By R. Suryamurty
Foreign direct investment (FDI) into developing nations plummeted to a near two-decade low in 2023, the World Bank reported on Monday, citing escalating trade barriers and tightening policy environments. Despite the global decline, India stood out as one of the top three FDI destinations, trailing only China and Brazil in attracting foreign capital.
FDI inflows to developing economies fell sharply to $435 billion in 2023 from $544 billion the previous year, representing just 2.3% of their combined GDP. The decline affected nearly 60% of emerging and developing markets, the report stated.
Over the 2012–2023 period, India accounted for approximately 6% of total FDI to developing countries, outpaced only by China’s one-third share and Brazil’s 10%, reflecting its growing prominence as an investment hub.
The World Bank warned that the sharp fall in FDI comes amid a growing trend of protectionism. In 2025, half of all FDI-related measures announced by developing countries were restrictive—the highest share since 2010.
“It’s no coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs,” said Indermit Gill, Chief Economist and Senior Vice President at the World Bank. “Governments have been erecting barriers to trade and investment when they should be removing them.”
The Bank said international cooperation and domestic policy reforms would be critical to reviving investor confidence.
FDI into advanced economies also weakened sharply, falling to $336 billion in 2023—its lowest level since 1996.
Policy Recommendations
The report urged developing countries to step up efforts to attract and retain foreign capital. Recommendations include easing investment restrictions, improving the business environment, strengthening institutions, and investing in education and skills.
The Bank found that a 10% increase in FDI inflows leads to a 0.3% increase in real GDP after three years on average. The growth impact can rise to 0.8% in countries with stronger institutions, greater trade openness, and lower informality.
A 1% rise in labour productivity, it added, is associated with a 0.7% increase in FDI inflows.
Spotlight on India and South Asia
While India continues to perform well relative to its peers, the report cautioned that South Asia as a whole remains vulnerable due to limited trade integration, institutional weaknesses, and high levels of informality.
“Countries in South Asia should focus on reforms that enhance transparency, reduce red tape, and improve human capital outcomes to fully leverage FDI as a tool for long-term development,” said M. Ayhan Kose, the Bank’s Deputy Chief Economist.
The findings come ahead of the United Nations-led Conference on Financing for Development in Seville, Spain, scheduled for June 30 to July 3, where policymakers are expected to discuss global investment flows and financing strategies for development goals.
