Flows of foreign direct investment (FDI) into developing economies—a key propellant of economic growth and higher living standards—have dwindled to the lowest level since 2005 amid rising trade and investment barriers, new research from the World Bank shows. These barriers pose a significant threat to global efforts to mobilize financing for development.

In 2023, the latest year for which data are available, developing economies received just $435 billion in FDI—the lowest level since 2005. That coincides with a global trend in which FDI flows into advanced economies have also slowed to a trickle: high-income economies received just $336 billion in 2023, the lowest level since 1996. As a share of their GDP, FDI inflows to developing economies in 2023 were just 2.3 percent, about half the number during the peak year of 2008.

“What we’re seeing is a result of public policy,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President. “It’s not a coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs. Private investment will now have to power economic growth, and FDI happens to be one of the most productive forms of private investment. Yet, in recent years governments have been busy erecting barriers to investment and trade when they should be deliberately taking them down. They will have to ditch that bad habit.” 

From June 30 to July 3, representatives of governments, international institutions, civil society organizations, and the private sector are scheduled to meet in Seville, Spain, to discuss how to mobilize the financing that will be needed to achieve key global and national development goals.  The new analysis from the World Bank highlights the policies that will be needed to achieve those goals at a time when economic growth has slowed to a crawl, public debt has surged to record highs, and foreign-aid budgets have shrunk. Easing investment restrictions will be a key first step: so far in 2025, half of all FDI-related measures announced by governments in developing economies have been restrictive measures—the highest share since 2010.

“With the global community gearing up for the Conference on Financing for Development, the sharp drop in FDI to developing economies should sound alarm bells,” said M. Ayhan Kose, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group. “Reversing this slowdown is not just an economic imperative—it’s essential for job creation, sustained growth, and achieving broader development goals. It will require bold domestic reforms to improve the business climate and decisive global cooperation to revive cross-border investment.” 

Investment treaties tend to boost FDI flows between signatory states by more than 40%, the analysis finds. Between 2010 and 2024, just 380 new investment treaties came into force, barely a third of the 1990s number. Similarly, the report finds that countries that are more open to trade tend to receive more FDI—an extra 0.6% in FDI for each percentage-point increase in the trade-to-GDP ratio. However, the number of new trade agreements signed over the past decade dropped in half—from an average of 11 per year in the 2010s to just six in the 2020s. 

In 2023, FDI accounted for roughly half of the external financing flows received by developing economies. Under the right conditions, it is a strong spur to economic growth: analysis of data from 74 developing economies between 1995 and 2019 suggests that a 10% increase in FDI inflows generates a 0.3% increase in real GDP after three years. The impact is nearly three times larger—up to 0.8%—in countries with stronger institutions, better human capital, greater openness to trade, and lower informality. By the same token, the effect of FDI increases is much smaller in countries that lack such features.

FDI tends to be concentrated in the largest economies. Between 2012 and 2023, about two-thirds of FDI flows to developing economies went to just 10 countries, with China receiving nearly a third of the total and Brazil and India receiving roughly 10% and 6% respectively. The 26 poorest countries received barely 2% of the total. Advanced economies, moreover, accounted for nearly 90% of the total FDI in developing economies over the past decade. About half of that came from just two sources: the European Union and the United States.

The report identifies three policy priorities for developing economies.

First, redouble efforts to attract FDI. Easing FDI restrictions that have accumulated over the last decade would be a good start. So would speeding up improvements in the investment climate, which have stalled in many countries over the past decade. Strong macroeconomic outcomes—healthy growth and rising labor productivity—also help accelerate FDI flows, the analysis shows. An increase of 1% in a country’s labor productivity, for example, is associated with an increase of 0.7% in FDI inflows.

Second, amplify the economic benefits of FDI. Promoting trade integration, improving the quality of institutions, fostering human capital development, and encouraging more people to participate in the formal economy increase the benefits of FDI. Governments can also amplify the benefits by channeling FDI to sectors where the impact is greatest. FDI can also help increase job opportunities for women: the domestic affiliates of multinational enterprises, for example, tend to have a higher share of female employees than domestic firms.

Third, advance global cooperation. All countries should work together to accelerate policy initiatives that can help direct FDI flows to developing economies with the largest investment gaps. Especially in a time of high geopolitical tensions, the World Bank and other international institutions have a crucial role to play in supporting a rules-based order. Technical and financial assistance to support structural reform efforts in developing countries—especially low-income countries—are critical for facilitating FDI inflows. The World Bank Group, the world’s largest development bank, is playing a key role in mobilizing private capital—by creating instruments that lower financial risks for investors, by helping to improve market conditions in developing economies, and by scaling up its engagement with the private sector.

Culled from the World Bank

Heightened trade tensions and policy uncertainty are expected to drive global growth down this year to its slowest pace since 2008 outside of outright global recessions, according to the World Bank’s latest Global Economic Prospects report. The turmoil has resulted in growth forecasts being cut in nearly 70% of all economies—across all regions and income groups.

Global growth is projected to slow to 2.3 percent in 2025, nearly half a percentage point lower than the rate that had been expected at the start of the year. A global recession is not expected. Nevertheless, if forecasts for the next two years materialize, average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s. 

“Outside of Asia, the developing world is becoming a development-free zone. said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics. “It has been advertising itself for more than a decade. Growth in developing economies has ratcheted down for three decades—from 6 percent annually in the 2000s to 5 percent in the 2010s—to less than 4 percent in the 2020s. That tracks the trajectory of growth in global trade, which has fallen from an average of 5 percent in the 2000s to about 4.5 percent in the 2010s—to less than 3 percent in the 2020s. Investment growth has also slowed, but debt has climbed to record levels.”

Growth is expected to slow in nearly 60 percent of all developing economies this year, averaging 3.8 percent in 2025 before edging up to an average of 3.9 percent over 2026 and 2027. That is more than a percentage point lower than the average of the 2010s. Low-income countries are expected to grow 5.3 percent this year—a downgrade of 0.4 percentage point from the forecast at the start of 2025. Tariff increases and tight labor markets are also exerting upward pressure on global inflation, which, at a projected average of 2.9 percent in 2025, remains above pre-pandemic levels.

Slowing growth will impede developing economies in their efforts to spur job creation, reduce extreme poverty, and close per capita income gaps with advanced economies. Per capita income growth in developing economies is projected to be 2.9 percent in 2025—1.1 percentage points below the average between 2000 and 2019. Assuming developing economies other than China are able to sustain an overall GDP growth of 4 percent—the rate forecast for 2027—it would take them about two decades to return to their pre-pandemic trajectory with respect to economic output.

Global growth could rebound faster than expected if major economies are able to mitigate trade tensions—which would reduce overall policy uncertainty and financial volatility. The analysis finds that if today’s trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, global growth would be 0.2 percentage point stronger on average over the course of 2025 and 2026. 

“Emerging-market and developing economies reaped the rewards of trade integration but now find themselves on the frontlines of a global trade conflict,” said M. Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “The smartest way to respond is to redouble efforts on integration with new partners, advance pro-growth reforms, and shore up fiscal resilience to weather the storm. With trade barriers rising and uncertainty mounting, renewed global dialogue and cooperation can chart a more stable and prosperous path forward.”

The report argues that in the face of rising trade barriers, developing economies should seek to liberalize more broadly by pursuing strategic trade and investment partnerships with other economies and diversifying trade—including through regional agreements. Given limited government resources and rising development needs, policymakers should focus on mobilizing domestic revenues, prioritizing fiscal spending for the most vulnerable households, and strengthening fiscal frameworks. 

 Finally, to accelerate economic growth, countries will need to improve business climates and promote productive employment by equipping workers with the necessary skills and creating the conditions for labor markets to efficiently match workers and firms. Global collaboration will be crucial in supporting the most vulnerable developing economies, including through multilateral interventions, concessional financing, and, for countries embroiled in active conflicts, emergency relief and support.

Source: World Bank