Foreign direct investment - intensity ratios

Data extracted in May-June 2017

Planned article update: December 2019


Relative to GDP, EU foreign direct investment stocks rose unremittingly during the period 2008-2015.

Relative to GDP, foreign direct investment flows were particularly high in 2015 for EU economies, characterised by high exposure to financial markets.

Extra-EU foreign direct investment relative to GDP, EU-28, 2008-2015
Source: Eurostat (bop_fdi6_ind), (bop_fdi_main) and (nama_10_gdp)

Globalisation patterns in EU trade and investment is an online Eurostat publication presenting a summary of recent European Union (EU) statistics on economic aspects of globalisation, focusing on patterns of EU trade and investment.

Investors are generally averse to risk: as such, those countries characterised by economic and/or political uncertainty are likely to deter investors. By contrast, those economies with good fundamentals (relatively low inflation and interest rates, a stable currency, respect for intellectual property rights) are more likely to attract international investment.

Although foreign direct investment (FDI) measures — such as financial flows, investment positions, and income flows — are not components of gross domestic product (GDP), a set of normalised ratios may be computed comparing these measures to GDP, thereby permitting a comparison of results between economies of different sizes. As such, FDI intensity ratios provide one means for assessing investment integration within the international economy; they form the basis of this first article.

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Foreign direct investment: EU stocks rise between 2008-2015

Relative to GDP, EU-28 FDI stocks rose unremittingly during the period 2008-2015

The most striking feature of Figure 1 is the contrast between the intensity ratios for FDI stocks and flows; the former displayed a relatively steady upward progression, whereas developments for the latter were more volatile, with an oscillating pattern (note the different scales in the two parts of the Figure).

Since 2008, the EU-28’s outward investment position has been positive — in other words, the value of the EU-28’s outward stocks of FDI has exceeded the value of inward stocks. In 2015, the ratio of the EU-28’s stock of FDI (relative to GDP) was 46.8 %, while the stock of inward investment in the EU-28 (relative to GDP) was 39.0 %. Between 2008 and 2015 [1], there was a relatively rapid and continuous increase in the EU-28’s FDI stocks relative to GDP, as the intensity ratio for outward stocks rose by 21.4 percentage points and that for inward stocks by 19.9 percentage points; note that the implementation of a new methodology as of 2013 did not alter this pattern. As such, the EU-28 economy would appear to be increasingly exposed to the benefits and pressures associated with globalisation.

However, the pattern of developments for FDI flows was quite different; note that the time series presented begins in 2008, which marked the onset of the global financial and economic crisis, and that by 2008 flows of FDI both to and from the EU-28 had already fallen considerably compared with their pre-crisis highs. Investment flows relative to GDP followed a widely fluctuating, but broadly upward pattern between 2008 and 2013, suggesting there was continued uncertainty among investors in the aftermath of the crisis. The situation changed abruptly in 2014, as both the intensity ratio for EU-28 investment flows abroad and that for inward investment flows in the EU-28 fell dramatically, followed by a swift rebound for both ratios in 2015. These results reflect, at least to some degree, mergers and acquisitions (M & A) activity, and sizeable disinvestments made in 2014.

Figure 1: Extra-EU foreign direct investment relative to GDP, EU-28, 2008-2015
Source: Eurostat (bop_fdi6_ind), (bop_fdi_main) and (nama_10_gdp)

Foreign direct investment: flows high in 2015 for EU economies

Relative to GDP, FDI flows were particularly high in 2015 for EU economies characterised by high exposure to financial markets

Figure 2 shows a comparable set of investment intensity ratios based on outward and inward flows of FDI to/from the EU Member States; note that negative flows indicate reverse investment or disinvestment — with at least one of equity capital, reinvested earnings or intra-company loans being negative. At an individual country level, it is also important to consider that investment flows can be very ‘lumpy’, especially if these concern sizeable investment decisions taken by large multinational enterprises.

Figure 2: Foreign direct investment flows relative to GDP, 2015
Source: Eurostat (bop_fdi6_ind)

Three of the smaller EU Member States recorded extremely high ratios of outward flows of direct investment in 2015: in Luxembourg these were valued at more than 10 times the size of the national economy, while outward investment represented 86.1 % of GDP in Cyprus and 58.6 % in Ireland. These ratios often reflect significant capital flows that are linked to the activities of special purpose entities (SPEs).

Special purpose entities

Box 4.1 — Special purpose entities

Special purpose entities (SPEs) are legal entities that are formally registered with a national authority and subject to the legal and tax obligations of the country in which they are resident. They are ultimately controlled by a non-resident group and usually they have very few employees and little (or no) productive capacity or physical presence in the host country. Most of their assets and liabilities represent investments in or from other countries and their core business consists of holding/financing non-resident companies on behalf of their enterprise group, as well as channelling funds between affiliates.

This area is a concern for policymakers insofar as there is potential for a substantial division between the productive investments of multinational enterprises and the income they generate. There are a number of international efforts to stem such flows of capital through tighter controls, for example the Action Plan on Base Erosion and Profit Shifting (BEPS) initiative launched in 2013. By excluding foreign investments of resident SPEs, policymakers may have a better idea as to the probable real impact of FDI on their economies.

Important: note that data presented in this chapter (Globalisation patterns in EU trade and investment - Foreign direct investment) for the EU-28 and its Member States include special purpose entities (SPEs) and that this probably results in stocks and flows of FDI in the EU-28 and its Member States being overstated in relation to the ‘real’ world, economic impact of such investments. Indeed, the OECD Benchmark Definition of Foreign Direct Investment (2008) recommends publishing data for SPEs separately, in order to permit a more representative analysis of the productive impact of foreign investment on national economies. By doing so, it is likely (but not always the case) that stocks and flows of inward and outward FDI will be smaller. Furthermore, if information on SPEs is removed from FDI statistics, the geographical distribution of FDI will also be impacted (those countries where SPEs play an important role will generally see their shares fall). In a similar vein, such changes may also impact upon information analysed by economic activity — for example, the relative weight of the business services sector may be reduced, as it includes holding companies.

Luxembourg is a leading example of an economy where SPEs play a considerable role as many of its FDI transactions are made by investment funds and holding companies. In 2015, the flow of outward FDI from Luxembourg shrunk from EUR 558.0 billion to just EUR 45.5 billion if SPEs are excluded from the analysis (see Figure 3). The presence of SPEs may also explain the relatively high share of FDI flows relative to GDP in the Netherlands. Otherwise, the level of investment in each of the EU Member States reflects, to some degree, the relative attractiveness of each country to investors, and may be influenced by a wide range of factors: such as economic fundamentals, natural resource endowments, the price and quality of labour or corporate tax policy.

Figure 3: Foreign direct investment flows abroad, by type of entity, 2015
(billion EUR)
Source: Eurostat (bop_fdi6_flow)

Balance of payments - International transactions (BPM6)
Annual national accounts

Balance of payments - International transactions (BPM6)
European Union direct investments (BPM6)
Annual national accounts


  1. It should be noted that the implementation of a new methodology as from 2013 did not alter the ongoing upward development observed since 2008.
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