Which regions and countries are the world´s biggest magnets for foreign direct investment (FDI)? A world map (figure 1) showing the size of some countries and regions weighted by the amount of FDI they have attracted over time reveals that developed countries dominate the picture. One exception is that Japan - an economic giant - does not figure prominently as a host country. Among developing economies, China; Hong Kong, China; and Brazil stand out.
The world´s FDI stock stood at $7.1 trillion in 2002, up more than tenfold since 1980 (table 1). Table 3 contains a list of all countries with the latest available inward stock data.
Why does the size of FDI stock matter? That stock is the basis of international production -- it captures the combined value of all foreign affiliates. Ebbs and flows in the yearly value of FDI, while important, augment the stock of FDI as long as they are positive. So the stock of FDI matters more than flows - for the structure of global specialization, for deepening global integration through production networks, and for generating the benefits associated with FDI and international production. It also matters for new FDI capital flows arising from the reinvestment of earnings and sequential flows to FDI. More specifically:
- The developed world hosts two thirds of world inward FDI stock in 2002 ($4.6 trillion), mainly distributed in the United States, the United Kingdom and Germany.
- The inward FDI stock of developing countries ($2.3 trillion) totalls about a third of their GDP, almost twice the 19% for developed countries. Back in 1980, the respective ratios were 13% and 5%.
- Central and Eastern European countries increased their inward FDI stock substantially , from $3 billion in 1990 to $188 billion in 2002. As a percentage of GDP, the ratio rose from 1% to 21% over the same period.
- The 49 least developed countries (LDCs) - the poorest developing countries - accounted for 2% of the total inward FDI stock of developing countries in 2002. This share has not changed much in recent years. The largest host LDC is Angola, registering FDI stock on a level comparable to that in the Philippines.
On the outward side, developed countries are the preponderant suppliers of FDI, accounting for almost nine tenths of the world´s outward stock in 2002 (tables 2 and 4). The most striking change in the past 20 years is that the EU has become by far the largest source. In 1980 the outward stocks of the EU and the United States were almost equal, at around $215 billion. But by 2002, the EU´s stock (including intra-EU stock) had reached $3.4 trillion, more than twice that of the US ($1.5 trillion). The gap opened in the 1980s and widened in the late 1990s. Meanwhile, Japan´s stock has been stable relative to the EU´s, with the country´s outward stock valued at about a tenth of that of the EU.
Outward FDI stocks have changed even more than inward stocks for developing countries, increasing from 3% of GDP in 1980 to 13% in 2002, the result of the emergence of developing-country TNCs. In 1980 the FDI stock originating in developing countries ($65 billion) accounted for 11% of the global outward FDI stock; by 2002 the corresponding share was 12%.
The growth rate of outward stock from developing countries in the 1990s was dramatic (figure 2). South, East and South-East Asia together comprise the most important developing region for outward FDI stock, with its stock exceeding Japan´s for the first time in 1997 and becoming almost twice as large as Japan´s by 2002. Latin America and the Caribbean registered a more than threefold increase in its outward FDI stock between 1980 and 2002.
