In today’s interconnected world, foreign direct investment (FDI) plays a critical role in business operations and shaping national economies. But to harness the benefits of FDI and design effective policy, we first need to measure it.
That’s where FDI statistics come in: high-quality, consistent and comparable FDI data is crucial for understanding global economic integration and fostering strategic investment by looking at who is investing, in what sectors, how and where.
The OECD’s newly updated Benchmark Definition of Foreign Direct Investment (5th edition) is at the center of this collection of information – offering the most comprehensive international framework for collecting and interpreting these statistics.
Here are five reasons why measuring FDI flows matters more than ever and why the new Benchmark Definition is key.
1. FDI reveals how connected economies are and how they evolve
FDI is more than just a cross-border financial flow. It’s a signal of long-term relationships, strategic control, and how multinational enterprises (MNEs) operate globally. Whether it’s building a new factory (a “greenfield” investment) or acquiring a company abroad (mergers and acquisitions), FDI helps countries integrate into global supply chains and access new markets, skills, and technologies.
Accurate, timely, and internationally comparable statistics help policymakers to assess not only how much investment is flowing in and out, but also what kind of economic ties are being formed. The OECD’s Benchmark Definition helps getting a clearer picture of these connections – broken down by industry, region, and type of investment.
2. It tells us who is really investing and why that matters
Traditionally, FDI statistics only identified the “immediate” investing country. When a company in one country invests in another country, the country of that company is called the immediate investing country. It’s the country of the parent company that directly makes the investment. But in today’s world of complex MNEs, often with several holding companies and offshore hubs, that approach often masks the real source of the investment. In fact, sometimes, that parent company is actually owned by another company in a different country, so that the investment might be really coming from that other country – and not the immediate one. So, while we usually count just one step – from the parent company to its affiliate abroad – the true origin of the investment could be further up the ownership chain.
The new OECD Benchmark Definition (5th edition) provides detailed guidance on the methods used to identify the ultimate investing economy (UIE), the country that ultimately controls the investment. This matters because it reveals, for example, in some cases, how much of a country’s “foreign” investment is actually domestic investment coming back home, a phenomenon known as “round-tripping.” Knowing where investment truly comes from is even more relevant, as it helps policymakers assess exposure to economic shocks and design more targeted investment strategies.
3. Not all FDI is created equal – measuring how investment is made gives insight into its economic impact
Is foreign investment creating new facilities? Or is it acquiring existing assets? The new OECD Benchmark Definition provides guidance to distinguish between greenfield investment, mergers and acquisitions (M&A), extensions of capacity, and/or financial and corporate restructuring. This matters because the economic effects of each type are different.
While new investment often drives productivity and employment, at first sight, M&A may involve fewer immediately evident gains, although a foreign takeover may still save a domestic company from liquidation in some cases and can create new jobs. Having this breakdown allows policymakers to better evaluate the impact of investment on their economy and design policies that attract most suited types of FDI.
4. Some FDI is just “passing through”, distorting the data
Pass-through funds represent investment flowing through a company in one country on its way to another company in a different country, without staying in the first country. These funds often move through what are called Special Purpose Entities (SPEs), for instance holding companies or financial centres, set up predominantly to move funds around, or regular operating business entities. This can happen for various reasons, not just tax or regulatory ones, but also in case of M&As or the establishment of regional headquarters.
These pass-through funds can make FDI numbers look bigger than they really are because every movement into and out of a country is counted. This makes it harder to understand how much real investment is actually taking place in a country. Moreover, when FDI statistics are based only on the country of the immediate investor (the country of the company sending the funds directly), it can hide where the investment really comes from or is going.
To improve how FDI data are interpreted, the OECD Benchmark Definition makes recommendation to better track and adjust for pass-through funds.
The new Benchmark Definition also encourages countries to voluntarily report outward FDI positions by Ultimate Host Economy (UHE) for a more accurate representation of investment destinations. MNEs often route their investment through multiple companies in various countries before reaching the entity that carries out actual productive activities. Outward FDI positions/stocks by UHE can identify the economy where these productive entities are based, which can differ significantly from the immediate host country.
5. Better data makes for better policy and global comparability
From identifying priority sectors to understanding the returns investors are earning, FDI statistics help governments track performance, spot trends, and compare to peers. The OECD Benchmark Definition also supports indicators that show, for example, how open an economy is to foreign investment or what share of FDI is going into manufacturing versus services.
In a time of rising geopolitical uncertainty, supply chain shifts, and renewed competition for investment, having detailed, internationally harmonised FDI data is essential. The OECD’s work ensures that countries can not only tell their own investment story—but also understand where they stand in the global picture.
