Mapping the changing face of investment

The financial crisis of 2007–8 was so severe, and its impacts so deep-seated, that – for some – this is a new world now. Economic theory, particularly in relation to financial markets, is being re-written. Economic practice too, no longer appears to be what it was. The decline of Europe and the United States has become more pronounced, as has the relative rise of some large emerging economies – i.e. the BRICS (the economies of Brazil, Russia, India, China and South Africa). Whether looking at the productive, innovative, or financial aspects of growth and development, some see a rapid transfer of economic power happening before our eyes.

Mindsets have changed as well. Where once developing countries were seen as passive recipients of growth generated in developed economies, they are increasingly viewed as independent sources of growth themselves. And it is not just the BRICS. Growth rates across many parts of the developing world have increased since the turn of the century, and appeared to be far less affected by the financial crisis and global economic turndown than did most developed economies.

If a reality, this ‘decoupling’ – where the process of growth in developing countries becomes increasingly independent of prospects in developed economies – will force a change in the assumptions of international investors, and ultimately the allocation of capital globally. The development implications would be significant.

This paper aims to:

- Provide a snapshot of investment flows to developing countries in recent years, but to do so in the context of a longer time-horizon. Specifically, cross-border investment flows from 1990 to 2012 are examined to identify patterns of investment.

- Consider how – if at all – these investment flows have changed in recent years, especially in the wake of the recent global financial crisis.