World direct investment patterns

Data extracted in May-June 2017

Planned article update: June 2019


In 2015, Europe was the largest destination of foreign direct investment stocks in the world, accounting for more than 40 % of the world’s outward investment positions.

In 2015, the EU was the leading outward investor, accounting for more than one third (37 %) of the world’s foreign direct investment flows.

World stocks of foreign direct investment, 2015
(% of total)
Source: Eurostat (bop_fdi6_pos) and UNCTAD (FDI/MNE database)

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 final topic that is considered within the chapter on Global developments in trade and investment.

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, an increasingly vociferous group of economists provide a range of counter arguments, highlighting the role played by some multinational enterprises in ‘stripping’ resources or taking advantage of lower labour and environmental standards in host economies. Furthermore, there is also a considerable volume of literature around corporate responsibility, ethics and tax-avoidance techniques that may be adopted by multinational enterprises. As such, there remains a sizeable debate over the motives and redistributive effects of FDI.

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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 have been based on 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; 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 2013-2015 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 2015, Europe accounted for more than 40 % 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 2015, the global stock of FDI was valued at EUR 22.6 trillion, 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 (35.0 %) of global inward investment was located in Europe (EUR 7.9 trillion), while it accounted for more than two fifths (41.7 %) of the world’s outward investment positions (some EUR 9.4 trillion).

Between 2005 and 2015, Asia emerged as an increasingly attractive location for foreign investment

There was a relatively modest decline between 2005 and 2015 in the share of global FDI stocks that were positioned in Europe; its share of the world total falling by 5.4 percentage points, while the contraction in the share of North America was of a similar magnitude (down 5.1 percentage points). By contrast, the relative importance of Asia as a location for inward investment rose at a relatively fast pace between 2005 and 2015, its share of the global total rising by 9.6 percentage points to reach 23.8 % by 2015 (which was almost as high as the share recorded for North America (25.1 %). The share of the world’s inward investment that was located in Africa and in Latin America and the Caribbean also rose between 2005 and 2015, although rates of change were relatively modest when compared with the rapid expansion of investment within Asia.

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 2005 and 2015, this proportion rising to more than half of the global total (55.2 %) at the onset of the global financial and economic crisis in 2008, before falling to 41.7 % by 2015. North America had the second highest share (28.4 %) of the world’s outward FDI stocks in 2015, followed by Asia (18.5 %). As with developments for inward FDI, between 2005 and 2015 the relative shares of Europe (-5.4 percentage points) and particularly North America (-8.0 percentage points) in total outward FDI declined; this pattern was counteracted by a sizeable increase in the share of Asia (up 10.6 percentage points).

Figure 1: Stocks of foreign direct investment, by continent, 2005-2015
(% of world total)
Source: UNCTAD (FDI/MNE database)

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 2015 for the ratio of outward direct investment to GDP was 33.6 %, while the ratio of inward direct investment to GDP was 34.0 %.

In 2015, two Asian economies — Singapore and Hong Kong — 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 3.7 times as high as its GDP, rising to 5.1 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 concerned.

Direct investment in the EU-28 was valued at 39.0 % of GDP in 2015, which was slightly higher than the global average. Aside from Hong Kong and Singapore there were four other global competitors that recorded higher ratios than the EU-28: Canada, Mexico, Australia and South Africa. By contrast, stocks of inward FDI relative to GDP were much lower in the Chinese (10.9 %) and, in particular, the Japanese economies (3.9 %). 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 28.0 % (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 from third countries to invest in Japan. By contrast, the value of direct investment abroad from Mexico and Brazil 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 2015; this was the case for Japan, Canada, South Africa, the EU-28, South Korea, the United States and Russia.

Figure 2: Stocks of foreign direct investment, relative to GDP, 2015
Source: Eurostat (bop_fdi6_pos), (bop_fdi_main) and (nama_10_gdp), UNCTAD (FDI/MNE database) and United Nations Statistics Division (National Accounts Main Aggregates Database)

Box 1.2 — Multinational enterprises

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, for most enterprises, investment decisions ultimately come down to maximising 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 enterprises 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 six global multinationals had their headquarters in the EU: Royal Dutch Shell plc, BP plc and Total S.A. were all specialised in energy activities, while Anheuser-Busch InBev NV was specialised in the manufacture of beverages and Volkswagen Group in the manufacture of motor vehicles.

Looking more generally across the whole of the top 20 non-financial multinational enterprises, 9 out of the 20 were headquartered in the EU (three each in Germany and the United Kingdom, one in each of Belgium, France and Italy), five were Japanese, four were from the United States, leaving a single multinational from each of Australia and Hong Kong.

The share of foreign assets in total assets was generally very high for most multinational enterprises, often accounting for more than three quarters of their total. However, more than half of all assets were in the domestic economy for three of the non-financial multinationals appearing in Table 1 — General Electric Co (51.1 %), Volkswagen Group (54.3 %) and Apple Computer Inc. (60.6 %).

Table 1: Top 20 non-financial multinational enterprises ranked by foreign assets, 2016
Source: Eurostat (bop_fdi6_pos), (bop_fdi_main) and (nama_10_gdp), UNCTAD (World Investment Report 2017)

The stock of foreign investment in China more than quadrupled between 2008 and 2015

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 2015 was recorded in China (where the nominal value of inward FDI rose more than fourfold); the next highest growth rates were recorded by Singapore and India.

The pace of change was even more rapid concerning the level of Chinese investment abroad: in 2015, outward FDI from China was valued almost eight 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 Korea and South Africa (as with China their stocks of investment abroad grew from a relatively low initial level in 2008).

Table 2: Stocks of foreign direct investment, 2008-2015
(billion EUR)
Source: Eurostat (bop_fdi6_pos) and (bop_fdi_main), UNCTAD (FDI/MNE database)

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 2015, just over one quarter (25.3 %) of global inward investment was located in the EU-28; its share of global outward investment was somewhat higher, reaching 30.7 %. The EU-28 recorded the highest share of both inward and outward stocks of FDI in 2015 and was followed in both cases by 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 outward investment.

Figure 3: World stocks of foreign direct investment, 2015
(% of total)
Source: Eurostat (bop_fdi6_pos) and UNCTAD (FDI/MNE database)

Foreign direct investment flows

The global financial and economic crisis was already mentioned at the start of the chapter on Global developments in trade and investment in relation to its impact on the value of international trade in goods and services. In a similar vein, there was a sharp reduction in the value of global FDI flows between 2008 and 2009: this was most apparent for direct investment flows abroad which fell by 32.3 % (perhaps reflecting the choice of multinational enterprises to reduce their exposure during challenging economic times). 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.

Post-crisis there was a relatively slow recovery in FDI flows (mirroring the pattern observed for international trade in goods) and a generally sluggish pattern to developments. Indeed, by 2014 the global level of FDI remained lower than it had been in 2008 for both inward and outward flows, a situation that was reversed in 2015 when value of both inflows and outflows rose to be higher than in 2008. Global inflows of FDI were valued at EUR 1.6 trillion in 2015, slightly higher than the value of FDI outflows (EUR 1.4 trillion).

In 2015, Europe was the world’s largest source and recipient of foreign direct investment

Figure 4 shows the share of global flows of FDI accounted for by each continent during the period 2005-2015. The general pattern for inward investment was a gradual transfer of investment flows from Europe towards Asia, although there was a marked recovery in Europe’s share in 2015. This pattern was clearer for outward investment, as Europe’s share fell at a much faster pace, from 77.3 % of the world total in 2005 down to just 17.7 % in 2014, before rebounding to 41.8 % in 2015. FDI inflows into Europe were valued at EUR 510 billion in 2015, while Europe’s outflows of FDI were somewhat larger (EUR 600 billion).

While the European share of total FDI flows was reduced by a considerable margin during the period 2005-2015, both North America and Asia saw an increase in their respective shares of global investment flows. In 2015, North America provided 23.2 % of the world’s outward flows of FDI, just ahead of the share recorded for Asia (21.2 %). By contrast, Asia attracted 29.5 % of global inward investment flows in 2015, which was somewhat higher than the share recorded by North America (22.0 %).

Figure 4: World flows of foreign direct investment, by continent, 2005-2015
(% of total)
Source: Eurostat (bop_fdi6_pos) and UNCTAD (FDI/MNE database)

Between 2008 and 2015, there was a rapid increase in FDI flows entering Singapore and Hong Kong

Developments for the value of FDI flows are shown in Table 3. The fastest overall growth rates for inward flows of FDI between 2008 and 2015 concerned investment in Singapore (which rose almost eightfold), investment in Hong Kong (which rose fourfold) and investment in the EU-28 (which rose 2.6-fold). By contrast, the fastest growth in the value of outward flows of FDI was recorded for Mexico (up more than 12-fold), while there were also sizeable increases in flows of FDI abroad from Singapore (which rose more than fivefold) and China (which rose threefold).

Looking in more detail at the global developments from one year to the next there was a considerable reduction in both inward and outward investment flows in 2014, followed by a marked rebound in 2015. A closer examination reveals that these changes could be largely attributed to the situation in the EU-28, with large-scale disinvestment in 2014 followed by the re-emergence of European multinationals as major investors in 2015. According to the United Nations, the rapid upturn in FDI flows in 2015 resulted from an increase in the number of cross-border mergers and acquisitions, which were often motivated by ‘inversions’, whereby an enterprise shifts its corporate headquarters from a relatively high-tax country to a jurisdiction with lower corporate taxes. This pattern was particularly prevalent in Ireland and the Netherlands, where corporate inversion deals led to a considerable rise in outward flows of FDI, as large multinational enterprises (often from the United States) became affiliates of newly-created parent companies, thereby boosting the outward flows of FDI for these host economies.

Between 2008 and 2015, 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 inward and outward flows of FDI to/from China: while the level of direct investment in the Chinese economy had been almost twice as high as the value of Chinese FDI flows abroad in 2008, inward and outward flows were almost balanced by 2015. As a sign of its growing global importance, outward Chinese investment reached a similar level to that recorded for Japan in 2015.

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).

Table 3: Flows of foreign direct investment, 2008-2015
(billion EUR)
Source: Eurostat (bop_fdi6_flow) and (bop_fdi_main), UNCTAD (FDI/MNE database)

In 2015, the EU-28 was the world’s leading outward investor

In 2015, the EU-28 was the leading outward investor, accounting for more than one third (37.4 %) of the world’s FDI flows, while the share of the United States was just less than one fifth (19.0 %); Japan (8.1 %) and China (8.0 %) had similar shares.

The EU-28 was also the host economy that received the highest value of inward FDI in 2015, with a 29.2 % share of the total (see Figure 5). Around one fifth (19.6 %) of the world’s FDI flowed into the United States, while Hong Kong (9.8 %) and China (7.6 %) accounted for the next highest shares. When compared with outward flows of FDI, Japan was conspicuous by its absence within the ranking of main host economies.

Figure 5: Share of world flows of foreign direct investment, 2015
Source: Eurostat (bop_fdi6_flow) and UNCTAD (FDI/MNE database)

Source data for tables and graphs

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