The growing scale and importance of capital flows in the global economy indicates that such flows are set to experience a significant long-term rise, according to Oxford Analytica.
Global foreign direct investment (FDI) outflows rose by 16.5% last year, to $1.66 trillion dollars, the UN Conference on Trade and Development (UNCTAD) reported on April 12.
While portfolio diversification of rising personal wealth will be one reason for this growth in international capital flows, FDI will play its part. It will be driven by:
- established international businesses in the developed world seeking to further develop sales and operations in the leading emerging markets;
- and major companies in the emerging market economies likewise stepping up their investments abroad in order to foster trade and technical exchanges but also enable them to become global players in their own right.
This means that by 2020, based on the best case scenario for global growth and international investment, FDI flows could be worth as much as 9 trillion dollars (4-5% of GDP versus just over 2% today). The share of emerging markets in these outflows is also expected to rise — possibly reaching 50-60% by the end of this decade.
Given the high level of confidence in the scope for further fast economic growth, trade and capital market development across the emerging markets, these countries will attract inflows from both the developed and developing world. Furthermore, FDI will be a key driver of M&A activity in the advanced economies, and add to greenfield investments, as leading emerging-market companies seek to expand their networks. International investments look set to form a larger share of total global investment over the next decade.
For details, see FDI flows point to long-term confidence