the movement of capital from one country to another. A common example of FDI involves companies that build factories abroad or that invest in the development of an oil field.
The latest trend in FDI flows, as of the first half of 2024, shows a total of $802 billion, with $488 billion of that occurring in the first quarter. Modest growth from 2023 through 2024 is seen as possible.
The three countries that received the most FDI capital in the the first half of 2024 were the United States, Brazil, and Mexico.
The three countries that made the greatest amounts of FDI in the same period were the U.S., China, and Japan.
Key Takeaways
- Foreign direct investment (FDI) capital flows from one company to others.
- The country that received the most FDI as a percentage of GDP in 2023 was Malta.
- The country that received the most FDI in total dollars in 2023 and the first half of 2024 was the U.S.
- Statutory restrictions in countries worldwide can be challenging to FDI.
- FDI has the potential to help countries reach many essential goals for their populations, such as reducing hunger, poverty, and unemployment, and improving education, the environment, sustainable living, and peace and justice.
Global FDI Trends
Global FDI dropped to $1.3 trillion in 2023 due to weakening economic conditions and rising geopolitical crises. In particular, FDI in developing countries was $867 billion, a drop of 7%.
According to the annual report by the United Nations Conference on Trade & Development (UNCTAD), there was a 26% fall in international project finance deals in 2023. Such FDI is vital to infrastructure development and its absence has the greatest impact on the poorer countries.
There is some possibility for growth in 2024 overall because of the easing of financial conditions and beneficial national policies and international agreements that are attempting to drive investment transactions.
The report noted the growth in investments in some global manufacturing sectors like automotive and electronics in those parts of the world with access to major financial markets. Unfortunately, however, “many developing countries remain marginalized, struggling to attract foreign investment and participate in global production networks.”
Regulatory Restrictions Across the Globe
The rise of more isolationist industrial policies, worldwide economic problems, and national security issues can all impact FDI.
According to UNCTAD, despite these protectionist tendencies, most countries are open to foreign investment. However, mainly because of national security fears, many governments have enhanced foreign investment screening policies as a safeguard.
Broadly, statutory restrictions in 2023 posed a consistent challenge to FDI.
FDI Recipients by Percentage of GDP
Each year, more than $1 trillion in FDI flows into countries around the world, but the distribution is far from equal.
According to the World Bank, the 10 countries with the greatest share of FDI as a percentage of GDP in 2023 were:
- Malta
- Guyana
- Singapore
- Hong Kong SAR (China)
- Namibia
- Palau
- Liberia
- Bahrain
- Antiqua & Barbuda
- Mozambique
Important
“Investment is not just about capital flows. It is about human potential, environmental stewardship and the enduring pursuit of a more equitable and sustainable world.”
U.N. Trade and Development Secretary General, Rebeca Grynspan
FDI Recipients by Total Dollars
Viewing FDI as a percentage of GDP does not reflect the size of the economy being invested in. Ranking economies by total FDI dollars received presents a different picture of recipients compared to FDI as a percentage of GDP.
- United States: $348.7 billion
- Singapore: $175.2 billion
- Hong Kong (China): $111.1 billion
- Brazil: $64.2 billion
- Canada: $47.7 billion
- China: $42.7 billion
- British Virgin Islands: $39.8 billion
- Spain: $33.7 billion
- Italy: $33.1 billion
- Australia: $32.7 billion
These 10 countries together received the bulk of global FDI. While several of these countries have natural resources that could entice foreign investment, the real draw may be the size of their populations.
A large population means a lot of consumers, and a multinational company generally wants to be near its consumers. Proximity allows a company to reduce the cost of shipping goods and allows it to keep a close eye on shifting consumer tastes. Sitting in an office halfway across the world could cause a company to lose out.
FDI as Trouble-Maker
Foreign investment is often used as a political scapegoat for the world’s ills, and there are certainly times when it deserves the rap:
- Big companies can run roughshod over developing countries. They can breed corruption and remove a country’s wealth rather than inject it back into the domestic economy. This has spawned the concept of a resource curse.
- Globalization, which tends to go hand in hand with FDI, is not the most well-liked economic concept, even if it does benefit consumers.
- Officials under pressure to fix the economy can earn brownie points by pointing a finger at foreign companies that they claim are bent on owning the country.
- They may back legislation and non-tariff barriers to trade intended to promote domestic buying and to reduce the ability of outsiders to gain market access.
Note
Foreign direct investment is a key to countries reaching sustainable development goals (SDGs) such as ending hunger, ending poverty, improving a population’s health and well-being, providing quality education, and maintaining peace and justice.
The Upside of FDI
Foreign direct investment can play a vital role in how a country achieves important goals for its population:
- Capital can provide the means for individuals to better feed, educate, and care for themselves by increasing the opportunities to work and earn consistently.
- FDI can help a country prosper and attain meaningful social and environmental goals.
- Inflows are a sign that the outside world considers an economy a worthwhile place to move capital.
- FDI allows countries without the know-how to develop resources that it otherwise would be without.
- Profits from the investment of capital can be used to build infrastructure, improve healthcare and education, improve productivity and modernize industries.
- FDI can help countries benefit from innovative technologies that promote their economic growth and resiliency.
Where Does the Most in Foreign Direct Investment Come From?
That changes from year to year. But in the first half of 2024, the U.S. made the greatest amount of foreign direct investment.
What Are Sustainable Development Goals?
SDGs are goals established by the U.N. and adopted by all member countries in 2015 that address the urgent need to eliminate essential deprivations and achieve important social, economic, and environmental standards. FDI plays a major role in helping countries meet these goals.
What Type of Country Attracts Foreign Direct Investment?
Countries with little political upheaval, few trade barriers, that don’t impose noteworthy restrictions on investment, have stable governments, are friendly to business, have attractive tax systems and incentives, and have a large and affordable labor market are popular destinations for FDI.
The Bottom Line
How can a country entice other countries in the world to supply it with capital? One way to attract it is to create a business climate that makes foreign investors feel as if their capital is safe.
Global FDI fell 2% to $1.3 trillion in 2023. In developing countries, it fell 7% to $867 billion. However, in the first half of 2024, global FDI grew to $802 billion. Modest growth for 2024 is considered challenging but possible.