Foreign direct investment (FDI) in developing countries has dropped to its lowest level since 2005, stalling growth and endangering efforts to meet development goals.
As trade barriers rise and economic cooperation falters, the decline marks a critical moment for global policymakers.
Investment Drought in Developing Economies
In 2023, developing economies received just $435 billion in FDI—a level not seen since 2005. According to a recent World Bank report released in Washington on June 16, 2025, this marks a steep decline from historical trends and raises serious concerns about the future of development financing.
The drop coincides with rising trade and investment barriers, which are discouraging cross-border capital flows at a time when public debt is at record highs and foreign aid budgets are shrinking.
“Private investment must now power growth,” said Indermit Gill, Chief Economist at the World Bank Group. “But governments are erecting more barriers just when openness is needed most.”
A Global Slide in FDI Trends
FDI has slowed across the globe, not just in developing nations. High-income economies took in only $336 billion in 2023—their lowest since 1996. But for lower-income countries, the effects are more severe, as FDI provides both capital and critical links to global markets and technologies.
Snapshot of FDI Flows (2023)
| Region/Economy Type | FDI Inflows (USD) | Historical Comparison |
|---|---|---|
| Developing Economies | $435 billion | Lowest since 2005 |
| High-Income Economies | $336 billion | Lowest since 1996 |
| Share of GDP (Developing) | 2.3% | Half the level in 2008 |
What’s Driving the Decline?
Several factors are converging to drive this downturn:
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Protectionist policies: Half of all FDI-related measures in 2025 have been restrictive—the highest share since 2010.
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Weaker global cooperation: New trade and investment treaties have slowed dramatically over the past decade.
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Macroeconomic instability: Rising debt and slow growth reduce investor confidence.
The number of new investment treaties dropped sharply—from hundreds in the 1990s to just 380 between 2010 and 2024. Similarly, countries are signing fewer trade agreements, reducing openness to international capital.
Why It Matters: Growth, Jobs, and Opportunity
FDI accounts for half of external financing in many developing nations and has a direct impact on GDP growth and employment. The World Bank found that:
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A 10% increase in FDI leads to a 0.3% rise in real GDP after three years.
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The impact is nearly three times stronger in countries with better institutions and lower informality.
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Countries more open to trade see an additional 0.6% in FDI for each percentage-point increase in their trade-to-GDP ratio.
Additionally, women benefit disproportionately from FDI. Multinational firms tend to employ a higher share of women compared to local companies.
Who Gets the Investment—and Who Doesn’t
FDI remains highly concentrated. Between 2012 and 2023:
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China received nearly one-third of all FDI to developing economies.
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Brazil and India attracted another 16% combined.
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The 26 poorest countries received only 2%.
More than 90% of FDI into developing economies came from advanced economies, especially the European Union and the United States. This unequal distribution further widens the development gap.
Solutions: Remove Barriers, Unlock Growth
To reverse the decline, the World Bank urges three clear steps:
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Ease investment restrictions and improve the business climate.
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Amplify FDI’s benefits through trade integration, institutional reforms, and workforce development.
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Strengthen global cooperation and restore trust in cross-border investment frameworks.
“Reversing the slowdown is essential—not optional,” said M. Ayhan Kose, Deputy Chief Economist at the World Bank. “It’s the path to jobs, sustained growth, and stronger societies.”
The Seville Summit
Leaders from governments, international agencies, and the private sector will gather in Seville, Spain from June 30 to July 3. Their goal: address the financial shortfalls threatening development targets and propose collective action to reinvigorate investment flows.
This summit comes at a pivotal time. With public capital shrinking, only bold domestic reforms and renewed global cooperation can restore confidence and unlock essential private financing.
Final Thought
As foreign direct investment in developing countries plummets, the call for decisive policy reform and global solidarity has never been clearer.
For developing economies to thrive, openness—not protectionism—must lead the way.
To explore more on global investment trends and development strategies, follow the latest from the World Bank and international policy forums.
Sources: The World Bank.
Prepared by Ivan Alexander Golden, Founder of THX News™, an independent news organization delivering timely insights from global official sources. Combines AI-analyzed research with human-edited accuracy and context.
