Abstract

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

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

Table 3.1.

Regional Allocation of FDI Inflows

(Billions of U.S. dollars)

article image

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

Figure 3.1.
Figure 3.1.

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.

1

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).

2

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).

3

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.

4

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.

5

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).

Trends, Data Availability, Concepts, and Recording Practices
  • Association of Southeast Asian Nations (ASEAN), 2003, Statistics of Foreign Direct Investment in ASEAN, Comprehensive Data Set, 2002 Edition (Jakarta).

    • Search Google Scholar
    • Export Citation
  • Bank for International Settlements, Commonwealth Secretariat, Eurostat, International Monetary Fund, Organisation for Economic Co-operation and Development, Paris Club Secretariat, United Nations Conference on Trade and Development, and World Bank, 2003, External Debt Statistics: Guide for Compilers and Users (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Canada, Statistics Canada, 2002, Canada’s Balance of International Payments, Vol. 49, No. 4 (Fourth Quarter 2001), Catalogue 67-001 (Ottawa).

    • Search Google Scholar
    • Export Citation
  • Canada, Statistics Canada, 2003, Foreign Direct Investment, Daily, March 26, 2003, Table 376-0051 (CANSIM) (Ottawa). Available via the Internet: http://www.statcan.ca/Daily/English/030326/d030326a.htm.

    • Search Google Scholar
    • Export Citation
  • De Nederlandsche Bank, 2003, “Monetary and Financial Statistics for the Netherlands.” Available via the Internet: http://www.statistics.dnb.nl/indexuk.html.

    • Search Google Scholar
    • Export Citation
  • Eurostat, 2002, European Union Foreign Direct Investment Yearbook 2001 (Luxembourg).

  • Hong Kong Special Administrative Region, 2001, External Direct Investment Statistics of Hong Kong 2001 (Hong Kong SAR: Census and Statistics Department).

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 1987, Report on the World Current Account Discrepancy (Washington).

  • International Monetary Fund, 1992, Report on the Measurement of International Capital Flows (Washington); also known as the Godeaux Report.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 1993, Balance of Payments Manual, fifth edition (Washington).

  • International Monetary Fund, 1995, Balance of Payments Compilation Guide (Washington).

  • International Monetary Fund, 1996, Balance of Payments Textbook (Washington).

  • International Monetary Fund, 2000, Financial Derivatives: A Supplement to the Fifth Edition of the Balance of Payments Manual (Washington).

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 2002a and various issues, Balance of Payments Statistics Yearbook (Washington).

  • International Monetary Fund, 2002b, “Classification of Financial Derivatives Involving Affiliated Enterprises in the Balance of Payments Statistics and the International Investment Position (IIP) Statement.” Available via the Internet: http://www.imf.org/external/np/sta/fd/2002/fdclass.pdf.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 2002c, Coordinated Portfolio Investment Survey Guide, second edition (Washington).

  • International Monetary Fund, 2002d, “Direct Investment Methodology: Latest SIMSDI (Survey of Implementation of Methodological Standards for Direct Investment) Metadata,” individual country metadata and cross-country comparison tables. Available via the Internet: http://www.imf.org/external/np/sta/di/mdb97.htm.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 2002e, International Investment Position: A Guide to Data Sources (Washington).

  • International Monetary Fund, 2002f, “Recommended Treatment of Selected Direct Investment Transactions.Available via the Internet: http://www.imf.org/external/np/sta/di/fditran.htm.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 2002g, World Economic Outlook (Washington, September).

  • International Monetary Fund, 2003, International Financial Statistics, October 2003 issue (Washington).

  • International Monetary Fund, and Organisation for Economic Co-operation and Development, 2003, Foreign Direct Investment Statistics: How Countries Measure FDI, 2001 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Japan, Bank of Japan, 2002, Balance of Payments Monthly (Tokyo).

  • Organisation for Economic Co-operation and Development, 1996, OECD Benchmark Definition of Foreign Direct Investment, Third Edition (Paris).

    • Search Google Scholar
    • Export Citation
  • Organisation for Economic Co-operation and Development, 2001, International Direct Investment Statistics Yearbook, 1980–2000 (Paris).

  • Organisation for Economic Co-operation and Development, 2002, International Investment Perspectives (Paris).

  • United Kingdom, Office for National Statistics, 2003, “Net Earnings from Foreign Direct Investment in the U.K.Available via the Internet: http://www.statistics.gov.uk/statbase/Product.asp?vlnk=733.

    • Search Google Scholar
    • Export Citation
  • United Nations, European Commission, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations Conference on Trade and Development, and World Trade Organization, 2002, Manual on Statistics of International Trade in Services (Geneva, Luxembourg, New York, Paris, and Washington).

    • Search Google Scholar
    • Export Citation
  • United Nations Conference on Trade and Development (UNCTAD), 2002, World Investment Report, Transnational Corporations and Export Competitiveness (New York).

    • Search Google Scholar
    • Export Citation
  • United Nations Conference on Trade and Development (UNCTAD), 2003, World Investment Report, FDI Policies for Development: National and International Perspectives (New York).

    • Search Google Scholar
    • Export Citation
  • United Nations, Economic Commission for Latin America and the Caribbean (ECLAC), 2003, Foreign Investment in Latin America and the Caribbean, 2002 Report (Santiago).

    • Search Google Scholar
    • Export Citation
  • United States, U.S. Bureau of Economic Analysis, 1995, Survey of Current Business (Washington, March).

  • United States, U.S. Bureau of Economic Analysis, 2002, Survey of Current Business (Washington, July and September).

  • United States, U.S. Bureau of Economic Analysis, 2003, Globalization and Multinational Companies: What Are the Questions, and How Well Are We Doing in Answering Them? (Washington, June). Available via the Internet: http://www.bea.doc.gov/bea/papers/Globalization.pdf.

    • Search Google Scholar
    • Export Citation