Inward FDI in Germany and its policy context: Update 2011

During the 2009 worldwide financial and economic crisis, Germany kept its position as the fourth largest host economy for inward foreign direct investment (IFDI) among developed countries, although its IFDI stock measured in Euros decreased slightly due to valuation effects. 1 IFDI flows strongly rose that year and further increased in 2010, reflecting the improved financial position of multinational enterprises (MNEs) operating in Germany and the strong economic upswing of the German economy at that time. In the first half of 2011, IFDI flows were low, as foreign parent companies sharply cut intra-company lending to their German affiliates. Economic reforms in recent years have further improved the attractiveness of Germany as a business location, reflected in excellent international competitiveness rankings. But, the ongoing European debt crisis and the economic slowdown of the European economy could dampen IFDI in the second half of 2011 and in 2012. Trends and developments Country-level developments In the crisis year 2009, when the German economy – like those of most other developed economies-fell into the deepest recession since World War II, the consolidated primary and * Thomas Jost (thomas.jost@h-ab.de) is Professor of Economics at the University of Applied Sciences Aschaffenburg. The author wishes to thank Axel Jochem and Ralph Krüger for their helpful comments. The views expressed by the author of this Profile do not necessarily reflect opinions of Columbia University, its partners and supporters. Columbia FDI Profiles (ISSN 2159-2268) is a peer-reviewed series. 1 The historical background and the longer-term development of German IFDI and its main determinants were analyzed in a previous Columbia FDI Profile (see Thomas Jost, " Inward FDI in Germany and its policy context, " Columbia FDI Profiles, July 2010, available at: www.vcc.columbia.edu.) This article is an update of that Profile and analyzes FDI flows in 2010 and the German FDI stock at the end of 2009, as well as other recent developments relating to IFDI in Germany.