The Economic Commission for Latin America, ECLAC – which is an organization that is part of the United Nations structure – has just published its annual report on the state of foreign direct investment in the world and in Latin America, with data up to and including 2021. A number of elements of high interest should be highlighted from this report.
First, it is highlighted that in 2021 foreign direct investment, FDI, received by the different countries of Latin America and the Caribbean, LAC, increased compared to 2020, which was the year in which the effects of the pandemic were felt most strongly throughout the world economy. In fact, in 2021 that amount of FDI received by the region was 142,994 million dollars. The previous year, that figure reached just 101,486 million dollars, and in 2019, the year before the start of the pandemic, that variable showed a level of 157,689 million dollars. In 2018 the figure was higher than all those mentioned above, reaching one of 175,632 million dollars. It is therefore clear that FDI has managed to exceed the levels of the previous year, but has not yet managed to recover pre-pandemic levels.
Chile shows trends that are not exactly the same as those of the FTA as a whole, with regard to FDI. In 2021, FDI reached 15,252 million dollars, which was effectively higher than the 9,205 million dollars received during the immediately previous year. So far the situation is similar to that of LAC. But the most important difference is that in 2019 this variable presented in Chile a level of 13,579 million dollars, which implies that in 2021 not only the levels reached in 2020 were exceeded, but also the amounts of the previous three years.
Indeed, in 2016, 2017 and 2018 FDI received by the country reached very low levels: 11,363 million dollars in 2016; falling to 5,237 million dollars in 2017 and subsequently rising to 7,943 million dollars in 2018. In 2015, however, the figure was 17,766 million dollars, a figure not yet reached in any of the following years.
According to conventional economic theory, FDI is a variable that allows increasing investment within a host country, to the extent that it complements the level of domestic savings that can be generated from the savings decisions of domestic economic agents. In addition, FDI is supposed to help close deficits in the current account of the balance of payments. In other words, the latter means that when expenditures are greater than revenues, and a deficit is generated, it can be covered with what enters the country through FDI, in addition to the possibility of resorting to external debt, or to the use of the reserves that the country has. Therefore, each country should incentivize as much as it can to get as much FDI as possible into its territory.
However, the quantitative data that we have pointed out in the previous paragraphs clearly show the high variability or volatility that characterizes FDI, which prevents countries from planning, on the basis of FDI, their expenditures, their incomes and their investment and growth processes. If it depended on FDI, the economy of our countries would leap backwards and forwards.
In addition, FDI represents a declining share of global GDP – 1.8 percent of global GDP in 2019 and 1.2 percent in 2020 – and most of these volumes are directed to developed countries themselves, underscoring that it is not a variable directly related to growth in developing economies.
Finally, in this brief reflection on FDI, it is important to emphasize that in the case of an intrinsically exogenous variable, which does not depend on the decisions of developing economies, but on the contingencies of the international financial system, it is difficult to channel towards strategic sectors of domestic economies, which need precisely to promote endogenous and sustainable development processes.
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