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Foreign direct investment (FDI) inflows to emerging market and developing economies (EMDEs) have been on a steady decline as a share of GDP since the global financial crisis. In the boom years of the 2000s, FDI inflows reached nearly 5% of GDP in a typical EMDE by 2008. Today, they hover around 2%—the lowest since 2005. In 2023, EMDEs received $435 billion in FDI, reflecting a broad-based slowdown across regions and sectors.

A structural shift has also reshaped FDI patterns. Manufacturing—once the cornerstone of FDI—has given way to services. Between 2019 and 2023, about 65% of FDI went to services, including advanced digital and financial services, compared to 45% in the early 2000s. Manufacturing’s share has dropped to below 30%. Large economies such as China, India, and Brazil now absorb more than half of total inflows, leaving smaller economies with less access to global investment capital.

While FDI is generally linked to higher economic output, the extent of the benefit depends on local conditions. On average, a 10% rise in FDI inflows leads to a 0.3% increase in GDP after three years. However, countries with strong trade openness, robust institutions, skilled workforces, and low informality can see gains of up to 0.8%. Unfortunately, many low-income countries lack these enabling conditions, limiting the impact of foreign investment.

Macroeconomic stability, trade integration, and institutional strength are decisive in attracting FDI. Each percentage point increase in trade-to-GDP ratio can raise FDI inflows by about 0.6%, and deeper participation in global value chains has a similar effect. Investment treaties can boost inflows between signatories by over 40%. But today’s environment is challenging—geopolitical tensions, global uncertainty, and a slowdown in new investment treaties have weakened investor confidence. Between 2010 and 2024, only 380 new treaties were signed, less than half the number in the previous decade.

Adding to the challenge, EMDEs have recently seen a rise in restrictive FDI measures, reversing the liberalizing trend of the 2010s. Trade-distorting policies are spreading, and reforms to improve the investment climate have lost momentum.

The Path Forward: A Three-Pronged Strategy

To reverse the decline in FDI, EMDEs need to adopt a coordinated approach:

1. Attract FDI by creating a favorable investment climate, improving infrastructure, developing human capital, deepening financial markets, and removing trade and investment barriers.


2. Amplify the Benefits by integrating FDI into broader development strategies that promote technology transfer, skill upgrading, and stronger linkages with domestic firms.


3. Advance Global Cooperation to maintain a predictable, rules-based investment environment. International organizations, including the World Bank Group, can help by lowering investor risks, improving market conditions, and supporting structural reforms.

This analysis draws on the World Bank’s Global Economic Prospects, June 2025.