Global Foreign Investment Trends

After peaking at $2 trillion in 2007, foreign investment flows around the world have struggled to rebound in recent years. Last year, global foreign investment flows amounted to $1.45 trillion and have averaged near that level over the past five years. In the years before the global financial crisis, foreign investment flows soared, growing by more than 500% from the average level of the mid-1990s. However, given the poor state of the economy in many of the world’s leading economic regions, it is unclear if this type of growth in foreign investment flows can return in the coming years.

Until the financial crisis in 2008, foreign investment flows into developed economies easily exceeded those that went to emerging markets by a very large margin. However, over the past two years, emerging markets have, for the first time in modern history, received more foreign investment flows than developed economies, and the gap is widening rapidly. Over the past decade, foreign investment flows into emerging markets have grown by nearly 400% per year. In contrast, foreign investment flows into developed economies have fallen significantly in recent years and are now less than 43% of those at their park in 2007.

As far as emerging markets are concerned, foreign investment flows are rising in all emerging regions. East Asian emerging markets, led by the China (the world’s second-largest recipient of foreign investment), accounts for around 45% of all foreign investment into emerging markets, with Southeast Asia attracting an ever-greater share of these investments. The Latin America and Caribbean region is also attracting higher levels of foreign investment and now accounts for more than 35% of all foreign investment flows into emerging markets. Finally, Africa is becoming another key center of foreign investment in emerging markets, with investments in that region rising by more than 300% over the past decade alone.

With regards to foreign investment in developed economies, the situation is quite mixed. The United States and Canada have seen foreign investment levels hold relatively steady in recent years, as both countries remain attractive for foreign investors. In contrast, foreign investment levels in Europe have fallen dramatically in recent years and are now nearly 75% smaller than they were before Europe’s economic crisis took hold. As for East Asia’s developed economies, foreign investment levels remain extremely small, due in most part to the difficulties foreign investors face entering markets such as Japan and South Korea.

Looking ahead, foreign investment levels are forecast to gradually rise in the coming years. East Asia and North America will continue to see increases in foreign investments that target both the large domestic markets in these regions as well as their manufacturing sectors. High growth emerging markets in Latin America and Africa will also continue to record major increases in foreign investment inflows in the coming years, as long as political stability improves. In contrast, stagnant developed economies such as Europe and Japan will struggle to attract higher levels of foreign investment, adding to their economic difficulties in the years ahead.