Geography of foreign direct investment

Maggie Xiaoyang Chen

Chapter 17 in Elgar Encyclopedia of International Trade, 2026, pp 79-82 from Edward Elgar Publishing

Abstract: The geography of foreign direct investment (FDI) reflects both enduring economic fundamentals and evolving global policy dynamics. While market size, factor endowments, and transport and communication infrastructure remain central determinants, the past two decades have seen FDI diverge from the trajectories of trade and GDP. Recent trends highlight three structural shifts: a reallocation from manufacturing toward services; a geopolitical fragmentation of investment flows through “friend-shoring,” reshoring, and nearshoring; and the growing influence of industrial policies and climate risks on multinational strategies. These developments highlight how FDI patterns are increasingly shaped not only by comparative advantage and trade costs, but also by political alignment, industrial policy interventions, and risk management. Understanding these shifts is critical for analyzing the organization of global value chains, the distributional consequences, and the future role of FDI in the global economy.

Keywords: FDI; Trade tension; Geopolitical alignment; Industrial policy; Climate risks (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035327492
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