In any national election cycle, there is a topic that comes up over and over again: foreign direct investment, or FDI. This form of investment involves a company from one country making a physical investment in another country, such as building a factory or opening a branch office. The UK recorded 985 Foreign Direct Investment (FDI) projects in 2023, up 6% from 2022; France continued to lead in Europe for FDI projects, attracting a significant number of investments.
Foreign investment control measures in Mexico have been in place for decades and have been amended on multiple occasions. Despite these regulations, foreign companies still see the potential in investing in Mexico. For example, a Japanese automobile manufacturer may decide to build an assembly plant in Mexico to take advantage of the country's skilled labor force and strategic location for exporting to North and South America.
Similarly, an Italian software company could open a sales office in Kenya to tap into the growing technology market in Africa. This kind of foreign direct investment not only brings capital into the recipient country but also creates job opportunities and fosters economic growth.
For the fourth year in a row, France has pulled in more foreign direct investment than any other country in Europe. This prestigious title speaks to the country's attractiveness to foreign investors due to factors such as a skilled workforce, strong infrastructure, and access to the European market.
According to UNCTAD's World Investment Report, foreign direct investment (FDI) in least developed countries (LDCs) declined by 16% to $22 billion in 2022. This decrease highlights the challenges that developing nations face in attracting foreign investment, which is crucial for their economic development.
The current account records a country's imports and exports of goods and services, foreign investors' payments, and transfers. Foreign Direct Investment (FDI) plays a significant role in shaping a country's current account balance, as it reflects the inflow of capital from overseas investors.
Foreign Direct Investment (FDI) is a pivotal driver of economic growth, fostering development and innovation worldwide. Countries that actively attract FDI often experience improvements in infrastructure, technology transfer, and job creation. Prepared by Federico Carril-Caccia and Elena Pavlova. Published as part of the ECB Economic Bulletin, Issue 4/2018, this article emphasizes the importance of FDI in global economic dynamics.
