Statistics Explained

World direct investment patterns

Data extracted in June 2022.

Planned article update: July 2023.

Highlights

In 2020, Europe was the largest location of foreign direct investment stocks in the world, accounting for almost two fifths (39%) of the world’s inward investment positions.

In 2020, Europe was the leading outward investor, accounting for more than close to half (45%) of the world’s outward investment stocks.

World stocks of foreign direct investment, 2020
(% 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 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.

Data for the world and non-EU countries have been converted from United States dollars to euro. Annual average exchange rates have been used for FDI flows and end-of-year rates for FDI stocks (positions).

Full article

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 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 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 2020, Europe accounted for 45 % 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 2020, the global stock of FDI was valued at €32.8 trillion (€32 800 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, almost two fifths (38.9 %) of global inward investment was located in Europe (€13.1 trillion), while it accounted for close to half (45.1 %) of the world’s outward investment stocks (some €14.4 trillion).

Between 2010 and 2020, North America was an increasingly attractive location for foreign investment

There was a relatively strong decline between 2010 and 2019 in the share of global FDI stocks that were located in Europe, its share of the world total falling by 6.4 percentage points. However, there was a considerable change in 2020, in part reflecting the impact of the COVID-19 crisis, as investment stocks in Europe grew rapidly – the share of Europe rose 2.8 points between 2019 and 2020. Despite this, the overall fall of 3.6 percentage points between 2010 and 2020 in the share of global FDI stocks that were located in Europe was the largest fall recorded in any of the continents over this period.

The share of FDI stocks located in Latin America and the Caribbean also fell (down 2.4 percentage points between 2010 and 2020), and falls were also recorded in Africa and Oceania, although the size of the falls were smaller. By contrast, the share of global direct investment in Asia increased by 0.9 percentage points, while North America had, by far, the largest increase, its share rising 6.6 points.

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. Asia was the only other continent that reported being a net investor. The second part of Figure 1 shows there were relatively large fluctuations concerning Europe’s share of the world’s outward FDI stocks between 2010 and 2020, this proportion rising to more than half of the global total (50.7 % in 2011) in the aftermath of the global financial and economic crisis, before falling for six successive years to 42.5 % by 2017. North America had the second highest share (25.7 %) of the world’s outward FDI stocks in 2020, closely followed by Asia (24.8 %). Between 2010 and 2020, the relative shares of Europe (-5.1 percentage points) and North America (-2.6 percentage points) in total outward FDI declined; this pattern was counteracted by a sizeable increase in the share of outward FDI from Asia (up 8.2 percentage points).

Figure 1: Stocks of foreign direct investment, by continent, 2010–2020
(% of world total)
Source: UNCTAD (FDI/MNE database)

Stocks of foreign direct investment represent about one third of the world’s annual economic output

Figure 2 presents information on the relative importance of FDI stocks compared with the economic size of each economy (as measured by annual gross domestic product (GDP)). The global average in 2020 for the ratio of outward direct investment stocks to GDP was 43.1 %, while the ratio of inward direct investment stocks to GDP was 45.4 %.

In 2020, 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 values of direct investment stocks in Singapore and Hong Kong were 5.1 times as high as their GDP. 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; the next highest share was recorded in the United Kingdom (with inward FDI stocks representing 74.4 % of GDP).

Direct investment stocks in the EU were valued at 54.5 % of GDP in 2020, which was somewhat higher than the global average. Aside from Hong Kong, Singapore and the United Kingdom, there were two other global competitors (among those shown in Figure 2) that recorded higher ratios than the EU: Canada and Australia. By contrast, stocks of inward FDI relative to GDP were much lower in the Chinese (12.1 %) and, in particular, the Japanese (4.5 %) economies. The relatively low overall level of inward FDI stocks 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. This supports 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 stocks of direct investment abroad relative to GDP for Japan was 36.5 % (much higher than the ratio of inward FDI stocks 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. A similar pattern was observed in Canada, where the ratio of outward stocks of FDI relative to GDP was 111.1 % (in other words, outward investment was valued higher than the size of the Canadian economy). By contrast, the value of stocks of direct investment abroad from Mexico, Brazil and Turkey was relatively low (both in relation to GDP and in relation to the value of stocks of inward investment in each 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 2020; this was the case for Canada, Japan, South Africa, Hong Kong, the United Arab Emirates, South Korea, the EU and China.

Figure 2: Stocks of foreign direct investment, relative to GDP, 2020
(%)
Source: Eurostat (bop_fdi6_pos) and (nama_10_gdp) and UNCTAD (FDI/MNE database)


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, investment decisions are often focused on profits. As the relative price of transport and communications fell, it became 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 raw materials. In a similar vein, the provision of some services has also been affected, as witnessed by the concentration of call centres / helpdesks in some countries. 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 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).

Half (5 out of the top 10) of the world’s leading multinational enterprise groups (in terms of foreign assets) had their headquarters in the EU: TotalEnergies SE (France) was specialised in energy activities, the Volkswagen Group (Germany) and Stellantis NV (the Netherlands) were specialised in the manufacture of motor vehicles, Deutsche Telekom AG (also Germany) was specialised in information and communication services, while Anheuser-Busch InBev NV (Belgium) was specialised in the manufacture of beverages (principally the brewing of beer).

Looking across the whole of the top 20 non-financial multinational enterprises, nine were located in the EU (four in Germany, two from France and one in each of Belgium, Italy and the Netherlands), four were from the United Kingdom, three from the United States, two from Japan, leaving a single multinational from each of Hong Kong and Taiwan.

The share of foreign assets in total assets was generally very high for most multinationals shown in Table 1, accounting for more than four fifths of all assets in half (10 out of the top 20) multinationals. However, more than half of all assets were in the domestic economy for four of the non-financial multinationals – Mercedes-Benz Group (50.9 %), Volkswagen Group (56.1 %), Microsoft Corporation (59.3 %) and EDF SA (60.8 %).

Table 1: Top 20 non-financial multinational enterprise groups ranked by foreign assets, 2021
Source: UNCTAD (World Investment Report 2022)

The stock of foreign investment in the United States, India, Singapore and China more than doubled between 2013 and 2020

Developments for both inward and outward stocks of FDI are shown in Table 2. There were four countries where the nominal value of inward FDI stocks more than doubled between 2013 and 2020; the highest growth rates were recorded by the United States, India, Singapore and China.

The pace of change was even more rapid concerning the level of Chinese investment stocks abroad: in 2020, outward FDI stocks from China were valued at 4.0 times as high as they had been in 2013. It should be noted that the total value of these stocks had been, in 2013, still relatively small (compared with the levels recorded in the EU or the United States). The next highest growth rates for outward FDI stocks were recorded for the United Arab Emirates, South Korea, Singapore and South Africa.

Table 2: Stocks of foreign direct investment, 2013–2020
(€ billion)
Source: Eurostat (bop_fdi6_pos) and 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 2020, just over one fifth (21.7 %) of global inward investment stocks were located in the EU; its share of global outward investment was somewhat higher, reaching 26.9 %. The EU recorded the highest share of outward stocks of FDI in 2020 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. The United Kingdom accounted for the third highest share of global FDI stocks for inward investment, while China had the third highest share for outward investment.

Figure 3: World stocks of foreign direct investment, 2020
(% of total)
Source: Eurostat (bop_fdi6_pos) and UNCTAD (FDI/MNE database)

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. These flows are composed of three components: equity capital, reinvested earnings and intra-company loans. Global flows of FDI were valued at €761 billion in 2020, based on an average of inward and outward flows.

In 2020, Europe was the world’s third largest source and recipient of foreign direct investment, behind Asia and North America

Figure 4 shows the share of global flows of FDI accounted for by each continent during the period 2010–2020. Note the sudden change in the geographical structure of investment flows between 2019 and 2020 that may be attributed, at least in part, to the COVID-19 crisis; this reflects not only the spread and intensity of the pandemic itself but also the economic/cultural differences in how governments and businesses reacted to the pandemic. There was a dramatic overall fall in global inward investment flows in 2020 (down 36.0 %), while outward flows fell even more (down 40.6 %). Geographically, the share of flows into and out of Asia increased greatly while the shares into and out of Europe fell greatly.

Over the longer-term, inward investment followed a fluctuating pattern of developments coupled with a rebalancing of investment flows with less directed towards Europe and more towards other continents, particularly Asia. A similar pattern was observed for outward investment, as Europe’s share fell from 45.2 % of the world total in 2010 to 26.8 % in 2014, before rebounding to 51.3 % in 2018 and then falling again rapidly to 10.9 % in 2020. FDI inflows into Europe were valued at €78 billion in 2020 (down from €366 billion in 2019), while Europe’s outflows of FDI were somewhat smaller, at €70 billion (down from €346 billion in 2019).

While the European share of world FDI flows was considerably lower in 2020 than in 2010, Asia saw an increase in its respective shares; this was particularly the case in 2020. While global investment flows generally plummeted in 2020, the annual rate of change for inward flows to Asia was 1.2 %, while outward flows from Asia fell 16.7 %. As a result, Asia attracted a majority (57.9 %) of global inward investment flows in 2020, considerably higher than its share a decade before (31.4 % in 2010). Asia provided more than two thirds (68.8 %) of the world’s outward flows of FDI in 2020, which was more than three times as high as the share for North America and more than six times as high as the share for Europe; this latest figure could be compared with Asia’s much lower share of world outflows of FDI some 10 years earlier (26.2 % in 2010).

Figure 4: World flows of foreign direct investment, by continent, 2010–2020
(% of world total)
Source: UNCTAD (FDI/MNE database)

Prior to the COVID-19 crisis, developments for FDI flows were quite irregular (similar to the pattern observed for international trade in goods). Very large increases in investment flows were observed in 2015 and (to a lesser extent) in 2019 (as well as in 2020). By contrast, there were relatively large falls in global investment flows in 2017, 2018 and (after the onset of the pandemic) 2020.

Developments observed in the levels of global FDI flows are often 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 reflected very large changes in the level of flows reported by the EU and the United States, while the large decrease observed in 2017 reflected very large changes in the level of flows reported by the EU, the United Kingdom and the United States. Concerning movements in outward flows, the large increase in 2015 mainly reflected changes reported for the EU, while the large decrease observed in 2018 reflected changes for the EU, the United States and (to a lesser degree) the United Kingdom.

Between 2013 and 2020, there was a rapid increase in FDI flows entering Singapore and Hong Kong

Among the economies presented in Table 3, the highest increases in absolute terms for inward flows of FDI between 2013 and 2020 concerned investment in Hong Kong, China, Singapore and India (with increases in the range of €34.9–48.4 billion). By contrast, the highest relative growth was recorded in Japan, as its inward flows of FDI in 2020 were 5.2 times as high as in 2013, although they remained relatively low in absolute terms (€9.0 billion). Among the remaining countries, the United Arab Emirates was the only other country to record an overall increase in inward flows of FDI between 2013 and 2020.

Between 2013 and 2020, China and Hong Kong became increasingly important investors in the global economy

The highest increases in absolute terms for outward flows of FDI between 2013 and 2020 concerned investment from China and Hong Kong (with increases of €35.2 billion and €28.7 billion respectively). By contrast, the highest relative growth rates were recorded for India and Australia, as their outward flows of FDI in 2020 were 8.0 and 7.4 times (respectively) as high as in 2013, although they remained relatively low in absolute terms (€10.1 billion and €8.0 billion). Among the remaining countries, the only other countries to record an increase in outward flows of FDI between 2013 and 2020 were the United Arab Emirates, South Korea and Turkey.

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 was relatively balanced in 2014, 2018 and 2019, outward flows exceeded inward flows in 2015, (most notably) 2016 and 2017, while inward flows exceeded outward flows in 2013 and 2020. As a sign of its growing global importance, outward Chinese investment exceeded the level recorded for Japan in 2015, 2016 and 2020.

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 to and from 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 and 2018. Note the latest data available (for 2020) do not capture the impact of the Russian military aggression against Ukraine and related sanctions.

Table 3: Flows of foreign direct investment, 2008–2017
(€ billion)
Source: Eurostat (bop_fdi6_flow) and UNCTAD (FDI/MNE database)

In 2020, China was the world’s largest outward investor

The EU was the host economy that received the highest value of inward FDI in 2020, with a 34.5 % share of the world total (see Figure 5). Around one sixth (15.6 %) of the world’s FDI flowed into the United States and a similar share into China (15.0 %); Hong Kong (11.9 %) was the only other country to record a double-digit share. Japan was conspicuous by its absence within the ranking of main host economies, given its high share of outward flows of FDI.

In 2020, China was the leading outward investor, accounting for nearly one fifth (18.0 %) of the world’s FDI flows abroad, while the share of the EU was somewhat lower (16.4 %). Relatively high shares were also observed for Japan, Hong Kong and the United States (all within the range of 12.5–15.6 %).

Figure 5: Share of world flows of foreign direct investment, 2020
(%)
Source: Eurostat (bop_fdi6_flow) and UNCTAD (FDI/MNE database)

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