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

FDI is a driver of structural transformation and global integration in LAC. Over the past two decades, a significant share of FDI has flowed into resource-based sectors like mining and fossil fuels, as well as medium-tech manufacturing. These investments have advanced industrialisation, but generated limited domestic value creation. They have also reinforced dependency on commodity cycles, exposing economies to external shocks. In recent years, FDI in LAC has become more diversified, with greenfield investment in renewable energy and digital activities rising sharply. Together, these sectors have accounted for nearly one-third of total greenfield FDI since 2003. Furthermore, around 30% of total greenfield investment target medium- and high-technology and knowledge-intensive sectors. This shift signals a gradual re-orientation of investment towards activities with higher innovation and productivity potential.

FDI has also been a vital engine of job creation. Between 2003 and 2024, greenfield projects generated an estimated 5.5 million direct jobs in LAC, around 12% of all FDI-related jobs worldwide, above the region’s 8% share of global population. LAC has one of the highest job intensity levels globally: each USD 1 billion invested has created roughly 3 000 direct jobs, owing to labour-intensive manufacturing and digital services, which accounted for 50% and 12%, respectively, of jobs created by FDI projects. The energy sector is also evolving: energy jobs increased from 1% to 3%, with renewables accounting for 63% of FDI energy jobs. This underscores that FDI’s orientation towards green sectors has increased, not limited, job creation. FDI has also helped tackle informality and improve job quality. Foreign firms are generally more likely than domestic firms to offer permanent contracts and pay higher wages, including at the lower end of the pay scale. They also employ a higher share of women than domestic firms. However, investment remains concentrated in male-dominated sectors, posing risks of perpetuating gender inequalities.

The EU has long been the region’s main source of greenfield FDI. EU investment supports export diversification and industrial upgrading. A 10% increase in EU investment is linked to a 0.05 percentage-point rise in the share of medium- and high-tech goods in total exports. Yet, significant opportunities remain to channel more investment into higher-value sectors. The EU-LAC Global Gateway Investment Agenda (GGIA) focuses on such priority sectors, notably green, digital and health activities, where the share of EU investment rose from 33% to 44% over the past decade. This increase was driven by renewable energy, helping LAC develop a more diversified and sustainable energy mix: a 10% rise in EU FDI is linked to a 0.3 percentage-point increase in the share of renewables in recipient countries’ energy mix. EU investment has also played a central role in advancing digital transformation across LAC, particularly digital infrastructure and services.

The EU accounts for nearly one-third of greenfield FDI-related jobs in LAC. Beyond scale, EU investment is concentrated in sectors with above-average wages, higher formality, better social security outcomes and better training opportunities than typically available in domestic firms. However, EU FDI remains concentrated in male-dominated sectors, limiting the potential for women to harvest the benefits of the investments in an equitable manner unless inclusive measures are put in place to mitigate this risk.

EU investment in LAC also supports skills and training. Interviews with large EU companies highlight initiatives in technical and vocational education and training (TVET) to address informality and skills gaps. These initiatives often involve public-private partnerships, align with labour market needs, promote inclusion, use digital methods and include monitoring and evaluation tools. They provide models for strengthening adult learning systems and illustrate how EU investment can extend beyond capital to influence institutional practices and support social development.

Specific country experiences further illustrate the EU's contribution to sustainable development. In Colombia, EU investors have supported diversification, with significant greenfield FDI projects in renewable energy, digital sectors and higher-productivity manufacturing. In Costa Rica, EU investment has strengthened advanced manufacturing, particularly in medical devices and pharmaceuticals, fostering quality jobs and innovation. In the Dominican Republic, EU firms are major investors in renewable energy and tourism, contributing to a more diversified energy mix and inclusive growth. Across these three countries, international co-operation has targeted areas that enhance the impact of FDI by strengthening domestic capacities, notably skills development and infrastructure.

FDI has supported diversification, technology upgrading and formal employment in LAC, but its potential to advance sustainable development is not yet fully unleashed. Maximising this potential requires coherent policies that enhance investment quality, deepen domestic linkages and align FDI with sustainable development goals. The following policy directions can help guide future action:

• Enhance governance and policy coherence by aligning investment policy with broader development objectives and ensuring co-ordination across industrial, social, labour, education, digital and environmental domains.

• Improve the business environment and regulatory frameworks to ensure openness, transparency and predictability, embedding responsible business conduct and aligning regulations with international labour and environmental standards.

• Enhance FDI’s development impact by directing financial and technical support to quality investments with strong socio-economic spillover potential and to promote sustainable local linkages and ecosystems through supplier development, social innovation, small- and medium-sized enterprise (SME) upgrading and workforce training. Incentives should be transparent, time-bound and regularly evaluated. Greater policy focus is needed on how FDI can contribute to gender-inclusive labour market outcomes, empowering women through equitable access to employment, skills development, and leadership opportunities.

• Leverage development co-operation to align FDI with sustainable development goals. Co-operation frameworks mobilised around value-based investment strategies such as the EU-LAC GGIA, can contribute to foster institutional capacity-building, skills development and SME integration into GVCs.