By Jong Woo Kang, Principal Economist, Economic Research and Co-operation Department, Asian Development Bank (ADB) and Rolando Avendano, Economist, Economic Research and Co-operation Department, Asian Development Bank (ADB)

Developing Asia is estimated to have fended off the scarring impact of investment decline relatively well during the pandemic compared to other developing regions such as Latin America and Africa. For example, the People’s Republic of China and India still posted a positive growth rate in FDI in 2020. Meanwhile global FDI flows collapsed in 2020, falling by 35%, their lowest level since 2005, according to the UN. The impact was felt the most in developed countries where FDI declined by 58%, while developing countries weathered the storm better, with an 8% decline. Latest estimates for the first quarter of 2021 suggest an overall 10% decline for global FDI flows and 12% for Asian FDI inflows, according to firm level data. Adding to this is the fact that the pandemic has prompted economies, in the region and globally, to implement stricter screening and regulatory measures to oversee FDI. While the arguments for these restrictive measures are compelling from the perspective of national security or public health, economic impact and implications should be taken into account. Policy makers in the region could also seize the moment as an opportunity to introduce higher social and environmental standards for investment.