Foreign Direct Investment $41 Trillion

Global foreign direct investment grew again in 2023 after declining the previous year. Inward direct investment climbed $1.75 trillion, or 4.4 percent, reaching a record $41 trillion, according to the IMF’s latest Coordinated Direct Investment Survey, which provides detailed information on direct investment positions between countries.

FDI rose in most regions, with Central and South Asia, Europe, and North and Central America contributing most. Direct investment between advanced economies grew by $880 billion, or 3.6 percent, while those from advanced economies to emerging market and developing economies rose by $538 billion, or 7.6 percent.

The United States extended its lead as the top destination for direct investment. Singapore recorded the largest gain in 2023, with its position rising $307 billion, followed by $227 billion for the United States and $164 billion for Germany. Meanwhile, the Netherlands and Luxembourg posted the steepest declines but remained in the top five, alongside the United States, China, and the United Kingdom.

Luxembourg?

The apparent disconnect between FDI data and the real economy comes down to the fact that these numbers are fundamentally a set of financial statistics. They show cross-border financial flows and positions between entities tied to each other by a direct or indirect ownership share of at least 10 percent. Such flows can end up as investments into productive activities within a country, like funds going into new factories and machinery, but they can also be purely financial investments with little to no link to the real economy.

For instance, many multinational companies set up special purpose entities in offshore financial centers where funds just flow through the economy, as an intermediate step towards their final destination. These entities are often established to obtain tax or regulatory benefits and can inflate FDI data considerably even though they have relatively little tangible impact on the host economy.