Source: UNCTAD. http://www.unctad.org/statistics/handbook

Global Inflows of Foreign Direct Investments, 1990-2008 (in million of Current $US)

A Foreign Direct Investment (FDI) involves direct investments in productive assets by a company incorporated in a foreign country. It goes on par with international trade since the additional production capacity brought to bear is often used to increase exports. FDI can also accumulate in commercial and distribution activities, so the outcome in this case is likely to be a growth in imports.

FDIs tend to be cyclical, particularly since they involve financial transactions and the risk of over accumulation they entail. The above graph depicts two general cycles of boom and bust since 1990. The first relate to the 1993-2000 period where globalization became a dominant strategy, particularly between developed countries. The second related to the 2004-2007 period that saw a growing share of FDIs going to developing economies. When the global economy is slowing down, often after a phase of over accumulation of investments (and the resulting overcapacity), FDIs are substantially cut back. This is well reflected in the recessionary cycles of 2001-2003 and 2008-2010.

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