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Bijit Bora, World Trade Organization,
Chia Siow Yue, Head The Institute of Southeast Asian Studies, Singapore,
Nick Freeman, Researcher The Institute of Southeast Asian Studies,
Shujiro Urata, Professor of Economics, School of Social Sciences Waseda University; Research Fellow Japan Center for Economic Research
Global flows of foreign direct investment (FDI) continued to rise throughout the 1990s, maintaining their momentum despite the onset of the East Asian financial and economic crisis in mid-1997. According to UNCTAD data, global FDI inflows rose by 44 percent in 1998, to $680 billion, and by 27 percent in 1999, to $865 billion (figure 9.1). FDI flows to developing countries declined by 4 percent in 1998, the first decline since 1985, mainly owing to the sharp economic slowdown in East Asia. The decline of FDI flows to developing countries was more than offset by a rise in cross-border merger and acquisition (M&A) activity in developed countries. The 1998 rise in global FDI flows occurred despite a largely unfavorable backdrop: a decline in world economic growth from 3.4 percent in 1997 to 2 percent, a parallel contraction in world trade (in value terms), and major financial crises in East Asia, Russia, and parts of Latin America.
In the pre-crisis period (1993–1996), East Asia received around 24 percent of global FDI inflows each year (table 9.1). However, it saw a 7 percent decline in FDI inflows between 1997 and 1998, from $94 billion to $87 billion, the first drop since the mid-1980s. The decline was attributed to sharp falls in FDI inflows for Indonesia and Taiwan, and caused the region's share of the global FDI stock to fall to 16.1 percent in 1999 (table 9.2).