Foreign Investment in Developing Countries Hits Lowest Level Since 2005

Foreign direct investment (FDI), one of the most powerful engines of growth for developing countries, has slowed dramatically — dropping to levels not seen since 2005, according to new World Bank research. In 2023, developing economies attracted just $435 billion in FDI, while wealthier countries also saw sharp declines. 

The report warns that rising trade and investment barriers are choking the flow of capital exactly when it's most needed to fund development, create jobs, and raise living standards.

“It’s not a coincidence that FDI is plumbing new lows while public debt is soaring,” said Indermit Gill, the World Bank’s Chief Economist. “Private investment has to drive growth now—but governments are busy putting up barriers when they should be pulling them down.”

The World Bank’s new analysis comes ahead of the Financing for Development conference in Seville, Spain, where global leaders will discuss how to fund development goals in a world struggling with slow growth and shrinking aid budgets. Alarmingly, half of all FDI-related policy moves in developing countries so far this year have been restrictive — the highest share since 2010.

FDI is especially critical for developing nations because of its long-term growth benefits. The World Bank’s research shows that a 10% rise in FDI can boost GDP by 0.3% over three years, and even more — up to 0.8% — in countries with stronger institutions, better human capital, and more open economies. But the benefits aren’t evenly spread: 10 countries, including China, Brazil, and India, captured two-thirds of all FDI to developing economies over the past decade. The poorest countries received just 2%.

The report calls for urgent action. First, countries need to attract more FDI by improving their investment climate and lifting restrictions. Second, they should amplify FDI’s benefits by investing in human capital, trade integration, and women’s participation in the workforce. Third, stronger global cooperation is vital to steer investment where it’s most needed, especially as geopolitical tensions rise.

“The sharp drop in FDI should sound alarm bells,” said M. Ayhan Kose, the World Bank’s Deputy Chief Economist. “Reversing this slowdown is essential for growth, job creation, and achieving global development goals.”