FDI to Developing Economies Drops to Lowest Level Since 2005 as Global Barriers Rise

Strategic Insights -

As the global economy continues to experience a decline in foreign direct investment (FDI) flows, a new World Bank research has highlighted a worrying trend that threatens the ability of low- and middle-income countries to finance development and spur economic growth. In 2023, developing economies received just $435 billion in FDI, the weakest performance in nearly two decades. This downturn is part of a broader global slowdown, with high-income economies experiencing the lowest FDI inflows since 1996.

Key Takeaways:

  • FDI flows to developing economies have fallen to their lowest level since 2005, with developing economies receiving just $435 billion in 2023.
  • The decline in FDI is part of a broader global slowdown, with high-income economies experiencing the lowest inflows since 1996.
  • The growth impact of FDI is significant, with World Bank analysis suggesting that a 10% increase in FDI can raise real GDP by 0.3% within three years.
  • The World Bank recommends a three-pronged policy approach to reverse the decline in FDI, including removing restrictions, reviving reforms, and improving institutional quality.
  • Investment restrictions in developing economies have reached their highest levels since 2010, with half of all announced FDI-related policy measures being restrictive in the first half of 2025.
  • Bilateral investment treaties can boost FDI flows between signatories by more than 40%, but the number of such treaties has dwindled, with just 380 coming into force between 2010 and 2024.
  • Trade openness is strongly linked to FDI inflows, with each percentage-point increase in a country's trade-to-GDP ratio leading to a 0.6% rise in FDI.

Statistics:

  • $435 billion: the amount of FDI flow to developing economies in 2023, the lowest level since 2005.
  • 2.3%: the share of GDP accounted for by FDI in developing countries in 2023, roughly half the level recorded during the 2008 peak.
  • 10%: the increase in FDI that can raise real GDP by 0.3% within three years, according to World Bank analysis.
  • 0.8%: the growth impact of FDI in countries with strong institutions, robust human capital, higher trade openness, and lower levels of informality.
  • 74: the number of developing countries studied by the World Bank over the period from 1995 to 2019.
  • 1%: the increase in productivity associated with a 0.7% rise in FDI inflows.
  • 40%: the increase in FDI flows between signatories associated with bilateral investment treaties.
  • 380: the number of bilateral investment treaties that came into force between 2010 and 2024.
  • 11: the average number of new trade agreements per year in the 2010s.
  • 6: the average number of new trade agreements per year in the current decade.

Sources:

  • World Bank research, citing FDI flows to developing economies dropping to their lowest level since 2005.
  • World Bank Chief Economist and Senior Vice President Indermit Gill, warning of the decline in FDI and its implications for economic growth.