• <div class="header-image" style="background-image: url(/live/image/gid/4/2611_Header_V6N2_web_4.rev.1518551584.jpg);">​</div><div class="header-background-color"/>

The Development Impact of Foreign Direct Investment

August 25, 2017
Among policymakers, as well as statisticians and analysts, Foreign Direct Investment (FDI) is considered to be an important macroeconomic variable in defining the makeup of a country’s economy. While the statistical definition of FDI is often debated, the consensus is that the investment into another country must achieve lasting interest in an enterprise in order for it to be considered FDI. [1]

If there is no intention of having an effective voice in the management of the enterprise, then instead of FDI, this would typically be considered foreign portfolio investment. Where the measurement discussion comes into play, is how to quantify an effective voice. The Organization for Economic Co-operation and Development (OECD) published a report in 1996, [2] which specifies that FDI requires ownership of 10 per cent or more of the ordinary shares or voting power, with some caveats included.

Image: FDI Outflows. Source: United Nations.Image: FDI Outflows. Source: United Nations.

Institutions such as the World Bank and the International Monetary Fund (IMF) measure and report FDI values for the majority of countries in the world. [3] In developed countries, the discussion surrounding FDI tends to focus on inflows, as opposed to the net value or outflows. Articles published by sources such as The Economist attempt to find reasons for contractions in FDI inflows, considering changes over the years as well as comparisons across countries. [4] The United States had the highest estimated FDI inflows in 2016 by a significant amount, followed by the United Kingdom, Hong Kong, and China. [5] When ranking countries based on outbound FDI, the United States is also at the top of the list. [6]

FDI outflow has been at the center of policy debates in the United States from as far back as the Kennedy administration. [7] The major concerns that are raised when discussing outbound FDI are the negative impacts that it could cause in the home country, on issues such as income, employment, and balance of payments. However, the benefits of outbound FDI are also significant. Specifically, FDI into developing countries has a substantial development impact, and is an effective strategy to promote economic growth, to reduce poverty, and to improve the overall quality of people’s lives. [8] 

While the United States had the largest value for FDI outflow in 2016, only a fraction of that investment went to emerging markets. In fact, 74% of the United States outbound FDI was directed towards high income, developed countries, and this percentage has only been rising over the past several years. [9] Part of this trend can be attributed to a shift in the US economy and investments towards high technology services and financial industries, but the inherent political risk of investing in a developing country is also a factor. [8] 

Political risk insurance, available through private and public insurers, is one way for countries to overcome political risk, and make investments in emerging markets. When the political environment becomes too turbulent for private risk insurers, public agencies such as the Multilateral Investment Guarantee Agency (MIGA) and the Overseas Private Investment Corporation (OPIC) play a strategic role in allowing the investment to continue. As part of the World Bank Group, MIGA has a unique structure. In addition, with shareholders in most countries of the world, MIGA is at times more suited than private sector insurers, specifically when providing insurance for longer tenures and in riskier environments. The risks that MIGA can insure against are currency inconvertibility and transfer restriction; expropriation; war, terrorism, and civil disturbance; breach of contract; and non-honoring of sovereign financial obligations. [8] OPIC, a United States Government agency, has the more specific goal of aiding American investment in developing economies. Access to insurance from these public insurers allows private investors to begin, complete, or maintain projects, which in many cases may not have otherwise occurred.

Image: Egypt FDI. Source: United Nations.Image: Egypt FDI. Source: United Nations.

MIGA supports outward investments from any member country, including the United States. A relevant example is the Apache Corp. oil and gas project in Egypt, which MIGA supported in 2013. [10] OPIC had insured the Apache Corp., an American company, for many years, before having difficulties renewing reinsurance contracts due to the Arab Spring. OPIC then had to approach several reinsurers, one of which was MIGA, in order to regain the total level of insurance that was in place in the previous years. Specifically, MIGA took on $150 million of Apache’s policy with OPIC, and insured against the possibility of the Egyptian government cancelling its concession or breaching the contract. [11]

The development impact of insuring projects in emerging markets is substantial. In the above Apache Corp. situation, while the company was already established in Egypt, it had indicated that it planned on continuing and expanding its projects in Egypt. By providing insurance during a challenging political period, MIGA and OPIC demonstrated their support of private investment during uncertain times. [12] Further developmental impacts of this project included: employment and training of Egyptian nationals; advancing the oil and gas technology within Egypt; and supporting domestic supply of oil and gas. In order to provide insurance, MIGA also has social and environmental performance standards that all projects must adhere to; a set of requirements designed to help projects achieve specified social and environmental outcomes.

Foreign Direct Investment in emerging companies, as well as the political risk insurance that enables it, is an important part of supporting emerging economies. MIGA’s plan for the future is to continue to grow and to insure more projects, facilitating investment from countries, including the United States, into emerging markets.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.



  [1]  United Nations. n.d. Foreign Direct Investment (FDI). http://unctad.org/en/Pages/DIAE/Foreign-Direct-Investment-(FDI).aspx.

  [2] OECD. 2008. “OECD Benchmark Definiton of Foreign Direct Investment: Fourth Edition.”

  [3] IMF. 2004. “Foreign Direct Investment: Trends, Data Availability, Concepts, and Recording Practices.”

  [4] The Economist. 2016. “Foreign direct investment.” The Economist.

  [5] CIA. 2016. The World Factbook. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2198rank.html.

  [6] CIA. 2016. The World Factbook. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2199rank.html.

  [7] Safarian, A. E. 1993. Multinational Entreprise and Public Policy: A Study of the Industrial Countries. Edward Elgar Publishing Limited.

  [8] MIGA. 2013. “World Investment and Political Risk.”

  [9] Jackson, James K. 2017. U.S. Direct Investment Abroad: Trends and Current Issues. Congressional Research Service.

  [10] OPIC. 2013. Apache Corp.: Developing Oil and Gas in Egypt, with the Help of Opic Political Risk Insurance.

  [11] MIGA. 2012. “Environmental and Social Review Summary: Apache Egypt Companies.”

  [12] MIGA. 2013. Project Brief: Apache Egypt.


  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>HUD State of the Cities Data Systems</h3><p><strong><img width="200" height="200" alt="" src="/live/image/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg" class="lw_image lw_image482 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 3x" data-max-w="612" data-max-h="613"/>The SOCDS provides data for individual Metropolitan Areas, Central Cities, and Suburbs.</strong> It is a portal for non-national data made available through a number of outside institutions (e.g. Census, BLS, FBI and others).</p><p> Quick link: <a href="http://www.huduser.org/portal/datasets/socds.html" target="_blank">http://www.huduser.org/portal/datasets/socds.html</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Internal Revenue Service: Tax Statistics</h3><p><img width="155" height="200" alt="" src="/live/image/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg" class="lw_image lw_image486 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg 2x" data-max-w="463" data-max-h="596"/>Find statistics on business tax, individual tax, charitable and exempt organizations, IRS operations and budget, and income (SOI), as well as statistics by form, products, publications, papers, and other IRS data.</p><p> Quick link to <strong>Tax Statistics, where you will find a wide range of tables, articles, and data</strong> that describe and measure elements of the U.S. tax system: <a href="http://www.irs.gov/uac/Tax-Stats-2" target="_blank">http://www.irs.gov/uac/Tax-Stats-2</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The World Bank Data (U.S.)</h3><p><img width="130" height="118" alt="" src="/live/image/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg" class="lw_image lw_image484 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 2x, /live/image/scale/3x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 3x" data-max-w="1406" data-max-h="1275"/>The <strong>World Bank</strong> provides World Development Indicators, Surveys, and data on Finances and Climate Change.</p><p> Quick link: <a href="http://data.worldbank.org/country/united-states" target="_blank">http://data.worldbank.org/country/united-states</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Aviation Administration: Accident & Incident Data</h3><p><img width="100" height="100" alt="" src="/live/image/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg" class="lw_image lw_image80 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 2x, /live/image/scale/3x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 3x" data-max-w="550" data-max-h="550"/>The NTSB issues an accident report following each investigation. These reports are available online for reports issued since 1996, with older reports coming online soon. The reports listing is sortable by the event date, report date, city, and state.</p><p> Quick link: <a href="http://www.faa.gov/data_research/accident_incident/" target="_blank">http://www.faa.gov/data_research/accident_incident/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>MapStats</h3><p> A feature of FedStats, MapStats allows users to search for <strong>state, county, city, congressional district, or Federal judicial district data</strong> (demographic, economic, and geographic).</p><p> Quick link: <a href="http://www.fedstats.gov/mapstats/" target="_blank">http://www.fedstats.gov/mapstats/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>