Publication: Shifting Shores: FDI Relocations and Political Risk
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2024-12-10
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2024-12-10
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Foreign direct investment (FDI) has powered prosperity in developing countries for decades. Yet FDI, once a reliable contributor to economic growth, a conduit for the transfer of technology and innovation, and a link to domestic and international markets, has slowed in recent years as shocks have multiplied. Global commercial competition, supply chain disruptions during and after the pandemic, less efficient transportation and shipping routes due to conflicts, and policies aimed at encouraging investment at home are increasingly shaping the flow of FDI. A half-century of global economic integration, driven by trade and FDI and the search for markets, natural resources, and low labor and input costs, is shifting to a more uncertain investment environment. This new world of FDI is increasingly defined by near-shoring, friend-shoring, and reshoring, each a way to gain greater control and ensure the resilience of supply chains and access to markets. As a result, FDI is relocating, with the shifts influenced by factors determined by geopolitical proximity and traditional location-specific determinants. Consequently, some emerging markets and developing countries (EMDEs) may attract less FDI, while others stand to benefit from their geopolitical or trade alliances. Although anecdotal reports of FDI relocation in specific countries are common, the scope of this trend remains uncertain. Questions such as the extent of FDI relocations, the permanence of these trends, and which countries stand to benefit the most are yet to be fully answered. To help understand these developments and the challenges they raise, this report presents new evidence based on the findings of a survey of investment promotion agencies. These national organizations shepherd billions of dollars of FDI annually through the global economy. We also examine FDI shifts through third countries for geopolitical reasons. The conclusions suggest that nearshoring and friend-shoring-driven relocations are increasingly shaping the FDI landscape.
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“Nebe, Moritz; Economou, Persephone; Abruzzese, Leo. 2024. Shifting Shores: FDI Relocations and Political Risk. © Multilateral Investment Guarantee Agency (MIGA). http://hdl.handle.net/10986/42521 License: CC BY-NC 3.0 IGO.”
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