Macroscope | High time for a global investment agreement

Just as trade has joined dozens of economies closer together in recent years, burgeoning foreign direct investment (FDI) is contributing an even more powerful global imprint. In terms of international transactions, FDI is more important than trade.

While annual global exports of goods and services are in the region of US$24 trillion a year, sales of foreign affiliates of multinational corporations (MNCs) come in at some US$30 trillion. And about one-third of international trade flows are intra-corporate transactions.

Everyone knows that FDI among industrial countries has expanded greatly over the years. Less appreciated, perhaps, is the rapidly growing participation of non-OECD economies in outward FDI flows.

In the decade up to 2012, intra-OECD FDI grew at an average 6 per cent per year. The comparable number for flows from non-OECD to OECD economies was 17 per cent, admittedly from a much lower base.

But by 2013, emerging markets accounted for almost 40 per cent of outward FDI. The quality of FDI has been improving too. Emerging economies now also account for 40 per cent of R&D expenditures, compared to one-tenth a decade ago.

Even as FDI flows shrunk by 8 per cent globally in 2014, emerging markets accounted for some 60 per cent of the year’s increase, repeating an unbroken pattern established for a third year in a row. Asia is a big part of that story.