Foreign direct investment (FDI) inflows to emerging markets and developing economies (EMDEs) have declined sharply since their 2008 peak, falling from 5 percent of GDP to around 2 percent in recent years, according to a World Bank study. The decline affects nearly 60 percent of EMDEs, including regional players like the Philippines, and threatens progress in infrastructure development, poverty reduction, job creation, and climate action.
The report highlights growing trade tensions, geopolitical uncertainty, and a slowdown in new investment treaties as major factors behind the drop in FDI. Additionally, increased policy restrictiveness across many EMDEs since the 2020s has further dampened investor confidence.
For countries like the Philippines, which rely in part on FDI to fuel economic growth and development, the findings underscore the urgent need for reforms. Foreign direct investment (FDI) inflows into the Philippines reached US$498 million in March this year, a 27.8 percent decline compared to US$689 million in the same month last year, according to the Bangko Sentral ng Pilipinas (BSP).
The BSP attributed the drop to lower net inflows across all major FDI components. Net investments in debt instruments—the largest FDI category—fell 31.6 percent year-on-year to US$329 million, while equity capital placements dropped 27.4 percent to US$102 million. Reinvestment of earnings slightly declined by 1.2 percent to US$66 million.
The World Bank study recommends a three-pronged strategy to boost investment flows: improving institutional quality, enhancing macroeconomic stability, and reducing trade and investment barriers. Strengthening global cooperation and restoring trust in a rules-based international investment system are also deemed crucial—particularly for lower-income countries seeking to attract sustainable FDI flows.
The analysis signals that with the right policy mix, EMDEs can reverse the trend and unlock FDI’s full potential to support long-term economic resilience.
