3.1 With the integration of international capital markets, global FDI flows grew strongly in the 1990s at rates well above those of world economic growth and trade. Recorded global inflows grew by an average of 13 percent a year during 1990–97.1 Driven by large cross-border mergers and acquisitions (M&A), these inflows increased by an average of nearly 50 percent a year during 1998–2000, reaching a record $1.5 trillion in 2000 (see Table 3.1). Inflows declined to $729 billion in 2001, mostly as a result of the sharp drop in cross-border M&A among the industrial countries, coinciding with the correction in world equity markets.2 Worldwide, the value of cross-border M&A declined from the record $1.1 trillion in 2000 to about $600 billion in 2001.3
Regional Allocation of FDI Inflows
(Billions of U.S. dollars)
The FDI data for industrial and developing countries used in this chapter relate to the balance of payments statistics published in the IMF’s Balance of Payments Statistics Yearbook (BOPSY).
Reflects Mergers and Acquisitions (M&A) transactions in the telecommunications sector. Source: Hong Kong SAR (2001).
Regional Allocation of FDI Inflows
(Billions of U.S. dollars)
1990–94 (Average) | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | |
---|---|---|---|---|---|---|---|---|
Total | 197.7 | 327.9 | 372.9 | 461.4 | 690.4 | 1076.6 | 1489.8 | 729.2 |
Industrial countries | 137.7 | 205.5 | 226.4 | 272.3 | 486.5 | 844.8 | 1241.5 | 513.8 |
Developing countries1 | 59.9 | 122.4 | 146.5 | 189.1 | 203.9 | 231.8 | 248.3 | 215.4 |
Africa | 2.7 | 5.0 | 5.3 | 9.8 | 7.5 | 9.7 | 7.5 | 17.7 |
Asia, of which | 33.5 | 66.3 | 74.4 | 82.8 | 87.0 | 99.9 | 128.2 | 91.4 |
China | 16.1 | 35.8 | 40.2 | 44.2 | 43.8 | 38.8 | 38.4 | 44.2 |
Hong Kong SAR | … | … | … | … | 14.8 | 24.6 | 61.92 | 22.8 |
Europe | 4.4 | 17.4 | 16.7 | 22.3 | 26.6 | 29.3 | 30.1 | 31.2 |
Middle East | 3.6 | 3.2 | 5.8 | 8.0 | 9.3 | 4.9 | 6.5 | 5.7 |
Western Hemisphere, of which | 15.7 | 30.5 | 44.4 | 66.2 | 73.5 | 88.0 | 76.0 | 69.5 |
Argentina | 3.0 | 5.6 | 6.9 | 9.2 | 7.3 | 24.0 | 11.7 | 3.2 |
Brazil | 1.7 | 4.9 | 11.2 | 19.7 | 31.9 | 28.6 | 32.8 | 22.6 |
Mexico | 5.4 | 9.5 | 9.2 | 12.8 | 11.9 | 12.5 | 14.2 | 24.7 |
The FDI data for industrial and developing countries used in this chapter relate to the balance of payments statistics published in the IMF’s Balance of Payments Statistics Yearbook (BOPSY).
Reflects Mergers and Acquisitions (M&A) transactions in the telecommunications sector. Source: Hong Kong SAR (2001).
Regional Allocation of FDI Inflows
(Billions of U.S. dollars)
1990–94 (Average) | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | |
---|---|---|---|---|---|---|---|---|
Total | 197.7 | 327.9 | 372.9 | 461.4 | 690.4 | 1076.6 | 1489.8 | 729.2 |
Industrial countries | 137.7 | 205.5 | 226.4 | 272.3 | 486.5 | 844.8 | 1241.5 | 513.8 |
Developing countries1 | 59.9 | 122.4 | 146.5 | 189.1 | 203.9 | 231.8 | 248.3 | 215.4 |
Africa | 2.7 | 5.0 | 5.3 | 9.8 | 7.5 | 9.7 | 7.5 | 17.7 |
Asia, of which | 33.5 | 66.3 | 74.4 | 82.8 | 87.0 | 99.9 | 128.2 | 91.4 |
China | 16.1 | 35.8 | 40.2 | 44.2 | 43.8 | 38.8 | 38.4 | 44.2 |
Hong Kong SAR | … | … | … | … | 14.8 | 24.6 | 61.92 | 22.8 |
Europe | 4.4 | 17.4 | 16.7 | 22.3 | 26.6 | 29.3 | 30.1 | 31.2 |
Middle East | 3.6 | 3.2 | 5.8 | 8.0 | 9.3 | 4.9 | 6.5 | 5.7 |
Western Hemisphere, of which | 15.7 | 30.5 | 44.4 | 66.2 | 73.5 | 88.0 | 76.0 | 69.5 |
Argentina | 3.0 | 5.6 | 6.9 | 9.2 | 7.3 | 24.0 | 11.7 | 3.2 |
Brazil | 1.7 | 4.9 | 11.2 | 19.7 | 31.9 | 28.6 | 32.8 | 22.6 |
Mexico | 5.4 | 9.5 | 9.2 | 12.8 | 11.9 | 12.5 | 14.2 | 24.7 |
The FDI data for industrial and developing countries used in this chapter relate to the balance of payments statistics published in the IMF’s Balance of Payments Statistics Yearbook (BOPSY).
Reflects Mergers and Acquisitions (M&A) transactions in the telecommunications sector. Source: Hong Kong SAR (2001).
3.2 The industrial countries have long dominated the FDI inflows and outflows and accounted for 94 percent of outflows and over 70 percent of inflows in 2001 (see Figure 3.1). Inflows of FDI to developing countries grew by an average of 23 percent a year during 1990–2000. In 2001, these inflows declined by 13 percent to $215 billion, largely reflecting reduced inflows into Hong Kong Special Administrative Region (SAR), Brazil, and Argentina. Excluding these three economies, FDI inflows into developing countries increased by about 18 percent in 2001. During 1998–2001, FDI inflows to developing countries averaged $225 billion a year. In the same period, portfolio investment and other investment inflows to developing countries were much lower and in aggregate averaged $22 billion a year.4

Direct Investment Capital Flows
(Billions of U.S. dollars)
Source: IMF, Balance of Payments Statistics Yearbook, various issues.
Direct Investment Capital Flows
(Billions of U.S. dollars)
Source: IMF, Balance of Payments Statistics Yearbook, various issues.Direct Investment Capital Flows
(Billions of U.S. dollars)
Source: IMF, Balance of Payments Statistics Yearbook, various issues.3.3 During the 1998–2001 period, of the $900 billion of FDI inflows to developing countries, Asia accounted for $407 billion, followed by the Western Hemisphere ($307 billion). Cross-border M&A were an important contributor to these inflows, reflecting the privatization of state-owned assets, especially in Latin America, and the purchase of distressed banking and corporate assets in several Asian economies in the wake of the 1997 financial crisis. Within Asia, the two largest recipients of FDI inflows during this four-year period were China ($165 billion) and Hong Kong SAR ($124 billion). The investment inflows to the Western Hemisphere were dominated by Brazil ($116 billion) and Mexico ($63 billion).
3.4 While FDI flows predominantly comprise equity capital, $1 trillion of cumulative FDI inflows in the form of intercompany debt (for example, trade credits, loans, advances) were recorded during 1998– 1999. During the same period, cumulative FDI equity inflows—comprising equity capital and rein-vested earnings—were close to $3 trillion.
3.5 The book value of the estimated global stock of inward FDI totaled $6.8 trillion at end-2001. Four countries—the United States, the United Kingdom, France, and Germany—were the largest recipients of inward FDI capital. About one-third of the global stock of inward FDI represented investment in developing economies, with five economies—China, Argentina, Brazil, Hong Kong SAR, and Mexico—accounting for more than half of the inward FDI stock of developing economies. The estimated global stock of outward FDI valued at book value totaled $6.6 trillion at end-2001.5 The largest investing countries were the United States, the United Kingdom, France, and Germany, which accounted for half of the global stock of FDI assets. Only 12 percent ($800 billion) of the world stock of outward FDI represented FDI investment from developing economies.
In this report, inflows mean net inward FDI transactions—that is, inward investments less disinvestments (FDI in the reporting economy). Outflows mean net outward FDI transactions—that is, outward investments less disinvestments (FDI abroad).
World FDI inflows in 2002, for which data became available shortly after this report was prepared, declined further to $650 billion (compared with the revised figure of $798 billion in 2001).
Data on M&A deals are from UNCTAD’s World Investment Report 2002 (Annex Tables B-7 and B-8) and are based on information compiled by Thomson Financial, a private commercial database. Many compilers have found that these data considerably overstate the measure of cross-border capital flows associated with M&A deals because they include, inter alia, domestically financed transactions, and in some cases include M&A deals between foreign affiliates and firms resident in the same host economy, neither of which are FDI transactions recorded in balance of payments statistics.
During 1998–2001, portfolio investment inflows averaged $72 billion a year, while other investment inflows averaged a negative $50 billion a year, representing an excess of disinvestments over investments.
Data on the world stock of inward and outward FDI are from UNCTAD’s World Investment Report 2002. The world stock of FDI assets and liabilities should, in principle, be the same. The world stock of inward FDI at end-2002, for which data became available shortly after this report was prepared, totaled $7.1 trillion (outward, $6.9 trillion).