FDI in 2021 – a nascent recovery?

The UNCTAD World Investment Report 2022 has just been released. Figure 1 shows the recovery of FDI inflows.

And while flows have recovered, they have not regained the levels they achieved before Trump’s trade war. In an earlier post, Jardet, Jude and Jude attributed the decline (before 2020) to the uncertainty associated with the trade war. Figure 2 shows how inflows rebounded in 2021.

In the future, the report notes:

This fragile growth of real productive investment is likely to continue into 2022. The fallout from the war in Ukraine with the triple food, fuel and financing crises, combined with the ongoing COVID-19 pandemic and climate disruption, are adding pressures, particularly in developing countries. Countries. Global growth estimates for this year have already fallen by a full percentage point. There is a significant risk that the momentum for a recovery in international investment will stop prematurely, hampering efforts to strengthen financing for sustainable development.

In our research paper, Carolyn Gardet and Christina Judd found that FDI flows respond to economic uncertainty, so it would be really difficult to maintain flows at elevated levels in this (yet) environment.

Below are the OECD estimates of foreign direct investment inflows during the first quarter, and the weighted global uncertainty index of GDP (used in Jardet, Jude, Chinn (2022)).

Figure 1: Global FDI inflows, billion USD. source:Organization for Economic Cooperation and Development.

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

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