Where Is Foreign Direct Investment Moving?
The world is not stopping globalisation, but it is changing direction. Over the past few years, terms such as deglobalisation, decoupling and reshoring have appeared more frequently in discussions about the global economy. Geopolitical tensions, changes in trade policy, tariff wars and supply chain disruptions have created the impression that the world is moving towards an increasingly fragmented economy. However, analysis by the McKinsey Global Institute (MGI) offers a slightly different picture. What is happening is not simply the end of globalisation, but a change in the configuration of the world’s trade networks. Global trade is still growing, but trade and investment relationships are increasingly being directed towards countries that are geopolitically closer or more aligned.
This change matters because the investment decisions companies make today are essentially an early picture of how the world’s economic map will be shaped in the years ahead. When a multinational company decides to build a factory, mine, energy facility or data centre in a country, that decision not only creates economic activity at the time, but also has the potential to change trade flows, supply chains, labour needs and business relationships in the region.
FDI is a signal for the future economy. Trade often only shows the results of business decisions made years earlier. A product currently produced in a country may be the result of an investment decision made five or even ten years earlier. For this reason, FDI can be seen as one of the indicators that provides an earlier picture of the direction of change in the global economy and trade. MGI tried to read that signal by analysing around 200,000 FDI projects or announcements over a decade and looking at what might happen if those projects were actually realised.
From that approach, it is clear that multinational companies are not only changing the location of their investments, but also changing the sectors that are the main destination of capital. This shift shows that foreign investment is increasingly linked to structural changes in the world economy. If trade reflects what has already happened, investment can provide clues about the production capacity and business networks being built for the future.
Global capital is flowing into the industries that will define the future. One of MGI’s main findings is the growing concentration of investment in future industries and the resources needed to support them. Around three-quarters of investment projects announced since 2022 are directed at industries such as AI infrastructure, advanced manufacturing, energy, mining, and sectors related to technological development and new production capacity.
This change can be seen in the construction of semiconductor fabs, gigafactories for batteries, and data centres, which are expected to increase two to threefold. What is interesting is not only the growth in the number of these facilities, but also the change in their investment locations. Semiconductor fab construction is increasingly shifting to the United States, while gigafactories are no longer concentrated only in China, but are also developing in Europe, Indonesia, Malaysia and Morocco. In this way, future industries are beginning to spread to more countries and are creating new production centres outside their traditional locations.
Geopolitics is increasingly determining the direction of investment. This geographical change cannot be separated from geopolitical developments. MGI found that geopolitical distance in trade has fallen by around 7 per cent since 2017. This means countries are increasingly trading with partners that have a close geopolitical position. In FDI, this tendency is even stronger, with changes in investment direction taking place around twice as fast as changes in trade.
This change is clearly visible in investment relations between Western countries and China. New investment announcements from Western multinational companies into China fell by around 70 per cent, while new projects in developed countries increased. Investment entering the United States even increased significantly. Multinational companies appear to be replanning their operational footprints by considering not only economic factors, but also geopolitical alignment with the countries in which they invest.
Asia is not moving in a single pattern. Amid these changes, Asia has a very important position because the region accounts for around half of global trade flows and around half of global FDI flows. However, Asia cannot be seen as a single unit with a uniform investment pattern. MGI shows major differences between China, developed Asian countries, ASEAN and India in their positions towards global capital flows.
China and developed Asian countries such as Japan and Korea are large outward investors, with outward investment flows far larger than the investment they receive. In contrast, ASEAN and India are net FDI recipients, with inflows around three times larger than outflows. This difference shows that changes in the global investment map are creating different roles for each economic group in Asia.
ASEAN offers different stories. Within ASEAN itself, the direction of development is not uniform. Malaysia and Thailand are experiencing strong growth, particularly driven by advanced manufacturing.