World direct investment patterns
Data extracted in July 2019.
Planned article update: March 2022.
In 2017, Europe was the largest destination of foreign direct investment stocks in the world, accounting for more than one third (35 %) of the world’s inward investment positions.
In 2017, Europe was the leading outward investor, accounting for more than two fifths (41 %) of the world’s outward investment positions.
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.
In an attempt to remain competitive, modern-day business relationships extend well beyond international trade in goods and services. Indeed, there is a growing reliance upon different forms of industrial organisation, including: foreign affiliates, overseas investment, mergers, joint ventures, subcontracting, offshoring or licensing agreements. Foreign direct investment (FDI) is one such economic strategy and it is the subject of this article.
Some economists argue that, compared with international trade, FDI creates deeper links between economies, thereby stimulating technology transfers and fostering the exchange of know-how, which in turn drives productivity and makes economies more competitive. Governments often use economic arguments as a reason for seeking to attract FDI, based on the premise that it can help generate economic growth and provide jobs.
On the other hand, other economists provide a range of counter arguments, highlighting the role played by some multinational enterprises in ‘stripping’ resources or exploiting lower labour and environmental standards in host economies. Furthermore, there is also a considerable amount of literature around corporate responsibility, ethics and tax-optimisation or avoidance techniques that may be adopted by multinational enterprises. As such, there remains a sizeable debate over the motives and redistributive effects of FDI.
Statistics on foreign direct investment
Statistics on foreign direct investment
Foreign direct investment (FDI) is an investment made by a resident enterprise in one economy (direct investor or parent enterprise) with the objective of establishing a lasting interest in an enterprise that is resident in another economy (direct investment enterprise). This implies the existence of a long-term relationship between the direct investor and the direct investment enterprise, as well as the ability to exercise some form of control/influence over business decisions. Indeed, this effective voice in the management of the foreign enterprise is one of the principal differences between FDI and other forms of investment, such as portfolio investment (where the investor does not seek control the foreign enterprise) or other assets (for example, intellectual property rights).
FDI data are based on international standards: since 2013, these data follow the standards laid out in the IMF’s Balance of Payments and International Investment Position Manual, 6th edition (BPM6) and the OECD’s Benchmark Definition of Foreign Direct Investment, 4th edition (BD4). Within the financial account of the balance of payments, a positive sign represents an increase in an asset or a liability to which it relates, while a negative sign represents a decrease. Therefore, a plus sign denotes a net increase in financial assets or liabilities, while a minus sign refers to a net decrease in financial assets or liabilities.
There are four broad types of FDI: i) the creation of productive assets, for example, establishing a new plant/office abroad (so-called ‘greenfield investment’); ii) the purchase of existing assets abroad through acquisitions, mergers or takeovers (‘brownfield investment’); iii) the extension of capital, which relates to additional investments being made to expand an established business; and iv) financial restructuring, which refers to investments for debt repayment or loss reduction.
Important: note that the data presented for the EU-28 include special purpose entities (SPEs), while those for the rest of the world exclude SPEs (see article on Foreign direct investment — intensity ratios for more information). Time series for the EU-28 and its Member States excluding SPEs are only available, at the time of writing, for the period since 2013 and hence in order to avoid a break in series the information presented systematically include SPEs. From an economic standpoint, the inclusion of SPEs may distort the geographic distribution of FDI statistics as it can appear that countries receive or make investments when in reality the funds are simply being passed through holding companies and other similar structures. For this reason, statistics excluding SPEs should generally be preferred for economic analyses of FDI, as they remove those flows of FDI that have little or no impact on ‘real’ economies. On the other hand, as part of the balance of payments, the inclusion of SPEs should generally be favoured insofar as the main objective for this type of analyses is to measure all (direct) cross-border monetary transactions, irrespective of whether these are through SPEs or not.
Stocks of foreign direct investment
In 2017, Europe accounted for 41 % of the world’s outward investment positions
The international investment position of a country details its stock of financial assets and liabilities; for the purpose of this publication these stocks are measured at the end of each year (although more detailed statistics are collected at the end of each quarter). FDI stocks reflect the accumulated value held at the end of the reference period, reflecting the value of stocks at the start of the year, adjusted for any transactions (flows) which take place during the year and any changes in the value of positions other than transactions (for example, revaluations due to exchange rates or other price changes).
In 2017, the global stock of FDI was valued at EUR 27.6 trillion (EUR 27 600 billion), based on an average of inward and outward positions. Europe was the largest source and destination of FDI stocks in the world. According to the United Nations, more than one third (34.7 %) of global inward investment was located in Europe (EUR 9.7 trillion), while it accounted for more than two fifths (40.5 %) of the world’s outward investment positions (some EUR 11.1 trillion).
Between 2007 and 2017, Asia emerged as an increasingly attractive location for foreign investment
There was a relatively strong decline between 2007 and 2017 in the share of global FDI stocks that were positioned in Europe; its share of the world total falling by 11.4 percentage points. The share of FDI stocks positioned in Africa increased by 0.4 percentage points, that in Latin America and the Caribbean by 1.2 percentage points and that in North America by 2.7 percentage points. By contrast, the relative importance of Asia as a location for inward investment rose at a relatively fast pace between 2007 and 2017, its share of the global total rising by 7.2 percentage points to reach 24.9 % by 2017, not far below the share recorded for North America (28.2 %).
Europe’s outward stocks of FDI were greater than the value of inward FDI stocks held by the rest of the world within Europe; as such, Europe was a net investor. The second part of Figure 1 shows there were also relatively large fluctuations concerning Europe’s share of the world’s outward FDI between 2007 and 2017, this proportion rising to more than half of the global total (56.4 %) at the onset of the global financial and economic crisis in 2008, before falling to 40.5 % by 2017. North America had the second highest share (30.1 %) of the world’s outward FDI stocks in 2017, followed by Asia (23.9 %). As with developments for inward FDI, between 2007 and 2017 the relative shares of Europe (-8.4 percentage points) and North America (-3.3 percentage points) in total outward FDI declined; this pattern was counteracted by a sizeable increase in the share of outward FDI from Asia (up 10.3 percentage points).
Stocks of foreign direct investment represent about one third of the world’s economic output
Figure 2 presents information on the relative importance of FDI stocks compared with the economic size of each economy (as measured by gross domestic product (GDP)). The global average in 2017 for the ratio of outward direct investment to GDP was 38.6 %, while the ratio of inward direct investment to GDP was 39.2 %.
In 2017, two Asian economies — Hong Kong and Singapore — reported a high degree of ‘openness’, insofar as inward FDI stocks in both these reporting economies were valued considerably higher than their levels of GDP; the value of direct investment in Singapore was 4.1 times as high as its GDP, with this ratio rising to 5.8 times as high for Hong Kong. In all of the remaining economies presented in Figure 2 the value of inward FDI stocks was less than the economic output of the country/geographical aggregate concerned.
Direct investment in the EU-28 was valued at 41.8 % of GDP in 2017, which was slightly higher than the global average. Aside from Hong Kong and Singapore there were three other global competitors (among those shown in Figure 2) that recorded higher ratios than the EU-28: Canada, Australia and South Africa. By contrast, stocks of inward FDI relative to GDP were much lower in the Chinese (12.4 %) and, in particular, the Japanese (4.3 %) economies. The relatively low overall level of inward FDI in Japan resulted from an absence of foreign investment in most activities, aside from the manufacture of machinery and motor vehicles.
Most ‘open’ economies have considerable stocks of both inward and outward investment
Reversing the analysis and considering the relative importance of outward stocks of FDI in each economy, a general pattern emerges whereby many of those countries which were ‘open’ to a high degree of market penetration in the form of inward FDI were also found to have high ratios of outward FDI relative to GDP — supporting a view that some economies seek to gain a competitive advantage by encouraging free trade and investment opportunities, whereas other countries are more inward-looking.
That said, there were some exceptions: for example, the ratio of direct investment abroad relative to GDP for Japan was 31.3 % (much higher than the ratio of inward FDI relative to GDP) — suggesting that while it was relatively commonplace for Japanese enterprises to invest in foreign plants, it was far less common for foreign enterprises to invest in Japan. By contrast, the value of direct investment abroad from Mexico, Brazil and Turkey was relatively low (both in relation to GDP and in relation to the value of inward investment in both of these economies). These differences between ratios for inward and outward stocks of FDI may be used to identify which economies were net investors in 2017; this was the case for South Africa, Japan, Canada, South Korea and the EU-28; the United States and China had similar levels of inward and outward investment.
A wide range of factors may influence an enterprise’s decision as to whether to relocate (some) production abroad, including: the size and distance of the foreign market, its growth prospects, wage and productivity levels, or its regulatory and legal regimes. However, investment decisions often are focused on profits. As the relative price of transport and communications has fallen, it has become considerably easier for multinational enterprises to consider moving their production locations across the globe, for example, to benefit from cost savings that may be linked to lower labour costs or local resource endowments of primary goods. In a similar vein, the provision of some services has also been affected, as witnessed by the establishment of call centres/helpdesks abroad. Furthermore, FDI provides enterprises with the possibility of accessing protected and regulated service markets through the establishment of a commercial presence in the host economy.
Table 1 below provides details relating to the size of the top 20 non-financial multinational enterprise groups in the world in terms of their foreign assets. The information comes from the United Nations Conference on Trade and Development (UNCTAD).
Five out of the top seven global multinationals had their headquarters in the EU-28: Royal Dutch Shell plc, BP plc and Total S.A. were all specialised in energy activities, while the Volkswagen Group was specialised in the manufacture of motor vehicles and British American Tobacco plc in the manufacture of tobacco products.
Looking more generally across the whole of the top 20 non-financial multinational enterprises, 10 were located in the EU (four in the United Kingdom, three in Germany, and one in each of Belgium, France and Italy), five were from the United States, four were Japanese, leaving a single multinational from Hong Kong.
The share of foreign assets in total assets was generally very high for most multinationals in the top 20, accounting for more than four fifths of all assets in eight multinationals. However, more than half of all assets were in the domestic economy for four of the non-financial multinationals appearing in Table 1 — Exxon Mobil Corporation (51.5 %), General Electric Co (56.4 %), Volkswagen Group (57.3 %) and Apple Computer Inc. (58.0 %).
The stock of foreign investment in China more than quintupled between 2008 and 2017
Developments for both inward and outward stocks of FDI are shown in Table 2. The fastest overall growth rate for inward investment between 2008 and 2017 was recorded in China (where the nominal value of inward FDI stocks were more than five times as high in 2017 than in 2008); the next highest growth rates were recorded by the United States and India.
The pace of change was even more rapid concerning the level of Chinese investment abroad: in 2017, outward FDI from China was valued at just over 10 times as high as it had been in 2008. It should be noted that the total value of these stocks was, in 2008, still relatively small. The next highest growth rates for outward FDI were recorded for South Africa and South Korea.
The final presentation of information concerning inward and outward stocks of FDI describes the share of world stocks between the leading global players (see Figure 3). In 2017, just under one quarter (23.1 %) of global inward investment was located in the EU-28; its share of global outward investment was somewhat higher, reaching 27.4 %. The EU-28 recorded the highest share of outward stocks of FDI in 2017 and the second highest share of inward stocks; the reverse situation — highest inward stocks and second highest outward stocks — was observed in the United States. It is interesting to note that Hong Kong accounted for the third highest share of global FDI stocks, both for inward and for outward investment.
Foreign direct investment flows
FDI flows comprise capital provided by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor; they are composed of three components: equity capital, reinvested earnings and intra-company loans. Global flows of FDI were valued at EUR 1.3 trillion in 2017.
In 2017, Europe was the world’s second largest source and recipient of foreign direct investment, behind Asia
Figure 4 shows the share of global flows of FDI accounted for by each continent during the period 2007-2017. The overall pattern for inward investment was a rebalancing of investment flows from Europe towards all of the other continents, although the developments were quite irregular. A similar but somewhat clearer pattern was observed for outward investment, as Europe’s share fell at a much faster pace, from 61.5 % of the world total in 2007 down to just 24.2 % in 2014, before rebounding to 46.6 % in 2015 and then dropping back to 31.8 % by 2017. FDI inflows into Europe were valued at EUR 326 billion in 2017, while Europe’s outflows of FDI were somewhat larger (EUR 402 billion).
While the European share of world FDI flows was considerably lower in 2017 than in 2007, Asia saw a large increase in its respective shares of both inward and outward investment flows. In 2017, Asia provided 36.4 % of the world’s outward flows of FDI, more than the share from Europe or the share from North America; this could be compared with Asia’s much lower share of world outflows of FDI ten years earlier (15.0 % in 2007). Equally, Asia attracted 36.2 % of global inward investment flows in 2017, again higher than the shares recorded for Europe or North America, and also again an increase compared with its share in 2007 (20.9 %).
Developments for the value of FDI flows are shown in Table 3. Looking at the data for the world, the global financial and economic crisis impacted on the value of FDI flows: there was a sharp reduction in the value of global FDI flows between 2008 and 2009 and a similarly sharp rebound in 2010. After the crisis and the subsequent rebound, developments for FDI flows were quite irregular (mirroring the pattern observed for international trade in goods), although between 2011 and 2017 annual decreases in world inward and outward FDI flows were observed more often than increases. Nevertheless, very large increases in flows were observed in 2015 and the levels of inward and outward flows in 2017 were higher than they had been in 2008.
The changes observed in the levels of global FDI flows in the most recent years have often been strongly influenced by particularly large changes observed for just one or two countries/geographical aggregates. For example, looking at inward flows, the large increase observed in 2015 and the large decrease observed in 2017 reflected very large changes in the level of flows reported by the EU-28 and the United States. Concerning movements in outward flows, the large increase in 2015 and decreases in 2016 and 2017 mainly reflected changes reported for the EU-28, although China also reported a relatively large decrease in outward FDI flows in 2017.
Between 2008 and 2017, there was a rapid increase in FDI flows entering Singapore and Hong Kong
Among the economies presented in Table 3, the highest overall growth rate for inward flows of FDI between 2008 and 2017 concerned investment in Singapore (which rose nearly sevenfold). The next highest increases were observed for the United Arab Emirates and Hong Kong, both recording inward flows in 2017 that were more than double those in 2008. By contrast, the highest relative growth in the value of outward flows of FDI was recorded for Mexico, whose outward flows in 2017 were 15.1 times as high as in 2008, although they remained relatively low in absolute terms (EUR 4.5 billion). Among the countries with larger flows, the fastest growth rates for outward flows of FDI were recorded in Singapore (4.0 times higher in 2017 than in 2008), followed by China, Hong Kong and South Korea, all of which more than doubled their outward flows between these years.
Between 2008 and 2017, China became an increasingly important investor in the global economy
Another interesting aspect of the information presented in Table 3 is the rapid transformation of the balance between inward and outward flows of FDI to/from China. While the level of direct investment in the Chinese economy had been 1.9 times as high as the value of Chinese FDI flows abroad in 2008, inward and outward flows were relatively balance in 2013, 2014 and 2017 and outward flows exceeded inward flows in 2015 and 2016. As a sign of its growing global importance, outward Chinese investment exceeded the level recorded for Japan in 2010, 2015 and 2016.
Geopolitical concerns may also impact on the development of investment flows. For example, there was a considerable reduction in flows of inward and outward investment with Russia between 2014 and 2015, reflecting the introduction of economic sanctions and restrictions on access to capital markets for the Russian banking sector (which may have impacted this sector in the form of capital flight). Inward flows to Russia rebounded in 2016, but fell again in 2017.
In 2017, the United States was the world’s leading outward investor
In 2017, the United States was the leading outward investor, accounting for nearly one quarter (23.9 %) of the world’s FDI flows, while the share of the EU-28 was just less than one fifth (19.4 %).
The United States was also the host economy that received the highest value of inward FDI in 2017, with a 19.3 % share of the total (see Figure 5). Around one eighth (12.9 %) of the world’s FDI flowed into the EU-28 and nearly one tenth into China (9.5 %). When compared with outward flows of FDI, Japan was conspicuous by its absence within the ranking of main host economies.
Source data for tables and graphs
Direct access to
- Globalisation patterns in EU trade and investment (Chapters 4 and 5)
- Balance of payments
- Balance of payments - international transactions (BPM6) (ESMS metadata file — bop_6_esms)