Assessing the Socio‑economic Impact of Foreign Direct Investment in Latin America and the Caribbean

A Focus on EU Investments

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11 December 2025

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2. The role of FDI in shaping structural transformation in LAC: A close look at EU investments

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Abstract

This chapter analyses foreign direct investment (FDI) trends and their impact on structural transformation in Latin America and the Caribbean (LAC) between 2003 and 2024, with particular attention to investment originating from the European Union (EU). It begins with an overview of FDI trends, including greenfield projects, and mergers and acquisitions (M&As), disaggregated by destination countries, source economies and sectors. It then explores how FDI contributes to productivity, innovation, technology upgrading, digital transformation and the green transition, including shifts in the energy mix. Finally, it assesses the role of FDI in fostering export diversification and upgrading, and deeper integration into global value chains (GVCs).

2.1. Summary

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Latin America and the Caribbean (LAC) region is undergoing a complex process of economic and social transformation, shaped by persistent structural challenges and renewed efforts to promote inclusive and sustainable growth. In recent years, many countries have launched or updated industrial and productive development strategies to strengthen technological capabilities, upgrade value chains and diversify beyond traditional commodity-based sectors. These strategies aim to boost innovation, enhance skills and value-added generation, and advance fair green and digital transitions (ECLAC, 2024[1]; OECD et al., 2024[2]).

FDI plays a pivotal role in this structural transformation. Although inflows have fluctuated with shifting global and regional dynamics, they have remained structurally significant, averaging around 3% of GDP over the past decade, one of the highest shares worldwide. LAC’s share of global inward FDI stock has also remained relatively stable, at about 6% over the past two decades, above that of other emerging regions. Major economies such as Brazil, Mexico, Chile, Colombia and Argentina consistently absorb the largest shares of FDI, reflecting their market size, resource wealth and competitive cost structures.

Between 2014 and 2024, greenfield FDI was mainly directed to manufacturing (35%), with strong inflows into motor vehicles, food and beverages and chemicals. The energy and mining sectors accounted for 24% and 13%, respectively. Services represented about one-quarter of greenfield FDI, led by information and communication, and transport and storage. By contrast, cross-border M&As were concentrated in services (about 50%), particularly finance, and information and communication, followed by energy (21%). The European Union (EU) is a central player in LAC’s investment landscape, accounting for almost 30% of greenfield FDI, surpassing the United States (U.S.) (26%) and intra-regional investors (8%). In M&As, EU investors represented 18% of deal value, behind LAC (32%) and the United States (26%). EU firms are particularly active in sectors aligned with the priorities of the EU–LAC Global Gateway Investment Agenda (GGIA), notably renewable energy and information and communication, with investment in renewable energy growing markedly.

FDI contributes positively to productivity, innovation and technology upgrading in LAC. Foreign firms are consistently more productive than domestic firms and more likely to engage in innovation, and research and development (R&D). EU firms, in particular, outperform in capital-intensive and high-productivity sectors, such as energy, motor vehicles and finance. Roughly 39% of total greenfield FDI and 44% of EU-origin FDI has been directed to these higher-productivity sectors. Around 30% of greenfield FDI has gone to medium and higher-technology and knowledge-intensive sectors, a share that has remained broadly stable over the past two decades. EU firms have been key drivers of investment in medium-high-technology sectors, especially motor vehicles, accounting for around 25% of greenfield FDI in this segment. U.S. investors have been more active in high-tech manufacturing and knowledge-intensive services. Yet, investment remains concentrated in core and support production functions (e.g. manufacturing and logistics): between 2014 and 2024, over 80% of projects, many of them from EU firms, targeted such activities. While essential for productivity growth and potentially more conducive to local spillovers, these activities generate relatively less value addition. Only a limited share of greenfield investment involves higher-value functions (e.g. R&D or strategic corporate activities), pointing to significant untapped potential for deeper upgrading in global production networks.

Since 2003, LAC has attracted an estimated USD 260 billion in greenfield digital investment, accounting for about 13% of total greenfield FDI. Digital investment is also a strategic pillar of the EU–LAC GGIA and a key driver of the region’s digital transformation. Early inflows, particularly from the EU, focused on telecommunications infrastructure, laying the foundations for digital connectivity. More recent investment has shifted toward digital services, including data hosting, programming and software development. The European Union and the United States remain major investors in LAC’s digital sectors.U.S. firms have taken the lead in digital services. EU firms also increased investment in this sector, but their role has declined in relative terms across all digital sectors, as investment from other regions grew more rapidly.FDI is also playing a crucial role in supporting LAC’s green transition, with the region emerging as a key global destination for climate-aligned investment. Between 2014 and 2024, renewable energy accounted for 17% of total greenfield FDI, an increase of 10 percentage points compared to the previous decade. The EU remains the leading investor in the region’s clean energy transition, playing a critical role in expanding clean energy supply and advancing the transformation of the energy mix, even if its relative market share has declined amid growing interest from other international investors in this sector.

FDI is also an important driver of export diversification and industrial upgrading. While LAC’s trade structures differ across countries, many remain reliant on commodities and low-tech exports. Investment in medium- and high-tech sectors, particularly in more complex economies, has supported a shift toward higher-value-added activities. EU investment, in particular, has been associated with greater export sophistication and industrial development. FDI has also deepened LAC’s integration into GVCs, with foreign firms more export-oriented and import-reliant than domestic ones. However, the region’s integration remains primarily forward-oriented, especially in resource-based sectors, where EU greenfield investment is heavily concentrated.

2.2. FDI trends in LAC

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2.2.1. FDI has been structurally important for LAC

FDI has long been a key driver of growth in LAC. Beyond providing financing, FDI has shaped patterns of industrial development and facilitated the region’s integration into global value chains (GVCs) (OECD et al., 2025[3]) (2023[4]). Between 2003 and 2013, the region experienced a marked expansion in FDI inflows, supported by a favourable external environment (Figure 2.1 and Box 2.1). High commodity prices, together with domestic policy reforms, including trade liberalisation, privatisation and regulatory improvements in several LAC countries, enhanced the region’s attractiveness to foreign investors. This growth also proved resilient to the 2008-09 global financial crisis, which caused a sharp but short-lived contraction, after which inflows quickly rebounded.

Figure 2.1. FDI averaged 3% of GDP in LAC in the last two decades
Copy link to Figure 2.1. FDI averaged 3% of GDP in LAC in the last two decades

FDI net inflows in LAC, 2003-2023

Since 2013, FDI inflows to LAC have followed a downward trajectory. Declining commodity prices, tighter global financial conditions and recurring macroeconomic volatility undermined investor confidence, while the rise of dynamic investment hubs in Asia and other regions intensified competition for capital. However, FDI inflows rebounded quickly after the COVID-19 crisis. Following a sharp contraction in 2020, inflows rose markedly, supported by stabilising macroeconomic conditions. Increasingly attractive returns in sectors such as renewable energy, together with more targeted investment-promotion strategies, also contributed to this recovery (OECD, 2023[5]).

The structural importance of FDI for LAC has remained stable over the past two decades. On average, annual inflows have been equivalent to around 3% of GDP, significantly higher than in other world regions, including the Middle East and North Africa (2.7%), East Asia and the Pacific (2.3%), Sub-Saharan Africa (2.2%) and South Asia (1.4%) (Figure 2.1). The stock of inward FDI underscores the region’s importance as an investment destination. LAC accounts for just over 6% of the global total, well below the shares of the EU (30%) and North America (26%), but higher than those of other emerging regions, such as East Asia and the Pacific or the Middle East and North Africa, both at around 4%. This share has also remained broadly stable over the past decade, pointing to the region’s sustained attractiveness to foreign investors (Figure 2.2).

Figure 2.2. LAC’s share of global inward FDI stocks has remained stable since 2003
Copy link to Figure 2.2. LAC’s share of global inward FDI stocks has remained stable since 2003

Inward FDI stocks, % of world total

Box 2.1. Understanding FDI data: Definitions and coverage

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This report draws on multiple sources and types of FDI data to provide a comprehensive view of investment trends in LAC. Each type of data captures a distinct dimension of FDI activity:

Official FDI statistics (2003-2023), as reported by national authorities and compiled by international organisations, follow the Balance of Payments (BoP) and International Investment Position (IIP) frameworks. FDI is defined as a cross-border investment, where an investor from one country acquires a lasting interest (typically at least 10% of voting power) in an enterprise located in another country. This report uses two key indicators:

FDI net inflows: The value of inward direct investment made by non-resident investors in the reporting economy, including re-invested earnings and intra-company loans, net of repatriation of capital and repayment of loans.
FDI net inflows as a share of GDP: FDI net inflows expressed as a percentage of gross domestic product, allowing for comparability across countries of different economic sizes.
FDI stocks as a share of world total: The proportion of a country’s or region’s accumulated inward FDI relative to the total global stock of inward FDI. It indicates the relative importance of that country or region as a destination for foreign investment compared to the rest of the world.

Official statistics, sourced from the World Bank and UNCTAD, are available up to 2023 and cover FDI inflows by destination country. However, they do not provide information disaggregated by sector or investor country of origin.

Greenfield FDI (2003-2024) refers to the establishment of new facilities or the expansion of existing operations by foreign investors, typically associated with capital formation and job creation. Data used in this report are sourced from the Financial Times’ fDi Markets database, which tracks project-level announcements across countries, sectors and activities. Greenfield data cover the period 2003-2024 and are disaggregated by destination country, source country, sector and type of activity. While not directly comparable to official FDI statistics, as they capture announced rather than realised investment flows, they offer valuable forward-looking insights. Some domestic elements may be included in reported project values (e.g. if a foreign investor receives a local loan), and the data follow a proprietary classification system that has been mapped to the International Standard Industrial Classification of All Economic Activities (ISIC), Rev. 4.

Mergers and Acquisitions (M&A) (2018-2024) involve the partial or full acquisition of existing enterprises by foreign investors. These transactions may not result in new productive capacity, but can bring important benefits through capital infusion, restructuring or knowledge transfer. M&A data used in this report are sourced from LSEG (formerly Refinitiv) and cover cross-border transactions in the LAC region between 2018 and 2024. They are disaggregated by destination and origin country, as well as by sector. While the number of transactions provides a robust measure of investment activity, deal values are disclosed in only about 35% of cases, limiting analysis of value trends.

Source: Based on World Bank (2024[8]), Foreign direct investment, net inflows (% of GDP), https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS; Based on Financial Times (2025[9]), FDI Markets (database), https://www.fdimarkets.com/.

LSEG (2025[10]), Mergers and acquisitions (M&A), https://www.lseg.com/en/investor-relations/refinitiv-acquisition-documents.

2.2.2. The bulk of FDI is directed to few LAC countries

The concentration of FDI across LAC economies largely reflects the region’s underlying economic and demographic structure. As in other parts of the world, larger economies with greater market potential, abundant natural resources and competitive labour costs tend to attract a disproportionate share of FDI. Brazil, Mexico, Chile, Colombia and Argentina, LAC’s most populous and economically significant countries, have consistently been the primary destinations for foreign investment in the region (ECLAC, 2024[1]). In addition to their economic weight, these countries offer relatively more developed infrastructure, deeper capital markets and more mature institutional frameworks, which are key factors in shaping investor decisions (Mistura and Roulet, 2019[11]; OECD et al., 2023[4]).

Between 2013 and 2023, Brazil, Mexico, Chile, Colombia, Argentina and Peru received nearly 88% of all FDI inflows to the region (Figure 2.3). Brazil alone accounted for close to 40% of total inflows, followed by Mexico (21%), Chile (9%), Colombia (7%), Argentina (6%) and Peru (4%). This distribution represents only a modest evolution from the previous decade (2003-2012), with Brazil, Mexico and Colombia slightly increasing their relative shares, while Chile, Argentina and Peru registered small declines.

Figure 2.3. Brazil alone accounts for close to 40% of total FDI net inflows
Copy link to Figure 2.3. Brazil alone accounts for close to 40% of total FDI net inflows

FDI net inflows by LAC country, % total FDI

Greenfield FDI, typically associated with new productive capacity, exhibits a broadly similar pattern, though with some country-level variation (Box 2.1). Between 2013 and 2023, six countries (Mexico, Brazil, Chile, Argentina, Peru and Colombia) captured approximately 77% of total announced greenfield investment value (Figure 2.4). Mexico emerged as the leading destination, accounting for 30% of regional project value, followed by Brazil (23%) and Chile (9%). Argentina, Peru and Colombia attracted between 4-7% each.

Similarly, mergers and acquisitions (M&A), transactions involving the purchase or consolidation of existing firms, remained highly concentrated in the region’s six largest economies, though country rankings differ slightly from those observed for official FDI and greenfield investment (Box 2.1). Between 2018 and 2024, Brazil, Chile, Mexico, Peru, Colombia and Argentina collectively accounted for nearly 90% of all M&A transactions in LAC and approximately 92% of disclosed deal value, bearing in mind that transaction values are publicly available for only around 35% of deals concluded during this period (Figure 2.5). Brazil was the largest recipient by far, representing 40% of total disclosed deal value, followed by Chile (18%) and Mexico (14%). Peru and Colombia each accounted for 7%, while Argentina attracted 5%. A similar pattern is observed in terms of the number of transactions, with Brazil again leading at 41% of total deals, ahead of Mexico (14%), Colombia (12%), Chile (11%), Argentina (6%) and Peru (5%).

Figure 2.4. Mexico and Brazil are the top receivers of greenfield FDI
Copy link to Figure 2.4. Mexico and Brazil are the top receivers of greenfield FDI

Greenfield FDI by LAC country, % of total

Figure 2.5. Brazil, Chile, Mexico, Peru, Colombia and Argentina account for nearly 90% of all M&A transactions in LAC
Copy link to Figure 2.5. Brazil, Chile, Mexico, Peru, Colombia and Argentina account for nearly 90% of all M&A transactions in LAC

M&A deals by LAC country, 2018-2024, % total

2.2.3. Greenfield FDI dominates manufacturing, while M&A deals are prevalent in services

Between 2014 and 2024, LAC attracted just over USD 1 trillion in greenfield FDI, concentrated in a few key sectors. Manufacturing remained the main destination (35%), underscoring its structural weight in the region’s FDI profile, with motor vehicles (11%), food, beverages and tobacco (4%), chemicals and chemical products (3%) and basic metals (3%) absorbing most greenfield FDI (Figure 2.6). Services followed with around 25%, led by information and communication (10%), and transport and storage (5%), while energy accounted for 22%, mostly renewables. The primary sector still played a role (14%), largely through mining (14%), while agriculture remained marginal (at less than 1%). Construction accounted for around 5%.

Compared to 2003-2013, the overall structure of FDI changed only moderately, but notable shifts occurred within sectors. Manufacturing slightly declined, driven by reduced investment in metals and fossil fuel-related industries. Services modestly expanded, supported by transport and storage, wholesale and retail trade, and hotels and restaurants, while financial activities declined. The most significant re-allocation occurred in energy. Fossil fuels increased by 4 percentage points, driven mainly by new investment in gas. Renewables gained over 10 percentage points, confirming LAC’s rising appeal for clean energy projects, supported by falling technology costs, better returns and rapid innovation (IEA, 2023[12]).

Figure 2.6. Renewable energy recorded the largest increases in greenfield FDI share
Copy link to Figure 2.6. Renewable energy recorded the largest increases in greenfield FDI share

Total greenfield FDI to LAC, by sector, % of total greenfield FDI

Between 2018 and 2024, LAC recorded over 1 500 cross-border M&A transactions worth more than USD 285 billion, though the true value is likely higher given that most deals did not disclose financial details. Around half of all transactions took place in services, followed by energy (21%), manufacturing (13%) and mining (12%) (Figure 2.7). The stronger concentration of M&A in services, compared with greenfield FDI, reflects the nature of these deals, which typically involve acquiring established firms, particularly common in service-based industries.

Within services, the bulk of disclosed M&A value was concentrated in financial and insurance activities (14%), information and communication (12%), retail trade (6%), and transport and storage (5%), revealing the sector’s central role in cross-border transactions. In energy, all activity was in electricity (21%), overwhelmingly renewables, underscoring investors’ growing strategic focus on clean energy. Manufacturing deals were smaller in scale and concentrated in chemicals and chemical products (4%), food, beverages and tobacco (3%), and non-metallic mineral products (2%), while mining attracted a further 12%. Overall, the distribution of M&As across activities within sectors broadly mirrored that of greenfield FDI, with one key exception: motor vehicles, where limited local firm presence has made greenfield investment the preferred entry mode over acquisitions.

Figure 2.7. M&A deals are prevalent in electricity, mining, finance, and information and communication
Copy link to Figure 2.7. M&A deals are prevalent in electricity, mining, finance, and information and communication

M&A deals, by sector, 2018-2024, % of total

2.2.4. The European Union and the United States are the leading investors in LAC

Between 2014 and 2024, EU firms were the leading source of greenfield FDI in LAC, investing about USD 300 billion (30% of the total). They were followed by companies from the United States (U.S.) (26%), LAC (8%), the United Kingdom (UK) (8%) and China (7%) (Figure 2.8, Panel A). Compared to the previous decade, EU greenfield investment declined slightly, by 2 percentage points in total share, yet the EU remained the leading investor and further consolidated its position. More dynamic growth came from the United States and China: US greenfield investment increased by USD 65 billion (a 6-point gain in share) and Chinese investment grew by USD 51 billion (a 5-point gain). Investment from the United Kingdom grew more modestly, gaining 2 percentage points in share. In contrast, greenfield FDI originating from LAC declined slightly both in absolute terms and relative share.

This recent performance builds on longer-term patterns. Since the early 2000s, EU companies have consistently been the main greenfield investors in LAC, with investment remaining well above other sources despite periodic fluctuations and showing renewed dynamism since 2021 (Figure 2.8, Panel B). The United States has also played a key role, with greenfield FDI gaining momentum after 2017, while the United Kingdom, LAC countries and China gradually expanded their presence. In particular, Chinese greenfield investment accelerated after 2018, reflecting deepening economic ties and strategic interest in key sectors across the region. Investment from the UK increased sharply in 2024.

Figure 2.8. EU and U.S. companies account for 60% of total greenfield FDI
Copy link to Figure 2.8. EU and U.S. companies account for 60% of total greenfield FDI

When examining cross-border M&A activity the most prominent role is played by LAC companies themselves. Over the 2018-2024 period, LAC companies accounted for the largest share of transactions, approximately 37% of total deals and the highest cumulative deal value, at around 32% (Figure 2.9). This intra-regional dynamic likely reflects the advantages of investing in familiar markets, including geographic and cultural proximity, linguistic commonalities, lower operational and logistical costs, and closer alignment in legal and regulatory frameworks. The United States is the second-largest source of M&A activity, representing 24% of deals and 23% of total value, followed closely by the European Union, with 18% in both categories. By contrast, M&A activity originating from China and the United Kingdom has remained relatively limited.

Figure 2.9. Intra-LAC cross-border transactions are the main driver of M&A activity in the region
Copy link to Figure 2.9. Intra-LAC cross-border transactions are the main driver of M&A activity in the region

M&As in LAC, by origin, cumulative sum over 2018-2024

2.2.5. Top investors in LAC exhibit diverse sectoral profiles

Leading investors in LAC exhibit distinct sectoral profiles, both in terms of their relative contribution to total investment in each sector and the composition of their own investment portfolios in the region. Between 2014 and 2024, EU companies stood out as the main greenfield investors in energy and manufacturing, accounting for more than 40% of all energy-related projects and about one-third of manufacturing. They also maintained a strong presence in services, and in mining and quarrying (Figure 2.10, Panel A). The United States led greenfield investment in services and mining, while also playing an important role in manufacturing and energy. LAC firms contributed less overall, with their investments relatively concentrated in services. China’s investment was more prominent in mining and manufacturing, whereas the United Kingdom had only a modest presence, with its strongest position in energy.

With the exception of construction and mining, the share of EU companies in greenfield FDI declined across most sectors (Figure 2.10, Panel B). In contrast, the United States and China were the most dynamic investors, increasing their shares in nearly all sectors. UK companies increased their presence in the energy sector, while investment from LAC companies showed a mixed performance, with overall small variations in their sectoral shares.

Figure 2.10. EU companies dominate energy and manufacturing, but their share has declined
Copy link to Figure 2.10. EU companies dominate energy and manufacturing, but their share has declined

The main investors in LAC show distinct sectoral priorities. EU firms have tended to invest most heavily in manufacturing and energy, with smaller shares going to services and other sectors (Figure 2.11). This pattern is broadly mirrored by UK companies, while U.S. and LAC investors direct a relatively larger share of their capital to services and mining. Chinese firms stand out with a much stronger focus on manufacturing and mining, and comparatively limited investment in energy and services. Over the past decade, investment strategies have shifted. Mining has generally declined, except for U.S. investors, while energy has grown in importance across most groups, particularly for the EU and the UK. Manufacturing has lost ground for some of the more traditional investors, but expanded for others, including LAC firms. Services have expanded for most major players; however, the EU and the UK are notable exceptions, having experienced a decrease in their share.

Figure 2.11. In 2014-2024, the share of energy investment in total EU investment increased substantially, while the shares of manufacturing and services declined
Copy link to Figure 2.11. In 2014-2024, the share of energy investment in total EU investment increased substantially, while the shares of manufacturing and services declined

Sectoral composition of greenfield FDI by origin

2.2.6. EU investment is increasingly focusing on sectors prioritised under the EU–LAC Global Gateway Investment Agenda

EU investment in LAC is undergoing a strategic shift, increasingly targeting areas under the EU–LAC GGIA, namely the digital transformation, the green transition (including sustainable energy and transport), education and health resilience. By promoting investment in these sectors, the EU seeks to strengthen infrastructure that fosters inclusive growth, supports digital and green transitions, and enhances resilience in partner countries.

While manufacturing remains one of the largest destination sector of EU investment (34% of total greenfield FDI during 2014-2024), the relative weight of both manufacturing and services declined between 2003-2013 and 2014-2024 as EU investors shifted focus towards energy, particularly renewables. The share of EU greenfield FDI in renewable energy nearly doubled over the past decade, increasing from 13% to 31% of total EU investment in the region (Figure 2.12). At the same time, investment in fossil fuel energy generation (coal, oil and gas) decreased slightly, from 7% to 5%, suggesting a gradual repositioning away from carbon-intensive activities.

Despite a relative decline, manufacturing remains central to EU investment in LAC and has become increasingly concentrated in subsectors aligned with EU–LAC GGIA objectives. The motor vehicle sector remained the largest destination, despite a 5 percentage-point decline, with a modest increase in electric vehicle-related projects. Food, beverages and tobacco also gained in importance, accounting for 5% of total investment, up from 1% in the previous period. Chemicals and chemical products, supporting the resilience of pharmaceutical and health-related supply chains, accounted for 2% of total EU investment in 2014-2024, a 1 percentage point decline compared to the previous decade. Similarly, investment in basic metals fell from 9% to 4% and investment in electronics and electrical machinery, critical enablers of digital connectivity, remained low and declined over the period.

The services sector saw a decline in the share of EU greenfield investment in LAC over the past decade, due largely to a sharp contraction in information and communication services, which fell both in relative terms (from 13% to 8% of total investment) and in absolute value. This decline was primarily driven by a significant reduction in telecommunications projects, a foundational enabler of digital service expansion. The contraction likely reflects a maturing of telecom markets across the region, limiting new entry and expansion opportunities. The share of EU services investment remained significant also in transport and storage (around 4%), slightly up compared to the previous period and in hotels and restaurants (a bit less than 4%).

Figure 2.12. EU greenfield investment increased significantly in renewable energy and food manufacturing
Copy link to Figure 2.12. EU greenfield investment increased significantly in renewable energy and food manufacturing

EU greenfield FDI to LAC, by sector, % of total EU greenfield FDI

M&A transactions concluded by EU companies also show a growing alignment with the priority sectors of the EU–LAC GGIA. Between 2018 and 2024, approximately 28% of total M&A deal value was in the energy sector, particularly in renewable energy projects. The services sector attracted the largest share overall, accounting for around 48% of total deal value. Within this, information and communications, an important segment of the digital sector, was the main target, receiving 13% of total M&A value. Other significant services sectors included financial and insurance activities (12%), and transportation and storage (7Mining and quarrying also attracted a notable share of investment, accounting for 8% of total deal value. Manufacturing received a comparatively smaller share (14%), with M&A activity concentrated in basic metals (5%), non-metallic mineral products (3%), food, beverages and tobacco (2%), and paper and paper products (2%).

2.3. The impact of FDI on innovation, technology upgrading, digital transformation and the green transition

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2.3.1. FDI contributes to higher productivity, but concentrates in sectors with less potential for domestic linkages

The LAC region is in the midst of a significant economic and social reconfiguration, shaped by enduring structural constraints, such as low productivity growth, limited fiscal capacity, high informality and persistent inequality (OECD et al., 2024[2]). At the same time, the region has renewed its commitment to advance inclusive and sustainable development. Across the region, governments have recently introduced or revised national strategies to stimulate industrial and productive capacity (OECD et al., 2025[3]). These efforts focus on building technological know-how, expanding participation in higher segments of global value chains and reducing dependence on extractive industries. Emphasis is placed on fostering innovation, developing human capital and advancing the green and digital economy transitions (ECLAC, 2024[1]; OECD et al., 2024[2])

FDI can play a critical role in enhancing productivity, fostering innovation, and supporting technology transfer and value-added upgrading. Evidence from a wide range of countries demonstrates that FDI contributes to productivity gains not only within foreign firms but across the broader economy through spillover effects, such as knowledge diffusion, supply chain linkages and increased competitiveness. On average, foreign firms tend to be more productive than their domestic counterparts, owing to superior technologies from parent companies, as well as stronger managerial expertise and business practices (OECD, 2022[13]).

In addition to this direct impact, FDI can also generate indirect productivity gains for domestic firms through spillovers of technology and knowledge. However, such spillovers are not automatic; their extent and effectiveness depend heavily on the host country’s absorptive capacity, strength of linkages between domestic and foreign companies, sectoral focus of the investment and quality of policy and institutional frameworks. Evidence from the OECD FDI Qualities Policy Toolkit (OECD, 2022[13]) shows that FDI is particularly effective in boosting productivity when it is efficiency-seeking and integrated into GVCs.

Foreign firms make a significant direct contribution to productivity in most LAC countries. The FDI Qualities Indicators (Box 2.2) show that in 24 out of 31 LAC economies, foreign firms have higher value added per employee, a key measure of labour productivity, compared to domestic firms (Figure 2.13). However, these averages mask considerable variation within countries and sectors. Research indicates that, in many cases, a small number of top-performing foreign firms drive much of the productivity gains at the sector level, meaning overall results may be influenced heavily by this limited group of highly productive foreign investors (OECD, 2019[14]; Garone et al., 2020[15]).

Figure 2.13. Foreign firms are, on average, more productive than domestic firms in most LAC countries
Copy link to Figure 2.13. Foreign firms are, on average, more productive than domestic firms in most LAC countries

Relative difference between foreign and domestic firms’ outcomes, 2010-2023

The sectoral distribution of FDI provides further insight into its potential indirect contributions to productivity. When measured by value added per worker, labour productivity in LAC is highest in mining and quarrying, followed by financial services and energy (Figure 2.14). This is unsurprising given the capital-intensive nature of mining and energy, and the high revenue generation typically associated with the financial sector. Collectively, these three sectors accounted for approximately 39% of total greenfield FDI and 44% of greenfield FDI from the EU between 2014 and 2023.

Although these sectors rank among the most productive, FDI in mining, energy, and financial services is generally resource-seeking or market-seeking rather than efficiency-seeking. In mining and energy, foreign investors are primarily attracted by the region’s abundant natural resources, while in financial services investment is typically driven by access to large consumer markets rather than by lower production costs or integration into local production networks. As a result, foreign firms in these sectors may operate in relative isolation from the domestic economy, relying less on local suppliers or labour beyond basic operations. This reduces the scope for backward linkages, knowledge transfer or technology diffusion to domestic firms, thereby limiting the potential for broader productivity spillovers across the economy.

The manufacturing sector, despite attracting the largest share of greenfield FDI (37% of total investments and 35% of those from the EU during the same period), exhibits significantly lower average labour productivity, estimated at roughly one-eighth of that in mining and quarrying. This disparity reflects the more labour-intensive production structures common to many manufacturing segments. Indeed, productivity within manufacturing varies substantially across subsectors. Medium-high-technology industries, such as motor vehicles, where a significant portion of FDI, including from the EU, is concentrated, generally demonstrate higher productivity levels compared to more traditional or lower-tech manufacturing activities. Unlike in resource-driven sectors, FDI in manufacturing is often motivated by efficiency-seeking objectives and integrated within GVCs, creating greater opportunities for knowledge transfer, technology diffusion and stronger linkages with domestic firms. As a result, productivity spillovers from FDI are expected to be more pronounced in manufacturing.

Box 2.2. OECD FDI Qualities Indicators: Measuring the sustainable development impact of investment

Copy link to Box 2.2. OECD FDI Qualities Indicators: Measuring the sustainable development impact of investment

The OECD FDI Qualities Indicators offer a comprehensive framework for assessing how foreign direct investment (FDI) contributes to sustainable development across economic, social and environmental dimensions. Developed under the OECD FDI Qualities Initiative, the indicators do not just measure the volume of FDI flows, but evaluate FDI impact in key policy areas, including productivity and innovation; digital transformation; employment and job quality; skills development; gender equality and the green transition. The indicators are constructed using comparable, publicly available data from both national and international sources and are designed to enable benchmarking across countries, sectors and over time.

Sector-level indicators rely on official FDI statistics and commercial databases on greenfield investment, and mergers and acquisitions (M&A). These indicators allow for comparisons between foreign and domestic investment across key sectors and are used to explore correlations with socio-economic outcomes (e.g. productivity, female employment).
Indicators based on firm-level data are based on national business surveys and internationally comparable microdata sources, such as the World Bank Enterprise Surveys. These data help assess the performance of foreign-owned firms relative to domestic counterparts across various policy dimensions. However, not all microdata sources allow for clear identification of the origin of investment.

Source: OECD (2022[13]), FDI Qualities Policy Toolkit, https://www.oecd.org/en/publications/fdi-qualities-policy-toolkit_7ba74100-en.html.

Consistent with the analysis above, the most productive affiliates of EU companies located in LAC are concentrated in capital- and knowledge-intensive sectors, such as energy, particularly electricity, gas, steam and air conditioning supply, as well as motor vehicle manufacturing, chemicals and pharmaceuticals (Figure 2.15). These sectors also align with the priorities of the EU–LAC GGIA and have attracted substantial shares of EU greenfield investment. In addition, EU affiliates in financial and insurance services, wholesale and retail trade, and mining and quarrying also show strong productivity performance. Notably, in most of these high-productivity sectors, excluding wholesale and retail trade, EU affiliates also tend to pay higher average wages, pointing to a positive link between productivity and compensation (see Chapter 3).

Figure 2.14. The three most productive sectors received 39% of total greenfield FDI and 44% of EU greenfield FDI
Copy link to Figure 2.14. The three most productive sectors received 39% of total greenfield FDI and 44% of EU greenfield FDI

Value added per person (2023) and greenfield FDI (cumulative sum over 2014-2023), by sector

Figure 2.15. The most productive EU affiliates in LAC operate in EU–LAC GGIA priority sectors
Copy link to Figure 2.15. The most productive EU affiliates in LAC operate in EU–LAC GGIA priority sectors

Average net turnover per employee, 2021-2022

2.3.2. FDI drives the development of technology and knowledge-intensive sectors

Greenfield FDI in LAC supports the development of technology- and knowledge-intensive sectors (TKI) (Table 2.1). These sectors, characterised by their reliance on scientific expertise, R&D, innovation and skilled labour, are key drivers of productivity, innovation and long-term economic growth. They also play a critical role in enhancing competitiveness and tend to generate higher-quality jobs, offering better wages, improved working conditions and greater opportunities for skills development. Notably, many of these sectors align with the priority areas of the EU–LAC GGIA (Box 1.1 in Chapter 1), particularly in relation to digital (e.g. information and communication technology (ICT) goods, electrical equipment, telecommunications, digital services), health-related sectors (e.g. chemicals, pharmaceuticals) and green transport (e.g. electric vehicles).

High- and medium-technology manufacturing
High-technology manufacturing: manufacture of basic pharmaceutical products and pharmaceutical preparations; manufacture of computer, electronic and optical products	Medium-high-technology manufacturing: manufacture of chemicals and chemical products; manufacture of electrical equipment; manufacture of machinery and equipment n.e.c.; manufacture of motor vehicles, trailers and semi-trailers; manufacture of other transport equipment
Knowledge-intensive services¹
High-technology knowledge-intensive services: motion picture, video and television programme production, sound recording and music publishing activities; programming and broadcasting activities; telecommunications; computer programming, consultancy and related activities; information service activities; professional scientific and technical services

Note: Eurostat classifies scientific research and development within the broader category of high-tech knowledge-intensive services. However, due to the limitations of greenfield FDI data, which do not allow for the isolation of FDI projects specifically targeting this subsector, our analysis considers the full ISIC Rev.4 Section 69–75 (Professional, Scientific, and Technical Services). This category includes scientific R&D as well as other related professional and technical services.

Source: Eurostat, (n.d.[20]), Technology classification of manufacturing industries, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:High-tech_classification_of_manufacturing_industries; Eurostat (n.d.[21]),Technology and knowledge classification of services, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Knowledge-intensive_services_(KIS).

In LAC, greenfield FDI in TKI sectors has remained broadly stable over the past decade. These sectors attracted around USD 620 billion in greenfield investment, representing about 30% of total FDI (Figure 2.16). Despite the absence of overall growth, the composition of investment within these sectors has slightly evolved. Medium-high-technology manufacturing, particularly in motor vehicles and chemicals, has increased modestly, maintaining its dominant position and accounting for 58% of total TKI investment. High-technology manufacturing, including pharmaceuticals and electronics, has remained stable at around 7–8%. Meanwhile, investment in high-technology, knowledge-intensive services has risen, from 32% to 35%.

Figure 2.16. FDI in high-technology and knowledge-intensive sectors has remained stable over the past two decades
Copy link to Figure 2.16. FDI in high-technology and knowledge-intensive sectors has remained stable over the past two decades

Greenfield FDI in high-technology and knowledge-intensive sectors

The European Union and the United States are the leading sources of investment in TKI sectors in LAC, though their investment profiles differ significantly. Between 2014 and 2024, the US was the main investor in medium-high-tech manufacturing, accounting for 26% of greenfield FDI, slightly ahead of the European Union at 23% (Figure 2.17). The United States dominated in high-tech segments, contributing 32% of greenfield FDI in high-tech manufacturing and 49% in high-tech knowledge-intensive services, compared to 18% and 22% from the EU, respectively. While the EU’s share in TKI sectors fell by around 40 percentage points compared with the previous decade, particularly in high-tech manufacturing and other knowledge-intensive industries, the United States strengthened its leadership, especially in high-tech services, where its share increased by 21 percentage points. China has also emerged as a growing investor in TKI sectors. Although its overall share remains relatively small, its presence has expanded rapidly in recent years, particularly in medium-tech manufacturing. Investment in TKI sectors from the United Kingdom has remained modest over the past two decades, with only a slight increase in manufacturing.

Figure 2.17. FDI in high-technology knowledge-intensive services has increased slightly over the past decade
Copy link to Figure 2.17. FDI in high-technology knowledge-intensive services has increased slightly over the past decade

Greenfield FDI in high-technology and knowledge-intensive sectors, by origin

2.3.3. Greenfield investment, particularly from the EU, is focused on core and support production activities

Business activities, even within the same sector, generate different levels of value along the value chain. The highest value is usually found in strategic corporate functions (e.g. headquarters, business services), as well as in pre-production stages such as R&D and design, and post-production activities including marketing, branding and after-sales services (Table 2.2). By contrast, core and support production activities (e.g. manufacturing, extraction), along with logistics and distribution, tend to generate less value added. Yet core and support production activities, particularly manufacturing, remain essential for building industrial capacity and driving productivity growth. They also provide greater opportunities for upstream and downstream linkages, thereby generating strong local spillover effects.

Business activity	Value chain activity	FDI value addition
Headquarters Business services Shared service centres	Strategic corporate activities	Highest value
Research and development Training and education	Pre-production activities	Highest value
Extraction Construction Manufacturing Recycling	Core production activities	Lower value
Electricity ICT and Internet infrastructure	Support production activities	Lower value
Sales, marketing and support services Technical support centres Maintenance and servicing Customer contact centres	Post-production activities	Higher value
Logistics, distribution and transportation	Logistics & distribution	Medium value

Source: Adapted from Crescenzi, Pietrobelli and Rabelotti (2013[22]), Innovation drivers, value chains and the geography of multinational corporations in Europe, https://academic.oup.com/joeg/article/14/6/1053/903721; Crescenzi and Harman (2023[23]), Harnessing Global Value Chains for regional development. How to upgrade through regional policy, FDI and trade, https://www.routledge.com/Harnessing-Global-Value-Chains-for-regional-development-How-to-upgrade-through-regional-policy-FDI-and-trade/Crescenzi-Harman/p/book/9781032410760.

Greenfield FDI in LAC remains concentrated in core and support production activities. Between 2014 and 2024, core production activities such as extraction, construction and manufacturing attracted about 63% of greenfield FDI, while support activities, including electricity and ICT infrastructure, accounted for another 21% (Figure 2.18). Compared with the previous decade, the share of core production declined slightly, while the share of support production activities increased, driven by investments in electricity. Logistics and distribution represented around 8% of total greenfield investment, expanding by nearly 70% compared to 2003-2013, largely reflecting stronger investment in transport and storage infrastructure. By contrast, higher-value-added functions, such as strategic corporate, pre-production and post-production activities, have attracted about 5% of greenfield investment, with little change over time.

Figure 2.18. Greenfield FDI is concentrated in production-related activities
Copy link to Figure 2.18. Greenfield FDI is concentrated in production-related activities

Greenfield FDI by value chain activity, % of total FDI

The role of top investors in LAC varies across value chain activities. The European Union has a leading position in production-related activities, which has remained constant over the past decade, particularly in renewable energy (support production) and manufacturing (core production) (Figure 2.19). The United States continues to lead in higher-value activities, with a strong presence in strategic corporate, pre-production and post-production functions. China has expanded its footprint in core production, support activities and logistics, reflecting a growing focus on physical operations and supply chain infrastructure, though its presence in upstream, high-value activities remains limited. The United Kingdom shows signs of re-orienting towards more strategic functions, with increased investment in headquarters and pre-production activities. By contrast, LAC’s own participation in higher-value segments has weakened.

Figure 2.19. The relevance of top investors varies across value chain activity
Copy link to Figure 2.19. The relevance of top investors varies across value chain activity

Greenfield FDI, by value chain activity and origin, % of total FDI

While investment in core and support production activities is important for building a productive manufacturing base and generates stronger linkages with the domestic economy, activities such as strategic corporate functions, pre-production and post-production tasks, are central to value creation. FDI in these segments can be particularly transformative, fostering the transfer of advanced skills, diffusion of managerial and training best practices, and the growth of local innovation ecosystems. For host countries, attracting such investment is key to upgrading their position in GVCs, helping domestic firms move towards the innovation- and higher-value segments of global production networks.

LAC countries can further harness the transformative potential of high-value FDI. While progress has been gradual for many countries, some are beginning to show promising signs of upgrading. Costa Rica stands out and Colombia is also making headway, with both countries expanding their participation in more knowledge-intensive activities (Figure 2.20). These early advances signal a shift toward higher-value engagement and may offer valuable lessons for other countries in the region (see Chapter 3).

Some of LAC’s most productive and investment-attractive economies, such as Chile, Mexico and Brazil, remain leading destinations for FDI, though much of this investment is still concentrated in resource-based industries and medium-complexity manufacturing. This reflects the continued strength of these sectors, but also highlights the untapped potential to attract more high-value activities. Strong labour productivity is an important foundation, yet additional factors such as innovation capacity, skills and enabling frameworks will be key to drawing in more sophisticated forms of investment. Building on their established industrial bases, these countries have an opportunity to leverage FDI not only for horizontal growth, but also to advance vertical upgrading and functional diversification within global value chains.

Figure 2.20. Costa Rica and Colombia are showing signs of upgrading towards higher value activities
Copy link to Figure 2.20. Costa Rica and Colombia are showing signs of upgrading towards higher value activities

Greenfield FDI in high-value FDI and labour productivity (PPP), 2003-2013 and 2014-2024, % of total FDI

2.3.4. Foreign firms in LAC are more innovative than domestic firms

Research and development (R&D) carried out by companies, i.e. activities aimed at expanding knowledge and applying it to the creation of new products, services or processes, plays a critical role in driving innovation and enhancing productivity. R&D is also strongly associated with higher-quality employment as it tends to generate skilled jobs and promote learning and human capital development. Supporting investment in R&D is a key pillar of the EU–LAC GGIA, which seeks to strengthen scientific and technological collaborations with partner countries, including LAC economies.

As shown earlier, foreign companies operating in LAC are, on average, more productive than their domestic counterparts. This advantage largely stems from their access to advanced technologies through parent companies, as well as stronger managerial capabilities and more efficient business practices. For similar reasons, foreign firms are also more actively engaged in R&D. They often have better access to skilled labour and are more embedded in knowledge networks, including synergies with parent firms and other subsidiaries. According to the FDI Qualities Indicators, foreign firms in LAC are significantly more likely than domestic firms to engage in innovative activities. In most countries across the region (24 out of 31 with available data), foreign companies are more likely to introduce new products. In nearly as many (25 out of 31), they are also more likely to invest in R&D (Figure 2.21).

Figure 2.21. On average, foreign firms are more likely to introduce a new product and to spend on R&D
Copy link to Figure 2.21. On average, foreign firms are more likely to introduce a new product and to spend on R&D

Relative difference between foreign and domestic firms’ outcomes, 2010-2023

The share of FDI directed toward business R&D in LAC remains well below that of other regions. Between 2003 and 2024, approximately USD 30 billion, equivalent to just 1.5% of total greenfield FDI, was allocated to R&D-related activities, a ratio that has remained broadly unchanged over the past two decades (Figure 2.22, Panel A). By contrast, over the same period, the share reached about 4% in the European Union, 3% in the United States and 5% in China.

Over this period, the EU has played an important role as a source of R&D-related investment. The EU accounted for 34% of total R&D FDI in the region during 2003-2013, falling to 26% in the subsequent decade (2014-2024). The United States has been the leading source of greenfield R&D investment in LAC, with its share rising from 36% to 46% over the same period. Meanwhile, China and the United Kingdom have maintained a modest but consistent presence, each representing approximately 7-8% of R&D-related FDI in the last decade. Intra-regional investors from within LAC have contributed around 5% of total investment in this area. From the perspective of major investor countries, the share of FDI allocated to R&D relative to their total investment in LAC declined across the board, with the exception of the United Kingdom (Figure 2.22, Panel B).

Figure 2.22. About 2% of greenfield FDI is directed toward R&D activities
Copy link to Figure 2.22. About 2% of greenfield FDI is directed toward R&D activities

2.3.5. FDI is an important driver of digital transformation in LAC, particularly in services

FDI can accelerate an economy’s digital transformation by facilitating the transfer of technology, skills and capital. Foreign firms often act as vectors of innovation by introducing advanced digital technologies. These platforms can significantly enhance productivity and competitiveness in host countries. FDI also contributes to the development of digital infrastructure, such as broadband networks, data centres and cloud services, which are essential enablers of the digital economy. In emerging and developing economies, foreign investors can fill critical gaps in financing and expertise, supporting governments’ efforts to build inclusive and resilient digital ecosystems. Moreover, linkages between foreign investors and domestic firms can generate knowledge spillovers, supporting the digital upskilling of local suppliers and service providers (OECD, forthcoming[25]).

Digital technologies have become increasingly important for boosting productivity and enhancing the efficiency of business operations. Beyond cost reduction, they also offer opportunities to improve environmental performance. The FDI Qualities Indicators provide useful insights into how foreign and domestic firms incorporate digital tools into their day-to-day operations. The data indicate that foreign firms are consistently more likely to leverage digital technologies compared to their domestic counterparts in LAC. In 28 out of 31 LAC countries surveyed, a higher share of foreign firms reported using a website to interact with customers and suppliers (Figure 2.23, Panel A). Furthermore, in 4 out of 6 countries with available data, foreign companies are more likely to make and receive payments electronically (Figure 2.23, Panel B). In all 6 countries, they reported a higher average share of electronic payments made and received (Figure 2.23, Panel C), underscoring their greater integration of digital practices in business transactions.

Figure 2.23. Foreign firms are more likely to use websites and e-payments in business operations
Copy link to Figure 2.23. Foreign firms are more likely to use websites and e-payments in business operations

Relative difference between foreign and domestic firms’ outcomes, 2010-2023

Over the past two decades, digital sectors in LAC have attracted approximately USD 260 billion in greenfield FDI, representing around 13% of total greenfield investment in the region (Figure 2.24, Panel A). While from 2003 to 2013 more than half of this investment targeted the telecommunications sector, the period from 2014 to 2024 saw a notable shift, with nearly half of digital FDI directed toward digital services. This transition reflects both the digital advancement of the region, enabling the emergence of more sophisticated, service-based digital solutions and the growing maturity of the telecommunications sector. As the backbone of digital transformation, FDI in telecommunications infrastructure has laid the groundwork for the expansion of other digital industries, particularly digital services. Furthermore, although the share of investment in digital services remained relatively stable over the two decades, the share of FDI jobs generated in digital sectors rose from 18% to 20%, indicating a transition toward more labour-intensive activities (Figure 2.24, Panel B). In 2014-2024, half of the jobs in digital sectors were created in digital services, almost double the share in the previous decade (Chapter 2).

Figure 2.24. Greenfield FDI in digital sectors accounted for over 13% of total FDI and generated nearly 20% of all FDI-related jobs
Copy link to Figure 2.24. Greenfield FDI in digital sectors accounted for over 13% of total FDI and generated nearly 20% of all FDI-related jobs

2.3.6. The European Union and the United States are major investors in LAC’s digital sectors

Digital investment features prominently within the EU–LAC GGIA, which aims to boost sustainable and inclusive infrastructure development in LAC (Table 1.1 in Chapter 1). As part of this initiative, the EU has been seeking to strengthen digital connectivity and support the region’s human-centred digital transformation through strategic investments. Even before the EU–LAC GGIA, the EU was a key investor in digital sectors across LAC. Between 2003 and 2013, the EU was the leading source of digital FDI in the region, accounting for approximately 40% of total investment, followed by the United States (27%) and intra-regional investors (17%) (Figure 2.25). However, in the period from 2014 to 2024, the United States emerged as the leading source, contributing 46% of digital FDI. In contrast, the EU’s share fell to 21%, while intra-regional investment declined to 11%. Meanwhile, China’s share increased from just 2% to 9% over the same period.

The rise of the United States as a leading investor was evident across all digital sectors and particularly pronounced in digital services, where it accounted for 62% of total investment between 2014 and 2024, amounting to USD 41 billion. In contrast, the EU's investment in digital sectors nearly halved over the same period. The decline was broad-based, with the sharpest drop observed in telecommunications, where EU investment fell from over USD 35 billion in 2003-2013 to USD 16 billion in 2014-2024. Digital services were the only subsector where EU investment increased, from USD 4 billion to 7 billion, yet its relative share declined from 15% to 11% as investment from other regions grew more rapidly. Meanwhile, Chinese investment in digital sectors grew markedly, rising from USD 2 billion in 2003-2013 to USD 12 billion in 2014-2024. This growth was distributed across all digital subsectors except telecommunications, where Chinese investment remained limited.

Figure 2.25. In the last two decades, digital FDI composition shifted from EU-led telecom investment to US-driven investment in digital services
Copy link to Figure 2.25. In the last two decades, digital FDI composition shifted from EU-led telecom investment to US-driven investment in digital services

Greenfield FDI, by digital sector and origin country/region, 2003-2013 and 2014-2024

The composition of greenfield FDI portfolios in LAC reveals notable shifts in the relevance of digital sectors among top investor economies over time. From 2014 to 2024, the share of EU investment targeting digital sectors declined markedly, dropping to just 8% of total EU greenfield investment, down from 17% in the previous decade (Figure 2.26). Telecommunications made up the bulk of this reduced share, accounting for 5%. The United States significantly increased its focus on digital sectors in LAC, with digital investment rising to 23% of total US greenfield FDI in the region. Digital services alone accounted for 15%, reflecting the United States’s growing strategic emphasis on high-value digital activities. China, meanwhile, emerged as a more prominent digital investor in LAC during this period. Nearly 15% of Chinese greenfield investment was directed toward digital sectors between 2014 and 2024, up from just 7% in the earlier decade. This shift reflects China’s broader global push into digital infrastructure and technology markets. In contrast, intra-regional investment from LAC countries in digital sectors declined, falling from over 25% of total LAC-to-LAC investment in 2003-2013 to 18% in 2014-2024. This decrease was primarily driven by a sharp drop in telecommunications investment, which fell from 22% to just 8%, suggesting a maturing market and shifting priorities among regional investors. The share of digital investment originating from the United Kingdom was marginal, with little or no change in the two decades.

Figure 2.26. Between 2014 and 2024, 23% of US greenfield investment targeted digital sectors compared to just 8% of EU investment
Copy link to Figure 2.26. Between 2014 and 2024, 23% of US greenfield investment targeted digital sectors compared to just 8% of EU investment

Greenfield FDI in digital sector as share of total FDI in LAC, by investor country/region, 2003-2013 and 2014-2024

2.3.7. FDI is playing an important role in advancing LAC green transition

LAC holds strong potential for renewable energy. In 2023, renewables accounted for 33% of total energy supply in the region, up from 23% in 2003 (Figure 2.27). While change has been gradual, it remains well above the global average of 13%. However, the energy matrix across countries in the region is heterogeneous. The pace of the energy transition is shaped by factors such as natural resource endowments, geographic conditions, fossil fuel dependence, economic development, and institutional and financing capacity (IEA, 2023[12]). Advancing towards a more sustainable and diversified energy mix can help reduce emissions, lower energy costs, enhance energy security and lessen dependence on fossil fuel imports. Investing in clean technologies and electrification can also boost productivity, generate formal employment and support a more resilient and inclusive development path (OECD et al., 2022[26])

Figure 2.27. The relevance of renewable energy is gradually increasing in LAC’s energy matrix
Copy link to Figure 2.27. The relevance of renewable energy is gradually increasing in LAC’s energy matrix

Evolution of the total primary energy supply matrix in LAC, 2000-2023

FDI can play a critical role in supporting LAC’s green transition by mobilising capital, technology and expertise for climate change mitigation and adaptation, as well as by generating green jobs (see Chapter 3). However, evidence from other regions and countries suggests that the contribution of FDI to climate-related outcomes is highly dependent on domestic policy conditions (OECD, 2022[13]). A key channel through which FDI influences environmental outcomes is the operations and practices of foreign firms established locally. These firms often bring more advanced technologies and management practices, enabling greater environmental efficiency. Larger multinational enterprises, in particular, may face stronger incentives to meet environmental targets due to increased exposure to international media, investor scrutiny and stakeholder expectations. Moreover, many originate from countries with stricter environmental regulations and corporate sustainability standards, which can shape their behaviour and practices abroad.

Foreign firms in LAC do not hold a clear advantage over domestic firms when it comes to environmental outcomes. Data from the OECD FDI Qualities Indicators (Box 2.2) suggest that foreign firms are more likely to engage in environmental monitoring practices, such as tracking CO₂ emissions. In 5 out of 7 LAC countries for which data are available, a higher share of foreign-owned firms reported monitoring their emissions compared to domestic firms (Figure 2.28, Panel A). However, this does not necessarily translate into stronger performance on all environmental metrics. When energy efficiency is proxied by energy costs relative to value added, domestic firms tend to outperform their foreign counterparts. In fact, in only 10 out of 31 countries covered by the indicators are foreign firms, on average, more energy efficient than domestic firms (Figure 2.28, Panel B). A reason seems to be that foreign firms in LAC tend to concentrate in more energy-intensive sectors (e.g. mining, manufacturing), where efficiency gains are harder to achieve. By contrast, domestic firms are more prevalent in sectors that are structurally less energy intensive (e.g. services).

Figure 2.28. Foreign firms are, on average, less energy efficient, but more likely to monitor CO₂ emissions than domestic firms
Copy link to Figure 2.28. Foreign firms are, on average, less energy efficient, but more likely to monitor CO₂ emissions than domestic firms

Relative difference between foreign and domestic firms’ outcomes, 2010-2023

FDI has played an increasingly important role in advancing environmental objectives in LAC, particularly by supporting the development of the region’s renewable energy sector. According to greenfield investment data, FDI in renewables has followed a strong upward trend over the past two decades, both in terms of investment and the number of announced projects. In 2003, greenfield FDI in LAC’s renewable energy sector amounted to approximately USD 2 billion across around 10 projects (Figure 2.29, Panel A). By 2024, this figure had surged to USD 28 billion, with more than 70 projects recorded. Between 2003 and 2013, renewable energy accounted for just 7% of total greenfield FDI in the region compared to 15.5% for carbon, oil and gas (Figure 2.29, Panel B). Over the 2014-2024 period, the share of renewable energy rose significantly to 17%, while the share allocated to fossil fuel-related activities increased by only 2 percentage points. While investment in fossil fuel–related activities remains significant and is rising moderately, recent shifts suggest a growing alignment of FDI with LAC’s climate and energy transition goals, alongside increasing investor interest in sustainable infrastructure and clean energy..

Figure 2.29. Greenfield FDI in LAC’s renewable sector has grown significantly
Copy link to Figure 2.29. Greenfield FDI in LAC’s renewable sector has grown significantly

2.3.8. EU investment is leading the expansion of renewable energy in LAC

Climate and energy are central priorities of the EU Global Gateway (Table 1.1, Chapter 1), which seeks to promote sustainable, resilient and high-quality infrastructure worldwide to advance the green transition. The EU-LAC GGIA presented in 2023 placed clean energy investment at the core of its partnership engagement with LAC. The EU has long played a leading role in supporting renewable energy development in the region. Since the early 2000s, EU investors have consistently been among the most active in the region’s renewable energy sector, with cumulative investments exceeding USD 130 billion by the end of 2024, well ahead of other major sources (Figure 2.30, Panel A). The United States ranked second, with just over USD 28 billion, followed by the United Kingdom (USD 16 billion), LAC countries themselves (USD 8 billion) and China (USD 6 billion).Over the past two decades, the EU has been, by far, the largest investor in renewable energy in LAC, maintaining a clear lead in cumulative terms and standing well ahead of other international investors. (Figure 2.30, Panel A). The EU’s relative share has gradually declined in recent years, going from a peak of 86% in 2018 to the current 43%, reflecting growing interest from a broader pool of internal investors. Although annual figures show some volatility, the overall trend suggests that renewable energy in LAC is attracting a more diverse set of investors beyond the traditional top five sources (Figure 2.30, Panel B).

Figure 2.30. EU greenfield FDI in renewable energy has grown significantly since the early 2000s
Copy link to Figure 2.30. EU greenfield FDI in renewable energy has grown significantly since the early 2000s

Solar projects are the primary target of renewable energy greenfield investment, accounting for 50% of the total, followed by wind projects at 29%. The type of renewable energy targeted varies significantly by investor origin. EU firms primarily invest in solar and wind power, while biomass is a key focus for investors from the United States, the United Kingdom and China. Hydropower continues to draw investment from both LAC countries and China. Brazil, Chile and Mexico are the main destinations for renewable energy greenfield FDI from all investor origins. However, there are notable differences in how extensively leading investors have engaged across the region. For instance, the United States has invested in renewable energy projects in 21 LAC countries and the EU in 18, reflecting a broad regional footprint. In contrast, China’s investments are more concentrated, spanning only 7 LAC countries.

Empirical analysis confirms the significant role played by the EU in LAC’s green transition. Greenfield FDI in the renewable energy sector, particularly originating from the EU, is positively associated to both the expansion of clean energy supply and the transformation of the energy matrix in LAC. A 10% increase in greenfield FDI from EU sources is associated with a rise of 1.2 tonnes of oil equivalent (toe) per 1 000 people in renewable energy supply compared to 0.8 toe for greenfield FDI from all sources. Similarly, EU-origin greenfield FDI is related to an increase of 0.1 toe per million USD of GDP (PPP), whereas no statistically significant effect is observed for global FDI (Figure 2.31). The share of renewables in the energy matrix also increases more sharply with EU investment, by 0.3 percentage points, relative to a 0.2-point increase linked to all-source FDI. These results suggest that EU greenfield FDI may be particularly effective in supporting the region’s energy transition, potentially reflecting higher technological spillovers, stronger environmental safeguards or greater alignment with long-term sustainability goals (Annex 2.A).

Figure 2.31. FDI impact on renewable energy supply and on the energy matrix
Copy link to Figure 2.31. FDI impact on renewable energy supply and on the energy matrix

2.4. The impact of FDI on export diversification and GVC integration

Copy link to 2.4. The impact of FDI on export diversification and GVC integration

2.4.1. Greenfield FDI is driving export diversification and industrial upgrading in LAC

The heterogeneous trade structure across LAC countries reflects the region’s diverse economic profiles. In most LAC countries, exports and imports individually account for between 20% and 50% of GDP, underscoring the region’s trade openness (Figure 2.32). However, significant variation exists, with some economies reaching up to 80% in trade activity. The composition of trade also varies significantly. Merchandise exports dominate in much of Latin America, reaching 28% in Chile and 33% in Mexico, while in several Caribbean economies, exports are driven primarily by tourism-related services, representing 50‑70% of GDP. Imports are merchandise-based across all countries, representing up to 42% of GDP.

Figure 2.32. The composition of trade differs significantly among LAC countries
Copy link to Figure 2.32. The composition of trade differs significantly among LAC countries

Trade (exports and imports) of goods and services by LAC economy, 2023, share of GDP

2.4.2. FDI can play a crucial role in diversifying export baskets and increasing value added

What a country exports matters as the structure and composition of a country’s export basket can play a critical role in shaping its long-term growth. Empirical evidence shows that developing countries benefit from diversifying their exports and moving towards more sophisticated products, which are typically associated with higher productivity, greater potential for positive externalities and overall faster growth. Technologically advanced and skill-intensive exports are positively correlated with per capita income growth, especially in countries still below the technological frontier (Haussman, Hwang and Rodrik, 2006[30]; Hesse, 2008[31]; Carrasco and Tovar-García, 2021[32]). Moreover, diversification mitigates vulnerability to terms-of-trade shocks, reduces export instability and facilitates structural transformation (Hesse, 2008[31]).

While the export structure in LAC is diverse, many economies remain heavily reliant on commodities. In several countries, raw primary goods accounted for 24% to 88% of merchandise exports in 2023 (Figure 2.33). Many also export a high share of low-tech manufactures, often resource-based, reaching up to 57% of exports. Only a few economies, such as Costa Rica, the Dominican Republic and Mexico, have more diversified and complex export baskets, with medium- and high-tech goods representing up to 80% of their merchandise exports. In contrast, other economies are diversified but reflect a lower economic complexity as they still concentrate on low-tech and primary exports, which together represent 60% to 70% of their export mix. Meanwhile, many Caribbean economies are heavily service-oriented, with services accounting for up to 97% of total exports and only a small share in primary or low-tech products.

Figure 2.33. Many LAC economies remain dependent on commodity-based exports
Copy link to Figure 2.33. Many LAC economies remain dependent on commodity-based exports

Merchandise export composition of LAC countries by economic profile, 2023

FDI from strategic partners can amplify the benefits of productive transformation. FDI from the EU contributes significantly to diversification and industrial development in LAC as it is largely directed towards medium- and high-technology manufacturing. A 10% increase in EU capital expenditure is associated with a 0.05 percentage-point rise in the share of medium- and high-tech goods in total exports and a 0.01 percentage-point increase in manufacturing value added as a share of GDP (Figure 2.34) (Annex 2.B). These results point to the importance of attracting quality investment that is aligned with development priorities and directed towards sectors where the region has comparative advantages. Strengthening ties with partners that bring such investment can help maximise its impact on structural transformation.

Figure 2.34. EU greenfield investment has a positive impact on export sophistication and manufacture value added in LAC
Copy link to Figure 2.34. EU greenfield investment has a positive impact on export sophistication and manufacture value added in LAC

EU greenfield FDI impact on export sophistication and manufacture value added

Over the past decade, a significant share of FDI has been directed toward sectors with medium levels of technological sophistication. In commodity-based economies, such as Argentina, Bolivia, Brazil, Chile and Uruguay, between 40% and 69% of merchandise-related FDI flowed into medium- and high-tech sectors, highlighting opportunities to diversify and upgrade their production structures (Figure 2.35). In diversified and complex economies, between 43% and 88% of FDI was channelled into medium- and high-tech industries. Services-exporting countries also attracted most investment in these segments, particularly in digital-oriented sectors such as ICT goods, electronic components and pharmaceuticals. Meanwhile, some less complex economies, such as Honduras and El Salvador, also received a relatively high share of FDI in medium- and high-tech sectors (68% and 78%, respectively), while others saw investment concentrate in primary and lower-tech activities, reflecting the current structure of their productive base.

Figure 2.35. A considerable share of greenfield FDI has been directed to medium- and high-tech sectors
Copy link to Figure 2.35. A considerable share of greenfield FDI has been directed to medium- and high-tech sectors

Greenfield FDI, by LAC economic country groups and tech intensity, 2013-23

FDI in sectors that hold untapped potential can foster productive transformation. Revealed Comparative Advantage (RCA) analysis identifies these competitive strengths. RCA analysis shows that LAC countries tend to have competitive strengths in sectors aligned with their traditional export structures. RCA analysis identifies a country’s key export strengths, providing a basis for diversification through related sectors rather than entirely new ones (Annex 2.C) (IMF, 2024[36]). Commodity-exporting economies exhibit RCAs in primary and low-tech manufactured goods, such as food and beverages. Diversified but low-complexity economies show RCAs in medium-tech manufacturing, while more complex economies display advantages in both medium- and high-tech sectors, pointing to their potential for further upgrading (Figure 2.36).

RCA also points to sectors that could support export diversification and higher value added. Beyond traditional strengths, some LAC countries show revealed comparative advantages in more technologically intensive industries. Several commodity-based economies exhibit RCAs in medium-tech sectors, such as plastics, chemicals and metal products. Caribbean service-oriented economies, though focused on tourism, also show strengths in chemicals and metal products. Notably, a diversified low-complexity economy shows RCA in high-tech pharmaceuticals, while diversified high-complexity economies display RCAs in advanced sectors like electronics, computers and optical products. These patterns suggest untapped opportunities to shift into higher-value-added activities.

Figure 2.36. Sectors with RCA change widely by LAC countries
Copy link to Figure 2.36. Sectors with RCA change widely by LAC countries

Number of countries with Revealed Comparative Advantages (RCA), by sector and tech-intensity group

Figure 2.37. EU greenfield FDI contribution to RCA and non-RCA sectors varies by LAC country and sector
Copy link to Figure 2.37. EU greenfield FDI contribution to RCA and non-RCA sectors varies by LAC country and sector

Share of EU capital investment in RCA and Non-RCA sectors, by technological intensity, 2013-2023

The alignment between EU FDI and sectors with revealed comparative advantages varies widely across LAC economies. In diversified and high-complexity economies, such as Costa Rica and Mexico, a significant share of EU investment (40% to 54%) has targeted medium-high- and high-tech RCA sectors, reinforcing export sophistication and supporting industrial upgrading (Figure 2.37, Panel A). These countries also receive investment in tech-intensive sectors where they currently lack an RCA, suggesting potential to absorb knowledge spillovers and develop new comparative advantages. In contrast, in countries that are commodity-export dependent or have diversified yet low-complexity economies, EU greenfield FDI is mainly directed toward primary sectors and low-tech manufacturing, reinforcing existing RCAs (Figure 2.37, Panel A). Given this investment pattern, there are opportunities to invest in more technology-intensive RCA sectors that could drive productive upgrading. In some of these countries, a larger share of EU greenfield FDI in non-RCA sectors flows into medium- and high-tech industries, which can contribute to structural transformation and innovation (Figure 2.37, Panel B). In service-oriented economies, such as the Bahamas, EU greenfield FDI is concentrated in the primary sector, despite existing RCAs across various technology levels.

2.4.3. FDI reinforces LAC’s resource-based, forward integration in GVCs

The alignment between EU-FDI and sectors with revealed comparative advantages varies widely across LAC economies. Integration into GVCs can be a powerful driver of economic diversification, job creation, local capability development and productivity growth. Foreign direct investment (FDI) plays a pivotal role in this process by connecting host economies to international production and distribution networks. Integration into GVC can occur through both backward and forward linkages. Backward GVC participation, measured as the share of foreign value added embodied in a country's exports, indicates the extent to which domestic production depends on imported inputs. Forward GVC participation, measured by the share of a country’s domestic value added embodied in other countries’ final demand, captures a country’s role upstream in the value chain, supplying inputs rather than assembling final goods.

In LAC, as in most other regions, foreign firms are more deeply integrated into GVCs than their domestic counterparts. According to the FDI Qualities Indicators, in 28 out of 31 LAC countries, foreign firms export a higher share of their sales (Figure 2.38, Panel A). In 24 countries, they also rely more heavily on imported inputs (Figure 2.38, Panel B). These patterns highlight the critical role of foreign investors in deepening the region’s participation in GVCs, particularly by fostering stronger trade linkages.

Figure 2.38. On average, foreign firms export a higher share of their sales and source a higher share of their inputs from abroad
Copy link to Figure 2.38. On average, foreign firms export a higher share of their sales and source a higher share of their inputs from abroad

Relative difference between foreign and domestic firms’ outcomes, 2010-2023

Despite the potential benefits of GVC integration, LAC’s participation faces important structural challenges. Owing to the region’s abundance of natural resources, most countries are primarily integrated through forward linkages, exporting natural resources and intermediate goods rather than higher-value final products. This resource-oriented pattern limits opportunities for industrial upgrading, diversification and the development of more sophisticated production capabilities.

The distribution of FDI further reinforces this challenge. Investment is largely attracted by natural resource endowments and domestic market size, which tends to deepen the country’s reliance on resource-based sectors instead of fostering stronger participation in manufacturing or knowledge-intensive activities. The sectors attracting the largest shares of greenfield FDI in LAC are those that are predominantly forward-integrated into GVCs, such as energy, and mining and quarrying, which primarily export raw materials for downstream production abroad (Figure 2.39, Panel A). Forward integration is also high in enabling services like communications, and transport and storage, which support a broad range of activities across value chains.

There are, however, some exceptions. The motor vehicles sector stands out, receiving relatively substantial investment and showing high levels of backward integration due to its reliance on imported components and intermediate inputs (Figure 2.39, Panel B). Similarly, some countries, notably Mexico, exhibit greater backward integration, reflecting stronger links to manufacturing value chains. Yet these remain exceptions, and overall, LAC’s GVC integration continues to be constrained by its heavy dependence on natural resources. Greenfield FDI from the EU largely mirrors these patterns, with a strong concentration in natural resource-intensive sectors, particularly energy, that tend to be more forward-integrated into GVCs. The EU, however, also plays an important role in supporting investment in the motor vehicles sector, reinforcing backward linkages in this industry.

Figure 2.39. More FDI-intensive sectors tend to be more forward integrated in GVCs
Copy link to Figure 2.39. More FDI-intensive sectors tend to be more forward integrated in GVCs

References

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Annex 2.A. Empirical model to estimate the effect of FDI on the energy mix

Copy link to Annex 2.A. Empirical model to estimate the effect of FDI on the energy mix

This analysis draws on fixed-effects panel regressions to assess the impact of greenfield FDI on three renewable energy outcomes. The model covers 16 LAC countries over the period 2003-2023 and is specified as follows:

$y_{i t} = β_{0} + β_{1} \cdot \ln ({c a p i t a l i n v e s t m e n t}_{i t - 2}) + γ \cdot {c o n t r o l s}_{i t} + δ \cdot {F E}_{i t} + ϵ_{i t}$

Where $y_{i t}$ is one of the following dependent variables for country i in year t:

1. Renewable energy supply per capita

Measures the amount of renewable energy available per person, expressed in tons of oil equivalent (toe) per 1 000 inhabitants. It reflects the intensity of renewable energy supply relative to population size, offering insights into access and distribution of clean energy.

2. Renewable energy supply per unit of output

Captures the volume of renewable energy supplied per unit of economic output, measured in toe per million USD of GDP (PPP). It serves as a proxy for the energy intensity of the economy, indicating how efficiently renewable energy is integrated into production.

3. Share of renewables in the primary energy matrix

Represents the proportion of a country’s primary energy derived from renewable sources. It reflects the level of renewable energy integration in the national energy matrix and the shift away from fossil fuel dependence.

All dependent variables are sourced from OLADE-sieLAC, a comprehensive regional database that compiles and harmonises energy statistics for Latin America and the Caribbean.

The main explanatory variable is the 2-year lagged capital investment from renewable energy announced projects, capturing delays between project announcements and operational impact. It is sourced from the Financial Times fDi Markets database, which tracks cross-border greenfield investment.

Control variables include electricity consumption (MWh per 1 000 people), 2-year lagged public investment in renewable energy (as a percentage of GDP) and capital investment in renewable energy originating from the rest of the world. Regressions include country and year fixed effects, and standard errors are clustered at the country level.

The results reflect robust empirical associations, but do not establish causal relationships.

Annex 2.B. Empirical model to estimate the effect of FDI on export sophistication, diversification and manufacturing value added.

Copy link to Annex 2.B. Empirical model to estimate the effect of FDI on export sophistication, diversification and manufacturing value added.

This analysis draws on fixed-effects panel regressions to evaluate the impact of capital investment from announced greenfield projects on two key outcomes. The model covers 28 LAC countries over 2003-2023 and is specified as follows:

$y_{i t} = β_{0} + β_{1} \cdot \ln ({FDI capital investment}_{i t - 1}) + γ \cdot {controls}_{i t} + δ \cdot {FE}_{i t} + ϵ_{i t}$

Where $y_{i t}$ is one of the following dependent variables for country i in year t :

1. Export sophistication

Measures the share of medium- and high-technology goods in total merchandise exports. This indicator reflects the complexity and technological advancement of a country’s export structure. Data from exports are sourced from the World Integrated Trade Solution (WITS) and classified according to the OECD Technology Classification in ISIC Rev. 3.

2. Manufacturing value added

Represents the manufacturing sector’s contribution to GDP, expressed as a percentage. It captures the level of industrial upgrading and structural transformation within the economy. Data are sourced from the World Development Indicators of the World Bank.

The explanatory variable is the 1-year lagged capital investment from FDI, capturing the delayed effect of project implementation.

Control variables include GDP per capita, trade openness (trade as % of GDP), financial development (private sector credit as % of GDP) and infrastructure (fixed broadband subscriptions per 100 people). Regressions include country and year fixed effects, and standard errors are clustered at the country level.

Results are reported for capital investment originating from the EU, while controlling for -year lagged capital investment from the rest of the world.

The results reflect robust empirical associations, but do not establish causal relationships

Annex 2.C. Assessing Revealed Comparative Advantages in LAC countries

Copy link to Annex 2.C. Assessing Revealed Comparative Advantages in LAC countries

The Revealed Comparative Advantage (RCA) analysis identifies sectors where a country exports more intensively than the global average, indicating areas of relative export strength. This tool is relevant to support export diversification, which typically occurs by strengthening existing competitive sectors and expanding into related areas rather than entering entirely new markets (IMF, 2024[36]). RCA analysis may also help guide trade policy by identifying sectors that benefit from improved market access and informing public investment to boost competitiveness. Moreover, by signalling advantageous sectors, RCA can contribute to attract and channel FDI, fostering productive transformation, and deeper regional and global integration (ECLAC, 2022[39]; Melo and Gonçalves, 2023[40]).

RCA values are calculated at the ISIC Rev.3 two-digit level following the (Balassa, 1965[37]) methodology:

$RC A_{Ai} = \frac{\frac{X_{A i}}{\sum_{j} X_{A j}}}{\frac{X_{w i}}{\sum_{j} X_{w j}}}$

Where:

$X_{A i}$ : country A’s exports of sector $i$

$X_{w i}$ : world’s exports of sector $i$

$\sum_{j} X_{A j}$ : country A's total exports of all sectors

$\sum_{j} X_{w j}$ : world's total exports of all sectors

An RCA value equal or above 1 indicates a revealed comparative advantage in a given sector.

Source: (Balassa, 1965[37])

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