Prof. J.D. Agarwal, Chairman & Director, Indian Institute of Finance while delivering a Keynote Speech at 4th International Conference in Finance, CHILE said FDI has emerged as the most important channel of external resource transfers to developing countries in the 1990s. FDI inflows have grown at an average annual rate of 20% over 1991-95 & at 32% during 1996-99 despite the economic crisis in some important regions of the world.

As a result, the magnitude of global FDI inflows has increased from US$ 159 billion in 1991 to US $ 1.27 trillion in 2000. FDI inflows are expected to be less volatile and non-debt creating opines Prof. Agarwal.

According to him, the recent growth of FDI flows has been fuelled by cross-border mergers and acquisitions (M&As) in North America and Europe as a part of ongoing wave of industrial restructuring and consolidation. The value of cross-border M&As sales has grown from US $ 81 billion to US $ 720 billion over 1991-99. The industrial restructuring and consolidation in the
industrialized world, in turn, has been provoked by regional economic integration.

There has also been a shift in the relative importance of different regions as hosts of FDI inflows has been received by the developing countries since 1993 opines Prof. Agarwal. Developing Asia has been the most important host region of FDI inflows accounting for over half of FDI inflows to developing countries. Initially, developing Asia’s share showed a rising trend peaking at 70 per cent in 1993 However, its importance has declined steadily since then states Prof. Agarwal.

According to him, within Asia also the relative importance of sub-regions is changing. China dramatically improved her share in the inflows to developing countries from 10 per cent in 1991 to 38 per cent in 1993. Since then, however, China has not been able to keep its share in the inflows into Asia.

Global FDI inflows declined in 2002 for the second consecutive year, falling by a fifth to US $ 651 billion – the lowest level since 1998. FDI Flows declined in 108 out of 195 economies said Prof. Agarwal. He emphasised that the main factor behind the decline was slow economic growth in more parts of the world and dim prospects for recovery at least in the short term. Besides there has been falling stock market valuations, lower corporate profitability, a slow down in pace of corporate restructuring in some industries and winding down of privatization in some countries.

Prof. Agarwal says that the decline in FDI in 2002 was uneven across regions and countries. It was also uneven across sectorally : flows into manufacturing and services have declined, while those into the primary sector rose by 70%. Services are the single most largest sector for FDI inflows.