The global financial crisis significantly
impacted two important sources of
development financing for Asian and Pacific
countries – foreign direct investment (FDI),
which dropped by 30% between 2008 and
2009; and official development assistance
(ODA), which plummeted by 70%. External
debt played a limited role in cushioning this
drop – for half of the countries that suffered
reductions in FDI, ODA and remittances
combined, the flows of external debt also
dropped, although the drop was small for
most of them.
Foreign direct investment
The global financial crisis sent foreign direct
investment (FDI) tumbling sharply in Asia and
the Pacific, by some 30%, from US$469 billion
in 2008 to US$330 billion in 2009. In most
other regions of the world, the drop was more
drastic: from 33% in Europe to 36% in Latin
America and the Caribbean, and 61% in North
America – the drop in FDI was lowest in Africa
at 19%. Within the Asia-Pacific region, the fall
was less dramatic in East and North-East Asia
(at 20%), South-East Asia (22%) and South and
South-West Asia (28%); but more so in North
and Central Asia (at 42%) and the Pacific (54%).
As a proportion of the total Asia-Pacific GDP, the
net inflows of FDI dropped 0.8 percentage
points, from 2.7% in 2008 to 1.9% in 2009. The
drop in FDI as a percent of GDP in China and
India was smaller than the regional average at
0.5 percentage points in both, but higher than
average in the Russian Federation (1.4), Pakistan
(2.2), Malaysia (2.6) and Viet Nam (4.1). FDI
as a proportion of GDP increased in just a few
countries, including the Philippines (by 0.2
percentage points) and Singapore (by 3.7
percentage points).
Figure III.21 – Changes in foreign direct
investment, world regions and Asia-Pacific subregions, between 2008 and 2009
While most FDI to developing countries comes
from high income countries, middle income
countries have also increased their FDI
contribution substantially in recent years –
between 2001-2005 and 2006-2009 the FDI
outflow as a percent of GDP increased from
1.2% to 2.6% in high income countries; 1.0%
to 2.2% in upper middle income countries; and
0.3% to 1.0% in lower middle income countries.
The trend is consistent with the so-called
investment development path theory, whereby
enterprises in developing countries may
eventually acquire ownership advantages that
permit them to compete successfully outside their
home markets – either to access a larger market
or to relocate production to a lower cost area. The
global share of China and the Russian Federation
in the world’s total outward FDI (OFDI) has
increased substantially in the last decade.
Although the volume of their OFDI dropped from US$108 billion in 2008 to US$94 in 2009,
such 13% drop was lower than the 43% drop
in the global OFDI flows. As a result, their
combined world share jumped to 8.5% in 2009.
Although China and the Russian Federation have
had substantial growth in FDI outflow over the
last two decades, Japan and Hong Kong, China
have remained the major sources of FDI in the
Asia-Pacific region for the last decade with a
combined world share of 12% in 2009.
Figure III.22 – Foreign direct investment
outflow from selected Asia and the Pacific
countries, 1993 to 2009
The emerging trend of increasing outward FDI
from middle income countries can have
important implications for development
financing because transnational corporations
from middle income countries tend to invest in
neighbouring countries with similar economic
conditions and institutions.
The inflow of FDI can result in transnational
corporations channelling technology and
expertise to enhance the productive capabilities
of the recipients. In this ideal situation, the
recipients of FDI will reap long-term benefits
from the investment as opposed to only a
transient increase in income.
Official development assistance
The component of development financing most
affected by the global crisis was official
development assistance (ODA). Total ODA flows
to Asian and Pacific countries dropped by 70%
between 2008 and 2009, from US$28 billion to
US$8.5 billion – proportionally greater than the
drop in FDI. The median ODA received as a
percent of GDP dropped from 3.8% in 2008 to
0.8% in 2009, which represents a drop of 80%.
No countries, in the region, experienced an increase in ODA between 2008 and 2009.
Figure III.23 – Changes in official development
assistance, Asia and the Pacific, between 2008
and 2009
Workers’ remittances
Contrary to trends in FDI and ODA, workers’
remittances in Asia and the Pacific increased
from US$114 billion in 2008 to US$117 billion
in 2009, or by 1.8%. In 2009 remittances were
most significant, as a proportion of GDP, for
Tajikistan (at 35%); Samoa (at 23%); Kyrgyzstan
and Nepal (22%); Bangladesh (12%), and the
Philippines (9.4%). In the past decade
remittances constituted a relatively stable source
of foreign exchange for many countries in the
region, which increased as a share of GDP in
all but 4 countries with available data.
Figure III.24 – Remittances and foreign direct
investment as proportions of GDP, Asian and
Pacific countries or areas, 2009
External debt
The external debt-to-GDP ratio peaked in South-
East Asia in 1998 and in North and Central Asia
in 1999 as a result of the Asian financial crisis
and the Russian financial crisis, but decreased
markedly in later years. In the last decade, the
debt-to-GDP ratio has also decreased in South
and South-West Asia and for the East and North-
East Asia and Pacific countries with available
data (with the exception of Fiji).
Figure III.25 – Index of external debt as a
proportion of GDP, Asia-Pacific subregions,
1991 to 2009
Figure III.26 – Changes in foreign direct
investment, remittances, official development
assistance and external debt as a proportion of
GDP, Asia and the Pacific, 2009
External debt was however not consistently
used in compensating for decreases of financial
flows during the global financial crisis. Net
external debt flows increased in only 10 of the
19 countries whose combined inflows of FDI,
remittances and ODA declined in 2009.
General trends in external debt services paid by
Asian and Pacific countries show a decline in debt
servicing over the last two decades. In 2008, the
ratio of debt services to exports of goods, services
and regional income received from abroad, was
only 2.6%, in striking contrast to 7.8% in 2000
and 17% in 1990. In 2008, the debt service ratio
varied somewhat across subregions, from 2.8%
in South-East Asia to 4.2% in North and Central
Asia and 6.3% in South and South-West Asia.
Figure III.27 – Debt service ratio, country
groupings of Asia and the Pacific, 1991 to 2008
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International financing
