“In an era of a global economy, we can’t survive without foreign investment. Our perspective on foreign investment needs to shift. We should welcome it.” - Andrew Zimbalist

Foreign Direct Investment (FDI) is a long-term investment made by a company or individual from one country to another business in interested countries, which involves establishing business operations, acquiring assets, and controlling a stake in a company in the foreign country. FDI contributes to economic growth in the host country by earning capital, technological advancement, and managing expertise. FDI inflows to developing economies indicate a notable decrease, according to a recent study by the World Bank and the executive summary by Global Economic Prospects. Since the global financial crisis in the 2000s, the FDI flows to Emerging Market and Developing Economies (EMDEs) have been on a steady decline as a proportion of Gross Domestic Product (GDP). The current report in 2023 shows that developing economies earned just $435 billion in FDI; this was the lowest level since 2005, nearly two decades. This decline attracts the developing economies as trade rises, and investment barriers pose a significant threat to global efforts to mobilize finance for development. In 2023, FDI flows in developing economies decline $336 billion, which is 2.3% of GDP. FDI inflows to those advanced economies were at their lowest level since 1996, which is less than half of their peak years in 2008. Roughly four of the six EMDE regions experienced lower FDI-to-GDP ratios during the same period, and FDI inflows relative to GDP have decreased in 60% of all EMDEs; ratios were lower in 2012–2023 than they were in 2000–2011. According to recent project plans, the most common type of greenfield FDI in EMDEs is declining by roughly 25% annually in 2024. A remarkable shift of the sectorial composition of FDI inflows from the early 2000s from manufacturing to service sectors is concentrated more in the flow of FDI to EMDEs in the largest economies, which is nearly 60% in 2019-2023, as about the same proportion of FDI to advanced economies turns to service, up to 45% in the 2000s, which reflects a rise in service-related FDI and a fall in manufacturing-related FDI to less than 30% in 2019-2023. Almost half of the FDI inflows on average are earned from the three largest EMDEs, like China, India, and Brazil, in 2012-23, which received more than 10% in 2000-2011, while India and Brazil received 10 and 6 percent, respectively. In order to achieve the objectives set out by the government, international organizations, civil society, and private sector representatives who convened in Seville, Spain, from June 30 to July 3 to discuss mobilizing financing for development goals, it will be imperative to ease investment restrictions, according to a recent World Bank analysis. globally highlighting strong policies to achieve these goals amid slowed economic growth, re-high public debt, and shrinking foreign-aid budgets for easing investment restrictions. Although the effects of FDI inflows on economic growth vary greatly among EMDs, they are generally greater in nations with advantageous structural arrangements. Enduring weak economic growth, a slowing pace of trade and investment, and a loss of action in advancing reforms to develop investment circumstances were all important factors. They weakened the EMDEs FDI inflows; those positive impacts on economic output in EMDEs are results. A 3% increase in GDP is predicted for every 10% increase in FDI inflows.

After three years, the impact will vary depending on the country’s characteristics, but in developing economies with strong institutions, better human capital development, and less informality, the effect will be stronger and reach up to 0.8 percent. Coming up with low-income countries (LICs) falling behind other EMDs in many of these dimensions, which impact on the growth of FDI on GDP, is more fragile in LICs. The certain ways in which EMDEs try to attract FDI from conditions in institutional changes, macroeconomic policy, and trade are those FDI inflows that are strongly correlated with economic growth and international trade. Economies with higher trade integration earned more FDI inflows, whereas a large decline in FDI flows to EMDEs occurred during the last two global recessions in 2009 and 2020. According to a measure of global value chain participation, for every percentage point increase in trade-to-GDP, the share of exports increases by 0.6 percent, and for every percentage point increase in value-added trade, the share of exports increases by 0.3 percent. More than 40 percent of the rise in FDI is from the investment treaty made between signatory states. The current condition is not strong enough to generate FDI flows to developing economies due to uncertainty in global economic policy, and global risk has surged to increased levels since the turn of the century. Investment planning and trade agreements have slowed; in the years between 2010 and 2024, only 380 new treaties on investment were in force, which is very little compared to 870 treaties between the years 2000 and 2009. Trade-distorting policy measures have multiplied, and progress on enhancing the institutional quality favorable to investment conditions has stalled in these economies. The trend toward less restrictiveness in 2010 is different from the rise in newly declared FDI policy measures to EMDEs, which have become more restrictive in the 2020s. To magnify the benefits of FDI and advance global economies, cooperation to support FDI flows and EMDEs should adhere to a three-strategy drawn out to attract FDI, which depends upon maximizing the benefits through reforms to foster a favorable investment climate and macroeconomic stability, removing international trade and investment barriers, human capital development, and growth of financial services. Global cooperation is key to maintaining a rules-based international system for cross-border investment trade. International organizations can support EMDEs through technical and financial assistance for structural reforms. This tends FDI to enhance its impact, especially in global economic division and uncertainty. The World Bank Group plays an active role by mobilizing private capital by reducing risk in investment, improving market conditions in developing economies, and increasing the relation with the private sector.