Discuss what factors cause fall of global FDI flows considering the fall of the global FDI flows in 2018.

Published: May 17, 2019

Foreign direct investment is referred to as the investment that is done in the form of controlling ownership of a business in one country by an entity based in another country. It is a little different from the foreign portfolio investment by a notion of direct control.

Factors

A significant fall of the global FDI flows was noticed in 2018. Several reasons were responsible for the fall in FDI flow.

  • Volatility in oil prices.
  • The trade conflict between two economically developed countries like the US and China affects global growth.
  • Tax reform in countries like the US compelled the companies of the US to gather large sums of money.

The Organization for Economic Co-operation and Development mentioned in its report that FDI flows, decreased by about 27% in 2018 compared to the previous year.

Investment report

The United Nations Conference on Trade and Development makes the following observations

  • The global Foreign Direct Investment (FDI) flows slid for the third consecutive annual decline by 13% in 2018
  • India and the UAE which are not traditionally in the top 20 outward investor countries were considered as among the top 10 most important sources of FDI for the 2019 to 2021 period.
  • FDI to India grew by 6% to USD 42 billion in 2018 owing to strong inflows in the manufacturing, communication, and financial services sectors, and cross-border merger and acquisition activities.

Comment

The FDI flow could be increased through a weak exchange rate in the host country; reduction of restrictions; a transparent system for all kinds of firms; setting up an Investment Promotion Agency; setting up a proper infrastructure that is required for a quality investor, etc.

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