Investment in emerging and developing economies

Amat Adarov, Ayhan M. Kose and Dana Vorisek

MPRA Paper from University Library of Munich, Germany

Abstract: The world faces a pressing challenge to meet key development objectives amid slowing growth and rising macroeconomic and geopolitical risks. With the number of job seekers rising rapidly, infrastructure shortfalls continuing to be large, and climate costs mounting, the case for a significant investment push has never been stronger. Yet the capacity to respond in many emerging market and developing economies (EMDEs) has eroded. Since the global financial crisis, investment growth has slowed to about half its pace in the 2000s, with both public and private investment weakening. Foreign direct investment inflows—a critical source of capital, technology, and managerial know-how—have also fallen sharply and become increasingly concentrated, leaving low-income countries (LICs) with only a marginal share. The risks of further retrenchment are significant, as trade tensions, policy uncertainty, and elevated debt levels continue to weigh on investment. Reigniting momentum will require ambitious domestic reforms to strengthen institutions, rebuild macro-fiscal stability, and deepen trade and investment integration—the foundations of a supportive business climate. At the same time, international cooperation is indispensable. A renewed commitment to a predictable system of cross-border trade and investment flows, combined with scaled-up financial support and sustained technical assistance, is essential to help EMDEs—especially LICs and economies in fragile and conflict situations—bridge financing gaps and implement the domestic reforms needed to restore investment as an engine of growth, jobs, and development.

Keywords: investment; gross fixed capital formation; private investment; public investment; foreign direct investment; structural reforms; economic growth (search for similar items in EconPapers)
JEL-codes: E22 F21 F4 F6 O1 O4 (search for similar items in EconPapers)
Date: 2025-12-16
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