A global FDI recession is under way, according to a study by Karl P Sauvant, executive director at US research centre Vale Columbia Center on Sustainable International Investment.

While recognising that FDI flows were healthy last year, Mr Sauvant is concerned that global economic growth, which he believes is the most important FDI determinant for attracting investment, will slow and make some key markets less attractive to invest in.

He wrote: “The financial crisis and the credit crunch adds to this impact as it severely restricts the ability of firms to invest abroad and finance crossborder mergers and acquisitions, which are by far the most important form of entering foreign markets for multinationals.”

Mr Sauvant also emphasised that economic difficulties will ultimately encourage multinationals to repatriate earnings and possibly sell foreign affiliates to shore-up balance sheets, something that would reduce FDI flows.