Question

Select one of the popular FDI destinations by MNCs and track the growth of FDI for this country since the last decade. What do you think are the major reasons for such phenomena?

Answer 1

Foreign Direct Investment

Among the most popular destinations globally, the country that has regularly ranked at Number 1, is the United States of America.

There are many other countries, like India, China, Singapore, United Kingdom, to name a few. These are popular FDI destinations as well. None of them, however, have ranked as consistently as USA.

Following are the major highlights of FDI growth for the US for the past decade:

• The trend of inward FDI to USA, in stock terms, has been constantly rising, from about $2200 billion in 2010 to more than $4500 billion by 2020. Stock terms here means the total stock of FDI, in cumulative terms.
• In flow terms, USA witnessed peak FDI flow in 2015 and 2016, of about $470 billion in both years each.
• There was a drastic reduction in 2009, when the flow of FDI was just about $143 billion. This was due to the financial crisis.
• The main component of FDI flows to USA have been the equity flows, followed by reinvestments and debts.
• The highest FDI has been in chemicals, followed by information technology, food products, and healthcare, respectively. FDI in chemicals has shot up after 2009-2010.

USA is the highest recipient of FDI due to various reasons:

• Investors find USA to be the safest investment destination, and an important way to reduce the risk in their portfolio
• USA has a large number of high spending consumers, and this doesn't fluctuate much. Their spending power is huge.
• The legal system and tax system is quite transparent and stable.
• Workers in the USA, especially migrants from Asia, Mexico, South America etc., are quite productive, and this encourages producers.
• Infrastructure in the USA is the most well developed and sophisticated.
• The overall ease of doing business is quite high.

This is how USA remains the most attractive FDI destination.