Foreign Direct Investment in 2021 – A Nascent Recovery?

UNCTAD’s World Investment Report 2022 came out recently. Figure 1 depicts the recovery of FDI inflows.

 

While flows have recovered, they have not regained levels achieved before Mr. Trump’s trade war. In a previous post, Jardet, Jude and I attributed the decline (pre-2020) to the uncertainty associated with the trade war. Figure 2 shows how inflows have rebounded in 2021.

 

Looking forward, the Report notes:

This fragile growth of real productive investment is likely to persist in 2022. The fallout of the war in Ukraine with the triple food, fuel and finance crises, along with the ongoing COVID-19 pandemic and climate disruption, are adding stresses, particularly in developing countries. Global growth estimates for the year are already down by a full percentage point. There is significant risk that the momentum for recovery in international investment will stall prematurely, hampering efforts to boost finance for sustainable development.

In our paper, Caroline Jardet, Cristina Jude and I find that FDI inflows respond to economic uncertainty, so that it will indeed be difficult to sustain flows at elevated levels in this environment (post).

Here’s OECD’s estimates of FDI inflows through Q1, and GDP weighted World Uncertainty Index (used in Jardet, Jude, Chinn (2022)).

Figure 1: Global FDI flows, bn USD. Source:OECD.

Figure 2: GDP weighted WUI. Source:worlduncertainty.com.