How FDI today may shape industry and trade tomorrow

Foreign direct investment trends offer clues about how future-shaping industries will develop and evolve, and how economies might benefit. A recent McKinsey Global Institute report examines this crucial issue for the world economy, and points to further changes in the geometry of global trade and the map of international business. The world is still connected through trade, but it is increasingly defined by politically informed capital investments, as FDI shifts the global footprint of future-shaping industries. For business leaders and policymakers alike, understanding FDI offers a way to envision where the action is likely to be—and how they can get a piece of it.

Some of the key conclusions:

FDI has transformed industries from oil to electronics. Providing initial funding is just the start; cross-border deals that take root also transfer knowledge and spur ongoing domestic investment. Today’s patterns of greenfield FDI announcements signal a new shake-up.

FDI promises to shape advanced manufacturing, AI infrastructure, and the resources that power them. Since 2022, three-quarters of cross-border announcements have gone to these types of future-shaping industries as well as energy and mining projects—up from about half pre-2020. While not all announcements proceed, historically 60 to 80 percent have.

Pledged investment has increasingly followed geopolitical lines. Advanced economies announced more investment into one another—particularly to the United States—but decreased flows to China by nearly 70 percent. China pivoted from net investee to prominent investor in future-shaping industries, boosting announcements to Europe, Latin America, and the Middle East and North Africa by over two-thirds. Emerging economies attracted investment pledges from across the geopolitical spectrum.

To win globally, multinationals are placing bigger bets. While megadeals over $1 billion represent only 1 percent of cross-border deals, they account for half the total value—a jump from one-third five years ago. New data centers, semiconductor fabs, and battery factories don’t come cheap.

Stakes are high and change is afoot. If successful, FDI projects announced since 2022 could more than quadruple current battery manufacturing capacity outside China, nearly double the global data center capacity that powers AI, and draw the United States into the circle of top leading-edge semiconductor-producing nations. Patterns like these can help decision-makers anticipate the shifting geometry of global trade and the future map of international business.

Related

Watch Jeongmin Seong 成政珉 and Tiago Devesa share new research on the FDI shake-up, followed by a conversation with Chris Miller , Vivek Ramachandran , and Daniel Yergin , moderated by Olivia White :

Read the report, The FDI shake-up: How foreign direct investment today may shape industry and trade tomorrow, by Tiago Devesa , Jeongmin Seong 成政珉 , Olivia White , Nick Leung , Michael Birshan , Jan Mischke , Camillo Lamanna , and Masud Ally.