The past fifteen years have seen a reshaping of the global landscape of international capital investments, driven predominantly by the rise of the rapid-growth markets (RGMs). Countries such as Brazil, Indonesia, Poland, and South Africa saw their foreign direct investment (FDI) flows double or even triple from 2006 onward, and all RGMs saw FDI surge by more than 350% between 2003 and 2008. More importantly, while FDI from the developed markets have been declining since 2007 as a result of the global financial crisis.
A new report by the Senior Research Fellow Dr. Baozhi Qu from SKOLKOVO Business School – Ernst & Young Institute for Emerging Market Studies determines the reasons of these changes and learns how they affect the global economy. The study examined 22 rapid-growth markets over a 15 year timeframe and analyzed the investment climate.
The study found:
- International capital favors large RGMs such as China and Brazil, since big countries tend to have more stable domestic markets and lower country risks than the small ones.
- A weak currency in a RGM reduces the cost of investment in the country for foreign investors and thus induces more capital inflows to the country.
- Strong institutions help to attract more capital flows to a RGM economy, with property rights protection the most important institution; and
- Perhaps not surprisingly, international capital tends to avoid those countries that restrict investment.
Download Capital Flows in English or Russian.
