Foreign Direct Investment (FDI)

Source: https://www.linkedin.com/pulse/20140801104811-41390803-foreign-direct-investment-merits-and-demerits

The Foreign Direct Investment (FDI) has its trend, growing or declining. The financial crisis happened in 2008-2009 has an impact to FDI. Hence, it does not mean that FDI will collapse in the upcoming years. Comparing the FDI overall flow and specifically FDI inflows in developed and developing economies, the sectors and industries in both economies, as well as determine the largest type of FDI growth can be done to comprehend this trend.

The recent FDI was growing globally. It reached $1.76 trillion, increasing by 38% compared to FDI in 2014. The major cause of this growth was mergers and acquisitions (M&As) that reached $721 billion. Similar to M&As, the greenfield investment was also high reaching $766 billion. Both developed and developing economies showing FDI growth. Hence, the growing of FDI flow in developed countries remained higher than developing countries. The 2015 FDI in developed economies reached $962 billion with the strongest growth in European countries, following by the United States. Europe became the most favored region to invest due to its high FDI flows reaching $576 billion. Meanwhile, the FDI flow in developing economies, except the Caribbean, was growing by 9%, reaching $765 billion in 2015. Unfortunately, FDI in the upcoming years is predicted declining due to global economic fragility and related tax and policies.

Although the overall FDI flow of developed economies higher than FDI flow in developing economies, however, the FDI inflows in 2015 based on region showing that developing Asia had the highest FDI inflows, reaching $541 billion. Europe, in the same year, has significant growth of their FDI inflows from $306 billion to $504 billion, made them achieved the second highest FDI inflows in 2015. In Asia, the largest FDI inflows achieved by Singapore, having $65 billion in developing economies while $68 billion for the transition economies. Furthermore, Brazil as a part of Latin America reached the largest FDI inflows among other Latin American countries. It reached $65 billion for developing economies and $73 billion for transition economies.

Moving into the sector, it is reported that service sector become the largest industry in 2015. It was dominated the FDI stock into two third of it. The second largest sector was manufacturing, worth 27% of the total FDI stock. Among these manufacturing industries, pharmaceuticals achieved largest M&As in 2015, worth $61 billion. It was followed by non-metallic mineral products,, furniture, then chemicals and chemical products.

Comparing the two FDI types, the M&As reached $721 billion whereas the greenfield investment served as the largest FDI in 2015. It was worth $766 billion although it did not significantly increasing.

The FDI in 2015 was growing significantly, reaching $1.76 trillion. According to the FDI inflows report, developing economies achieved higher FDI inflows compared to developed economies. It was achieved by developing Asia region with Singapore as the second largest FDI inflows getter after China. In Latin America, it was achieved by Brazil. Although M&As increased significantly in 2015, the greenfield investment remained the largest. The largest sector of FDI stock was service followed by manufacturing as the second with pharmaceuticals served as the largest industry.

 Source:

United Nations. (2016). World investment report 2016. Retrieved from http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1555