Journal Issue
IMF/Survey volume 28, No. 19, January 1999

Unctad: Foreign direct investment rises to $4 trillion in 1998; growth is driven by mergers and acquisitions

International Monetary Fund. External Relations Dept.
Published Date:
January 1999
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An unprecedented growth of foreign direct investment (FDI) is contributing to the acceleration of economic integration worldwide and to the emergence of a complex international production system. Countries that do not attract FDI are in danger of becoming marginalized, according to a recent report released by the United Nations Conference on Trade and Development (UNCTAD). The World Investment Report 1999: Foreign Direct Investment and the Challenge of Development was released on September 27 at a press conference at the IMF.


Transnational corporations—the firms that engage in international production—now number 60,000, with more than 500,000 foreign affiliates, and account for an estimated 25 percent of global output, according to Karl P. Sauvant of UNCTAD. In 1998, sales of these foreign affiliates amounted to $11 trillion, compared with world exports of $7 trillion. Thus, international production is more important than international trade in delivering goods and services to foreign markets.

Also in 1998, the world stock of FDI rose by 20 percent, to more than $4 trillion, Sauvant said. The largest 100 transnational corporations, measured in terms of foreign assets, command more than $2 trillion of foreign assets and account for $4 trillion in total sales, making them dominant players in the new international production system. General Electric is the largest transnational corporation, according to the report, closely followed by Ford Motor Company and the Royal Dutch Shell Group.

Mergers and acquisitions are driving FDI growth more than ever, particularly between transnational corporations on either side of the Atlantic, but increasingly for FDI into developing countries, according to Sauvant. Mega mergers—involving deals of $1 billion or more—have increased in number and value, amounting to about $400 billion in 1998, and this momentum shows no signs of slowing. It is possible that total FDI in 1999 could exceed $700 billion after rising almost 40 percent to more than $640 billion in 1998, UNCTAD estimated. Developed countries account for most of this investment. In the developing countries, Asia receives the most FDI, followed by Latin America and the Caribbean. Africa and the least developed countries attract little FDI in absolute terms.

Developing country challenges

For developing countries as a group, FDI is the most important source of external finance. Their share in total FDI grew steadily until 1997, when it rose to 37 percent, but it then declined to 28 percent in 1998, the report noted. FDI is concentrated in relatively few developing countries, and the report finds that many of the poorest countries are becoming increasingly marginalized as transnational corporations bypass them.

In 1998, FDI flows into Latin America and the Caribbean rose 5 percent to $71 billion from 1997. The MERCOSUR countries received almost half of the total, with Brazil receiving more than $28 billion, followed by Mexico with $10 billion. In Asia, flows were down by 11 percent to $85 billion, but FDI was the most resilient form of private capital flows. China is the largest FDI host country in developing Asia, receiving $45 billion in 1998, while Korea and Thailand experienced large increases in inflows during the year. Central and Eastern Europe, excluding Russia, received record FDI inflows of $16 billion in 1998, which was 25 percent more than in 1997. In Africa, FDI flows were $8.3 billion, down from the record $9.4 billion in 1997, leaving much of Africa’s potential for FDI untapped.

Foreign direct investment

(billion U.S. dollars)
FDI inflowsFDI outflows
All developed countries273.0460.0407.0595.0
European Union126.0230.0218.0386.0
United States109.0193.0110.0133.0
All developing countries173.0166.065.052.0
Latin America and Caribbean68.
Central and Eastern Europe19.
Data: UNCTAD, World Investment Report, 1999
Data: UNCTAD, World Investment Report, 1999

The UNCTAD report stresses that it is thus crucial for developing countries that are not attracting FDI to create a hospitable environment while maximizing the benefits for themselves. Governments need to address corruption and reduce bureaucratic red tape, establish clear environmental regulations, and structure incentives to attract investors that will enhance labor skills, transfer technology, and develop backward and forward linkages. They must ensure that FDI contributes to growth and competitiveness and strengthens the balance of payments and that transnational corporations do not crowd out domestic enterprises or undermine the potential of infant domestic industries.

For more information about WorldInvestmentReport1999: ForeignDirectInvestmentandtheChallengeofDevelopment, or to order the publication, please see UNCTAD’s website:

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