Foreign direct investment (FDI) flows to developing economies have fallen to their lowest level since 2005, reflecting a troubling global trend marked by rising barriers to trade and investment. The decline, outlined in new World Bank research, raises serious concerns over the ability of low- and middle-income countries to finance development and spur economic growth.
In 2023, developing economies received just $435bn in FDI—the weakest performance in nearly two decades. The downturn is part of a broader global slowdown: high-income economies saw inflows drop to $336bn, the lowest since 1996. As a share of GDP, FDI to developing countries stood at only 2.3% last year, roughly half the level recorded during the 2008 peak.
Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group, warned that this slump in FDI is unfolding at a time when public debt is soaring worldwide. “It’s not a coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs,” he said. “Private investment will now have to power economic growth, and FDI happens to be one of the most productive forms of private investment. Yet, in recent years governments have been busy erecting barriers to investment and trade when they should be deliberately taking them down. They will have to ditch that bad habit.”
From June 30 to July 3, global leaders, policymakers, development experts, and private sector representatives will gather in Seville, Spain, to chart a path toward mobilising the financing needed to achieve critical global and national development goals. The World Bank’s latest analysis will inform those discussions, emphasising that unlocking private capital—especially FDI—will be essential at a time when public finances are stretched and official development assistance is in retreat.
The report reveals that investment restrictions in developing economies have reached their highest levels since 2010. In the first half of 2025 alone, half of all announced FDI-related policy measures were restrictive. Reversing this trend is vital. The study finds that bilateral investment treaties can boost FDI flows between signatories by more than 40%. However, the number of such treaties has dwindled, with just 380 coming into force between 2010 and 2024—barely a third of the total signed in the 1990s.
Trade openness is also strongly linked to FDI inflows. The report finds that each percentage-point increase in a country’s trade-to-GDP ratio leads to a 0.6% rise in FDI. Yet here too, momentum has slowed: the average number of new trade agreements per year fell from 11 in the 2010s to just six in the current decade.
FDI remains a crucial source of external finance for developing economies, accounting for around half of all such inflows in 2023. The growth impact of FDI is significant. World Bank analysis of 74 developing countries over the period from 1995 to 2019 suggests that a 10% increase in FDI can raise real GDP by 0.3% within three years. This effect is even greater—up to 0.8%—in countries with strong institutions, robust human capital, higher trade openness, and lower levels of informality. By contrast, the growth impact of FDI is considerably smaller in countries lacking these features.
To reverse the decline and maximise the benefits of FDI, the World Bank recommends a three-pronged policy approach. First, governments must step up efforts to attract investment by removing harmful restrictions and reviving stalled reforms to improve the business climate. Sound macroeconomic performance, including rising labour productivity, is also essential; a one% increase in productivity is associated with a 0.7% rise in FDI inflows.
Second, countries need to deepen the developmental impact of FDI by improving institutional quality, expanding education and skills training, increasing participation in the formal labour market, and fostering greater trade integration.
Third, international cooperation will be critical. All countries, particularly those with financial and institutional capacity, must work together to direct FDI toward developing economies with the most urgent investment needs.
As attention turns to the upcoming summit in Seville, the World Bank’s findings serve as both a warning and a call to action: unless governments dismantle the barriers they’ve built, the world risks squandering one of the most effective tools for development and inclusive growth.
