FDI flows to developing economies drop to lowest level since 2005

The research published on June 16 revealed that these barriers pose a significant threat to global efforts to mobilise financing for development.

In 2023, the latest year for which data are available, developing economies received just $435 billion in FDI – the lowest level since 2005. That coincides with a global trend in which foreign investment flows into advanced economies have also slowed to a trickle: high-income economies received just $336 billion in 2023, the lowest level since 1996. As a share of their GDP, overseas funding to developing economies in 2023 was just 2.3 per cent, about half the number during the peak year of 2008.

"What we’re seeing is a result of public policy," said Indermit Gill, the World Bank Group’s chief economist and senior vice president. "It’s not a coincidence that FDI is plumbing new lows while public debt is reaching record highs. Private investment will now have to power economic growth, and foreign investment happens to be one of the most productive forms of private venture. Yet, recently, governments have been busy erecting barriers to investment and trade when they should be deliberately taking them down."

From June 30 to July 3, representatives from governments, international institutions, civil society organisations, and the private sector are scheduled to meet in Seville, Spain, for the Conference on Financing for Development to discuss how to mobilise the financing that will be needed to achieve key global and national development goals.

The new analysis from the World Bank highlights the policies that will be needed to achieve those goals at a time when economic growth has slowed to a crawl, public debt has surged to record highs, and foreign-aid budgets have shrunk. Easing investment restrictions will be a key first step: so far in 2025, half of all FDI-related measures announced by governments in developing economies have been restrictive measures – the highest share since 2010.

"With the global community gearing up for the conference, the sharp drop in foreign investment to developing economies should sound alarm bells," said M. Ayhan Kose, the World Bank Group’s deputy chief economist and director of the Prospects Group. "Reversing this slowdown is not just an economic imperative – it’s essential for job creation, sustained growth, and achieving broader development goals. It will require bold domestic reforms to improve the business climate and decisive global cooperation to revive cross-border investment."

Investment treaties tend to boost FDI flows between signatory states by more than 40 per cent, the analysis finds. Between 2010 and 2024, just 380 new investment treaties came into force, barely a third of the 1990s number. Similarly, the report finds that countries that are more open to trade tend to receive more foreign investment – an extra 0.6 per cent for each percentage-point increase in the trade-to-GDP ratio. However, the number of new trade agreements signed over the past decade dropped in half – from an average of 11 per year in the 2010s to just six in the 2020s.

In 2023, overseas funding accounted for roughly half of the external financing flows received by developing economies. Under the right conditions, it is a strong spur to economic growth: analysis of data from 74 developing economies between 1995 and 2019 suggests that a 10 per cent increase in FDI inflows generates a 0.3 per cent increase in real GDP after three years.

The impact is nearly three times larger – up to 0.8 per cent – in countries with stronger institutions, better human capital, greater openness to trade, and lower informality. By the same token, the effect of increases in overseas investment is much smaller in countries that lack such features.

Such investment tends to be concentrated in the largest economies. Between 2012 and 2023, about two-thirds of FDI flows to developing economies went to just 10 countries, with China receiving nearly a third of the total and Brazil and India receiving roughly 10 per cent and 6 per cent respectively.

The 26 poorest countries received barely 2 per cent of the total. Advanced economies, moreover, accounted for nearly 90 per cent of the total foreign investment in developing economies over the past decade. About half of that came from just two sources: the EU and the US.

Foreign investors are reinforcing their investments in both industrial infrastructure and large-scale projects, showing that Vietnam remains an attractive destination.

Vietnam continues to sharpen its edge as a preferred destination for foreign investment across key sectors.

Foreign direct investment (FDI) trends in Vietnam showed divergent trends in the first five months of 2025. While newly registered capital declined, adjusted investments, capital contributions, and share purchases surged – driving overall foreign investment inflows.