FDI Flows in Services by Group of Economies
Shifting the focus toward FDI inflows for types of economies varies among groups of economies—developed, economies in transition, and developing. FDI inflows declined for developed economies within the last year, according to the 2020 UNCTAD World Investment Report. On the other hand, economies in transition showed growth in the amount of FDI that they attracted within the last year. Transition economies refer to those economies that are in the process of shifting from a predominantly state-run economy toward a market-oriented one. Developing economies also enjoyed an increase in FDI inflows in recent years.
Developed economies experienced a 27% drop from 2017 to 2018 and a 6% decrease from 2018 to 2019 (UNCTAD World Investment Report, 2019c and 2020c).
However, the earlier trends for FDI inflows in services for developed economies have shown opposite results overall for these same economies over a four-year period from 2014 to 2018. For example, the top three developed OECD economies that recently received the most FDI inflows in services—United States, Netherlands, and Australia—saw a combined increase of 794% from US$21 billion in 2014 to US$189 billion in 2018 (Figure 4.5).
Six of the reported OECD developed economies showed a decrease to the point of reporting negative FDI inflows in services in 2018. Those economies included Finland, -US$263 million; Iceland, -US$428 million; Japan, -US$3.9 billion; Switzerland, -US$28.4 billion; Ireland, -US$93 billion; and Luxembourg, -US$387 billion.
Economies in transition
Economies in transition received a 65% increase in FDI inflows (UNCTAD Investment Trends Monitor 2020). According to a 2007 World Bank report on the economies in transition throughout Eastern Europe and Central Asia, high-quality services, such as transport or telecommunications, play a
Figure 4.5 Top five OECD-developed economy recipient of FDI inflows for services (2018) (%). Source: OECD Data
significant role in attracting FDI (Fernandes 2007, 3)- Countries that implemented policy reforms resulting in a more efficient services sector since the 1990s attracted more FDI and saw faster per capita GDP growth (Fernandes 2007, 3).
On the other hand, FDI flows to developing economies saw a 2% increase from 2017 to 2018, and their share of global FDI jumped up by 54%. Developing economic FDI inflows remained the same from 2018 to 2019. Although global FDI has shown “anemic growth since 2018,” international production has continued to grow due to cross-border trade of services, as well as royalties and licensing fees (UNCTAD 2019).
In terms of OECD developing economies, FDI inward flows in services increased by 76% from 2014 to 2018. Israel showed the greatest increase from US$4.8 billion to US$15 billion during this time period (Figure 4.6).