FDI to Developing Countries Hits Lowest Level Since 2005 – A Critical Juncture for Global Development

Foreign direct investment (FDI) into developing economies fell to $435 billion in 2023, the lowest level since 2005, according to the World Bank’s latest report. Advanced economies also saw weak inflows—just $336 billion, the lowest since 1996.
This sharp drop signals more than just economic turbulence—it represents a serious threat to long-term development efforts, from job creation to infrastructure financing and climate resilience.
“The sharp drop in FDI to developing economies should sound alarm bells,”
said Ayhan Kose, Deputy Chief Economist at the World Bank.
“Reversing this slowdown is not just an economic imperative—it’s essential for achieving broader development goals.”
What’s Causing the Decline?
The report identifies several converging factors:
Rising trade and investment barriers
Geopolitical fragmentation
Macroeconomic instability
Global policy uncertainty
These forces have undermined investor confidence, especially in countries where capital is most urgently needed. FDI inflows as a percentage of GDP in developing nations have fallen to just 2.3% in 2023, about half of the 2008 peak. Global trade growth from 2020 to 2024 was also the slowest since 2000, with economic uncertainty spiking to levels unseen since the early 2000s.
A Call for Bold Policy Reform
The World Bank stresses the need for ambitious domestic reforms to restore investment momentum. This includes:
Improving the business climate
Reducing regulatory barriers
Expanding participation in the formal economy
Promoting trade integration
“Governments have been busy erecting barriers to investment and trade when they should be taking them down,”
said Indermit Gill, the World Bank’s Chief Economist.
“They will have to ditch that bad habit.”
Additionally, multilateral coordination is vital to ensure that FDI reaches the countries with the most urgent infrastructure, climate, and development needs.
Why FDI Still Matters
FDI has averaged nearly $2 trillion globally per year over the past decade. According to the Bank’s estimates, a 10% increase in FDI inflows could raise GDP by 0.3% in an average developing country within three years—and by as much as 0.8% in countries with strong institutions and open economies.
Yet the distribution remains unequal. From 2012-2024, China, India, and Brazil accounted for almost half of all FDI to developing economies. Meanwhile, 90% of the total FDI came from advanced economies—mainly the EU and the United States.
The Bottom Line
Foreign direct investment is not just capital—it’s a catalyst for innovation, job creation, and sustainable development. But as barriers rise and cooperation stalls, the global economy risks losing one of its most effective engines for inclusive growth.
Restoring FDI momentum will require coherent policies, renewed global cooperation, and a shift away from short-term protectionism toward long-term shared prosperity.