Columbia International Affairs Online: Working Papers

CIAO DATE: 04/2009

The FDI Recession Has Begun

Karl Sauvant

November 2008

Institute for Latin American and Iberian Studies at Columbia University


With $1.8 trillion (according to UNCTAD), world foreign direct investment (FDI) flows reached an all-time high last year. All major regions benefitted from increased flows. But that was then. What is, and will be, the impact of the financial crisis and the recession on FDI flows this year and next? Several forces are at work, best discussed in terms of the three sets of FDI determinants: economic conditions, the regulatory framework and investment promotion. If we are lucky, as far as the first set of factors is concerned, global GDP will not shrink in 2009, although it is currently expected to do so a bit in developed countries offset however by expected growth in emerging markets (according to the International Monetary Fund’s (IMF) latest forecasts). Moreover, with the present commodity boom cycle winding down, FDI in natural resources is posed to decline as well, affecting especially FDI flows into Africa, Latin America, Russia, and Central Asia.