June 17, 2025
Foreign direct investment (FDI) into developing economies has fallen to its lowest level since 2005, according to new World Bank research. In 2023, developing countries received just $435 billion in FDI, a sharp drop that reflects rising barriers to trade and investment. These restrictions threaten progress toward global development goals, especially as public debt rises and foreign aid declines.
FDI now accounts for about half of external financing for developing economies and is one of the most effective forms of private investment. Yet, in 2025, half of all FDI-related policy measures in these countries have been restrictive, the highest share since 2010.
World Bank economists emphasize that this decline is largely driven by policy choices. Reversing the trend will require domestic reforms to improve business climates, encourage trade, and strengthen institutions. The upcoming Conference on Financing for Development in Seville will address these issues.
Investment treaties and trade openness significantly boost FDI inflows, but new agreements have slowed in recent years. From 2010 to 2024, only 380 new investment treaties were enacted, far fewer than in earlier decades. Trade agreements also declined, reducing their potential to attract capital.
FDI remains heavily concentrated, with the top 10 developing countries receiving two-thirds of all inflows. China alone attracted nearly one-third, while the poorest 26 countries received only 2 percent. Most of the funding originates from advanced economies, particularly the EU and the United States.
The World Bank recommends three key actions:
- Attract more FDI by removing restrictive policies and improving the investment climate.
- Maximize FDI benefits through institutional reform, human capital development, and formal sector participation.
- Strengthen global cooperation to direct investment toward countries with the greatest need.
The World Bank continues to support these efforts by helping lower investment risks, improving market conditions, and increasing private sector engagement.
Source: (Caribbean News Global)
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