Article

World Finance reports ‘alarming decline in foreign direct investment’.


Added on 28/02/2019

 

 

Extracted from ‘The alarming decline in foreign direct investment,’ published on worldfinance.com, Thursday 28th February, 2019.

 

In the first half of 2018, foreign direct investment (FDI) around the world fell by 41 percent compared with the previous year. In fact, the $470bn invested across borders between January and June last year represented the lowest figure since 2005. Often such sharp declines are the result of an economic downturn: for example, between 2007 and 2009, as the global economy faced its worst recession in decades, annual FDI flows fell from $2.15trn to $1.1trn. Last year’s fall had a different cause.

For all the talk of geopolitical tensions, it is the expectation of financial gain that really determines where investors place their money

Primarily, the decline in FDI resulted from changes to US economic policy, namely the tax cuts President Donald Trump finally managed to pass in December 2017. But the decline has longer-term roots as well: FDI flows have been on the wane since 2015, with lower returns making investors less willing to part with their cash.

The cause of FDI decline may be less important than its impacts, however. FDI plays a crucial role in the world economy, especially with globalisation having strengthened international ties in recent years. If this contraction continues, it could have a damaging impact on growth in many parts of the world, particularly in developing economies.