- Foreign Direct Investment levels and their share of GDP indicate the global attractiveness of countries.
- On a global scale, most FDI is invested in developed countries. Within Europe most FDI is going to Western European countries.
- FDI counts for a larger share of GDP in Eastern European countries, as well as in some countries in Western Europe such as Belgium and Luxembourg.
Observations for policy
Foreign Direct Investments and their relatively share of GDP illustrates the increasing interdependencies of global regions and puts European countries in a global perspective. The inflow of FDI can be interpreted as a reflection of the economic attractiveness of a country.
However, a significant part of FDI corresponds to transfers of funds between national components of Multinational Corporations. The assimilation of these transfers to ÔÇťinvestmentsÔÇŁ can be misleading, especially when they are linked to tax planning strategies.
European countries receive a large share of global FDI flows and the inflow of these investments is important for the economy of many countries, for example to ensure job creation. Foreign investments are important for both Eastern and Western European countries based on the share of FDI in GDP. However, most investments are made in Western European countries.
Globalisation and the heterogeneous impact on European regions is a major concern in European policies. FDI has, for example, provided an important boost to economies in Eastern and Southeast Europe. Most of these investments came from other European countries. The crisis, however, has reduced investment flows markedly as described in the 6th Cohesion Report. In 2007 Southeast and Eastern European countries received 55 billion ÔéČ from FDI, while this has been decreased to 23 billion in 2009. The economic and financial crisis has made differences between regions in levels of global integration more clear.
The Europe 2020 strategy is adopted to reinforce and enhance EuropeÔÇÖs position in the global economy. The strategy suggests that the European Union should focus on high technology and knowledge economy industries recognising the growing power of emerging economies in low and medium levels of technology.
The Territorial Agenda 2020 promotes strategies to harmonise efforts to promote global competitiveness and balance in local and regional economies. Economic competitiveness can be enhanced by the development of globally integrated economic sectors, but also by strengthening local economies. The use of social capital, territorial assets, and the development of innovation and smart specialisation strategies in a place-based approach can play a key role. The global and local perspectives on regional development are interlinked, and should therefore be considered together. Strengthening research, human capital and innovation capacity is essential.
The map illustrates FDI and share of GDP in the past decade (2000-2010). Europe is an important player regarding global investment flows. Most of the global flows are going to more developed countries or developing countries, for example in Latin America and South East Asia. The lack of FDI inflows in African countries is remarkable. Morocco has the lowest investment inflows, of the countries included in the map, of average 2 billion US Dollar per year. The United States are the main recipient of FDI with an average of 181 billion US Dollar per year.
The remarkable FDI share in GDP of some Caribbean states reflects the importance of tax planning strategies of multinational corporations in these figures. This implies that they should be interpreted cautiously in all countries.
Within Europe, levels of FDI are characterised by an East-West divide. Western European countries as the UK, Belgium, Germany and France have higher investment inflows than countries in Eastern and Southeast Europe. However the relatively importance of FDI in comparison with GDP is in general higher in Southeast and Eastern Europe. Some Western European countries have particularly high shares of FDI in relation to GDP e.g. Belgium, Luxembourg, the UK and Ireland. The importance of the banking and finance sector in particular in Luxembourg, Ireland and parts of the UK (London) explain the high shares of FDI in these countries. FDI flows in Eastern European regions are more related to growth strategies of multinational corporations. The inflow of these investments is in particular important for the economy of these states among others to ensure job creation. However the crisis decreased the inflow of FDIs to these countries.
Concepts and methods
The map shows the average of annual inflow of Foreign Direct Investments (FDI) between 2000 and 2010 as well as the share of FDI inflows in GDP in the same period. Circles, starting from average annual inflows in the past decade of 1 billion US dollar, illustrate the inflow of FDI. The share of FDI inflows in relation to GDP is shown as the colour of the circles.