unctad.org | FOREIGN DIRECT INVESTMENT ON THE RISE
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FOREIGN DIRECT INVESTMENT ON THE RISE
All regions register record flows in 1997

TAD/INF/PR/9824
02 September 1998

According to UNCTAD statistics, world foreign direct investment (FDI) flows continued to expand in 1997, passing the US$400 billion level (see annex table 1), with prospects for a further increase in 1998. Last year, FDI outflows reached US$424 billion, while FDI inflows amounted to US$400 billion (compared with US$333 and US$338 in 1996, respectively)(1). Developing countries as a group account for more than one third of world FDI flows.

The driving force in the continued expansion of global FDI was the growth of large-scale cross-border mergers and acquisitions (M&As) among developed countries. Cross-border M&As involving more than US$1 billion announced in 1997 amounted to US$161 billion. It should be noted that as recorded in 1997 world FDI did not decline in the wake of the East Asian financial crisis.

Despite divergent economic performance of individual countries, FDI reached record levels in all major country groupings in 1997. Developed countries invested US$359 billion globally (up by 27 per cent over 1996) and attracted US$233 billion inward FDI (+19 per cent). Inflows to developing countries rose at a slower rate than to the developed ones, but were still up by a significant 15 per cent to reach US$149 billion; outflows were up 24 per cent, to US$61 billion. Dramatic increases were registered in Central and Eastern Europe, albeit still at relatively small levels. FDI inflows to the region increased by 44 per cent to US$19 billion and outflows more than tripled to US$3 billion.

Total FDI flows have doubled again over the 1992-1997 period (to US$400 billion), after doubling in the previous five year period (to US$200 billion). Moreover, FDI grew at a faster rate in 1997 than did other macroeconomic indicators such as gross domestic product (GDP), exports, or domestic investment, continuing a tendency towards faster growth that began in the 1980s. This rapid growth of FDI is clearly contributing to the increasing internationalization and integration of economies, with firms producing more and more outside their home country. Seven percent of global GDP is now generated by production of foreign affiliates of transnational corporations (TNCs). If parent firms were included the proportion would be much higher.

When measured in terms of FDI flows as a percentage of GDP, economic integration has risen from 1.0 per cent in 1980 to 2.3 per cent in 1996; in terms of FDI stock it increased from 10 per cent to 21 per cent during the same period (see annex figure 1). When measured by trade, as a percentage of GDP, the degree of economic integration remained almost constant over the same period. This demonstrates that integration is being accelerated more through investment than trade.

The most important factor behind the increase of FDI in 1997 was the growth of cross-border mergers and acquisitions (M&As). These accounted for about one quarter of all recorded M&As. The value of majority cross-border M&As increased from 49 per cent to 58 per cent in relation to total FDI inflows. Large-scale M&As have led the growth of FDI.

M&As were facilitated by ongoing FDI liberalization and deregulation. In 1997, the great majority of changes (135 out of 151) to FDI regulations made by 76 countries were in favour of liberalization (see annex table 2); 153 bilateral investment treaties (BITs) were concluded during the year, bringing the total number of BITs to 1,513. Furthermore, the number of double taxation treaties concluded by 1997 reached 1,794 (108 treaties in 1997 alone).

Detailed information on FDI to and from each geographical region will be contained in the World Investment Report 1998 (WIR 98) to be released by UNCTAD on 10 November at 22:00 hrs GMT. WIR 98 will also discuss the locational determinants which explain the trends and patterns of FDI.
WIR 98 will feature the following topics: international production by TNCs; inter-firm technology agreements; top TNCs worldwide and in developing countries; recent "front-runners" in FDI in Africa; the East Asian financial crisis and FDI; export propensity of foreign firms in Latin America; attracting and absorbing FDI in Central and Eastern Europe.



Endnotes

1. In principle, global FDI outflows and inflows should be equal to one another. In practice, however, they differ. The difference between the volume of FDI outflows and inflows is explained by differences in methodology and coverage.





For more information, please contact:
Chief, Karl P. Sauvant
International Investment, Transnationals and Technology Flows Branch
Division on Investment, Technology and Enterprise Development, UNCTAD
T: +41 22 907 5707
F: +41 22 907 0194
E: karl.sauvant@unctad.org
or
Chief, Carine Richard-Van Maele
UNCTAD Press Unit
T: +41 22 917 5816/28
F: +41 22 907 0043
E: press@unctad.org.



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