Foreign direct investment (FDI)—long a key engine of economic growth, job creation, and global development—has shown unusually weak momentum in recent years. Despite pockets of strength, cross-border investment flows are slowing or becoming more concentrated, sparking concern among policymakers and international organizations about the implications for global economic progress and sustainable development. Using recent data and reports from the UN Conference on Trade and Development (UNCTAD), this blog explains why FDI flows have weakened and what’s driving the shift.
What Recent Data Shows1
- Two Years of Decline in Core FDI Activity
Though headline global FDI figures can sometimes look positive due to investment flowing through financial centers, the underlying trend tells a different story:
- UNCTAD’s World Investment Report 2025 confirms that global FDI fell by around 11%, marking a second consecutive year of decline in productive investment activity. The modest rise reported in overall figures (e.g., a 4% uptick in 2024 to about $1.5 trillion) was largely due to “conduit flows”—capital that moves through financial hubs without reflecting new productive investment into the real economy.
- Without conduit flows, actual FDI growth is far lower, roughly about 5% in 2025, underscoring weak investment fundamentals.
- Weak Project Activity and M&A Values
Core indicators of real investment health are weakening:
- International project finance—critical for infrastructure and long-term development—declined for the fourth straight year in 2025.
- The value of cross-border mergers and acquisitions (M&A)—a major component of FDI in developed economies—fell by roughly 10%.
These trends signal that fewer companies are committing to major investments overseas, affecting sectors that drive productivity and employment.
- Divergent Regional Patterns
Global FDI isn’t falling everywhere uniformly:
- Developed economies saw a rebound in headline figures, with FDI rising sharply in 2025 due to financial hub activity. For instance, developed economies recorded a 43% jump in flows largely driven by Europe and large deals.
- But developing countries’ investment flows declined, and many least developed nations struggled to attract capital.
This growing geographic divide highlights increasing concentration of investment in a few markets and sectors.
Key Drivers of Declining FDI1
- Geopolitical Tensions and Policy Uncertainty
UNCTAD’s analysis repeatedly highlights that geopolitical strife, trade fragmentation, and competition between major economies are reshaping investment decisions. Firms are prioritizing short-term risk management over long-term strategic bets, slowing cross-border projects.
Heightened policy volatility—from shifting tariff regimes to industrial policy competition—introduces unpredictability, making executives more cautious about committing capital in foreign markets.
This dynamic echoes broader global concerns: persistent trade tensions are also contributing to slower overall economic growth projections, which in turn dampens investment incentives.2
- Elevated Financing Costs and Economic Uncertainty
Global financial conditions have raised the cost of capital and made long-term project financing less attractive. One UNCTAD overview notes that infrastructure and SDG-critical investments have struggled under these conditions.
Uncertainty about future demand and returns leads firms to delay or scale back investment decisions, especially in sectors with long payback periods like energy, transport, and industrial infrastructure.
- Shifts in Investment Strategies
Instead of traditional greenfield investment and massive overseas M&A, many multinational firms are turning toward:
- Shorter-term capital allocation
- Nearshoring or restructuring supply chains
- Investment in digital projects (e.g., data centers and ICT services), which are booming but often highly concentrated in relatively few countries.
While digital economy investment continues to grow, its concentration limits broad-based economic spillovers, particularly in lower-income economies.
Implications of Slower FDI Flows
For Developing Economies
FDI is a critical source of external financing for infrastructure, skills transfer, and integration into global value chains. According to the World Bank, FDI to developing countries in 2023 hit its lowest level since 2005, weakening prospects for long-term growth.3
Reduced foreign investment can undermine efforts to achieve development goals, deepen inequalities, and slow progress on climate and social targets.
For Global Growth
Sluggish investment affects productivity and global economic dynamism. With trade and GDP growth also slowing, low FDI creates a feedback loop of subdued confidence and capital retrenchment—posing risks not just to capital importers but to the global economy at large.
Local Impact
For places like North Dakota, global FDI trends are not abstract statistics—they shape real economic outcomes. Our state’s energy sector, agricultural exports, and growing advanced manufacturing base depend on stable global capital flows and cross-border partnerships. When international investment slows due to geopolitical tensions, higher financing costs, or policy uncertainty, it can reduce foreign participation in energy infrastructure, value-added agriculture, and technology projects across the Midwest. At the same time, shifting supply chains and U.S. industrial policy may create new opportunities for North Dakota to attract strategic investment in areas like clean energy and critical minerals, illustrating how even smaller U.S. states are deeply connected to global FDI dynamics.
The Upside4
Despite a global downward trend in foreign investment, the United States is thriving, with the International Trade Administration reporting a record $139 billion across 175 FDI deals in 2025. The U.S. continued to rank as one of the world’s most attractive destinations for foreign investment due to its large consumer market and stable financial system.
Overall, the United States remained the largest global recipient of FDI, with strong inflows particularly in sectors such as manufacturing, technology, renewable energy, and semiconductors. These trends indicate that despite short-term declines, the long-term outlook for FDI growth in the U.S. will remain positive as companies continue to invest in production capacity, innovation, and supply-chain resilience.
Looking Ahead
While some aspects of FDI flows may recover—particularly if financing conditions ease and geopolitical tensions moderate—current trends suggest structural change rather than a simple cyclical downturn. Broader policy coordination, improved investment frameworks, and strategies to channel capital into sustainable development priorities will be key to reversing the slowdown.
2 Global economic growth could slow to 2.3% due to trade tensions, says UN trade agency | Reuters
3FDI Flows to Developing Economies Drop to Lowest Level Since 2005
4Year 1 Investment in America: SelectUSA Announces $139 Billion in FDI Deals