Foreign direct investment (FDI) has long been the lifeblood of economic growth in developing countries. But new analysis from the World Bank shows a dramatic slowdown—one that’s taking FDI flows to their lowest point in two decades, with potentially devastating consequences for countries already struggling to meet development goals.

In 2023, developing economies attracted just $435 billion in FDI—the weakest inflow since 2005. High-income countries fared no better, drawing $336 billion, a level not seen since 1996. As a share of GDP, FDI in developing economies is now down to 2.3%, less than half of what it was at its 2008 peak.

“What we’re seeing is a result of public policy,” said Indermit Gill, Chief Economist and Senior Vice President at the World Bank Group. “It’s not a coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs. Private investment will now have to power economic growth, and FDI happens to be one of the most productive forms of private investment. Yet, in recent years governments have been busy erecting barriers to investment and trade when they should be deliberately taking them down. They will have to ditch that bad habit.”

The backdrop is sobering: public debt is at record levels, global economic growth is slowing, and aid budgets are shrinking. With the Conference on Financing for Development set to take place in Seville from June 30 to July 3, the timing of this report couldn’t be more urgent.

“With the global community gearing up for the Conference on Financing for Development, the sharp drop in FDI to developing economies should sound alarm bells,” said M. Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank. “Reversing this slowdown is not just an economic imperative—it’s essential for job creation, sustained growth, and achieving broader development goals. It will require bold domestic reforms to improve the business climate and decisive global cooperation to revive cross-border investment.”

Fewer Treaties, Fewer Deals

The data makes it clear: openness to trade and strong policy frameworks drive FDI. Yet both have declined.

• Investment treaties increase FDI between countries by over 40%. But from 2010 to 2024, only 380 new treatiescame into effect—just a third of the number in the 1990s.
• Countries that raise their trade-to-GDP ratio by 1% see FDI increase by 0.6%. Still, new trade agreements have dwindled—from 11 per year in the 2010s to just six annually in the 2020s.

As of 2025, half of all FDI-related government actions in developing economies have been restrictive—the highest share since 2010.

Who’s Getting What

FDI remains concentrated in a few hands. From 2012 to 2023, two-thirds of FDI in developing countries went to just 10 economies. China took nearly a third, Brazil about 10%, and India 6%. The 26 poorest countries, meanwhile, received only 2%. The bulk of the capital—about 90%—came from advanced economies, with half of it originating from the EU and the U.S.

But where it goes matters. FDI can be a powerful growth lever: in a sample of 74 developing economies from 1995 to 2019, a 10% increase in FDI led to a 0.3% boost in GDP after three years. That impact nearly triples—to 0.8%—in countries with stronger institutions, better human capital, trade openness, and lower informality.

The Way Forward: Three Priorities

The World Bank identifies three immediate areas of action:

1. Attract More FDIGovernments need to ease restrictions and improve business conditions. The report notes that a 1% increase in labor productivity can yield a 0.7% increase in FDI flows.
2. Maximize the BenefitsFDI is more effective when it’s paired with trade integration, strong institutions, and human capital development. Directing capital into high-impact sectors and formalizing economies can amplify growth. One overlooked benefit? Multinational firms tend to hire more women than domestic ones, opening up new economic pathways.
3. Advance Global CooperationIn a fragmented world, international alignment is more important than ever. The World Bank calls on countries and institutions to help close investment gaps—particularly in low-income nations—by providing technical and financial support. The Bank itself is working to de-risk investment, improve market conditions, and scale up private capital mobilization in the Global South.

In a moment defined by climate urgency, tech transformation, and fragile geopolitics, the slowdown in FDI is more than a dip in numbers—it’s a warning. Investment needs to move, and fast. Because without it, the path to sustainable development risks becoming a dead end.