Explaining Global Trends in FDI in 2015 and Beyond

Abstract

This chapter discusses global trends in foreign direct investment (FDI). It first attempts to explain recorded FDI flows in 2015 relative to 2014, challenging 'traditional' explanations for FDI flows, such as changes in market size, the offshoring motive, and supply-side constraints. It then contextualizes FDI flows in 2015 as part of the longer-term trend of stagnating FDI since the 2007/8 financial crisis, and proposes that FDI increasingly reflects the intra-firm financing decision. The chapter argues that FDI flows increasingly record financing flows of debt and retained earnings within a corporate group, thereby reflecting the financing decision of the parent company with respect to its many affiliates. Data for most countries is unable to show this clearly, but as the size of their FDI stocks grow relative to their economies, so too should debt-FDI and retained-earnings FDI overwhelm any new large FDI equity investments.