Flows of foreign direct investment (FDI) into developing economies have fallen to their lowest level since 2005, according to new research from the World Bank. The decline is attributed to rising trade and investment barriers, which pose a significant threat to global efforts aimed at mobilizing financing for development.
In 2023, developing economies received $435 billion in FDI, marking the lowest level since 2005. This trend is mirrored in advanced economies, where FDI flows have also decreased significantly. High-income economies received just $336 billion in 2023, the lowest level since 1996. As a share of GDP, FDI inflows to developing economies were only 2.3 percent in 2023, approximately half of what they were during the peak year of 2008.
Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President, commented on the situation: “What we’re seeing is a result of public policy... Private investment will now have to power economic growth... Yet, in recent years governments have been busy erecting barriers to investment and trade when they should be deliberately taking them down.”
A meeting is scheduled from June 30 to July 3 in Seville, Spain. Representatives from various sectors will discuss how to mobilize financing needed for achieving key global and national development goals. The World Bank's analysis highlights necessary policies amidst slow economic growth and increasing public debt.
M. Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank Group stated: “With the global community gearing up for the Conference on Financing for Development, the sharp drop in FDI to developing economies should sound alarm bells... It will require bold domestic reforms... and decisive global cooperation.”
The report finds that investment treaties can boost FDI flows between signatory states by over 40%. However, only 380 new investment treaties came into force between 2010 and 2024—a third of those signed in the 1990s. Countries more open to trade tend to receive more FDI; however, new trade agreements have halved over the past decade.
In terms of external financing flows received by developing economies in 2023, FDI accounted for about half. Under favorable conditions, it significantly spurs economic growth; a study shows that a ten percent increase in FDI inflows results in a real GDP increase after three years.
The report identifies three policy priorities for developing economies: attracting more FDI by easing restrictions; amplifying economic benefits through trade integration and human capital development; and advancing global cooperation by accelerating policy initiatives that direct FDI flows where needed most.
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Download full report: https://www.worldbank.org/en/research/publication/foreign-direct-investment
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