Economy · August 2, 2022

Foreign direct investment in 2021: a nascent recovery?

UNCTAD’s World Investment Report 2022 was released recently. Figure 1 illustrates the recovery of FDI inflows.

Although flows have recovered, they have not regained the levels they reached before 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 the rebound in inflows in 2021.

Looking ahead, the report notes:

This fragile growth in real productive investment is likely to persist into 2022. The fallout from the war in Ukraine with the triple food, fuel and finance crisis, coupled with the ongoing COVID-19 pandemic and climate disruptions, are adding stress, in particularly in the development of countries. Global growth estimates for the year are already down by a full percentage point. There is a significant risk that the momentum for the resumption of international investment will stall prematurely, hampering efforts to increase funding for sustainable development.

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

Here are the OECD estimates of FDI inflows in the first quarter and the GDP-weighted global uncertainty index (used in Jardet, Jude, Chinn (2022)).

Figure 1: Global FDI flows, billions of dollars. sources:OECD.

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