Explain the factors causing the decline in global Foreign Direct Investment flows.

The decline in global Foreign Direct Investment (FDI) flows in 2018 can be attributed to several interconnected factors that impacted investor confidence and economic stability.

1. Volatility in Oil Prices: Fluctuating oil prices can influence global economic conditions. For instance, when oil prices drop, oil-exporting countries face reduced revenues, leading to decreased investment capabilities. This volatility can deter foreign investors, as seen in the oil-dependent economies of the Middle East.
2. Trade Conflicts: The trade war between the US and China exemplifies how geopolitical tensions can disrupt FDI flows. Tariffs and retaliatory measures create an uncertain business environment, making multinational companies hesitant to invest. The OECD reported that such conflicts have a cascading effect on global supply chains, further reducing FDI.
3. Tax Reforms: Significant tax reforms, particularly in the US, shifted corporate behaviour. Companies repatriated funds to take advantage of lower tax rates, resulting in reduced outward investments. This trend was particularly notable in 2018 when many US firms opted to reinvest domestically rather than expanding internationally.

Furthermore, the United Nations Conference on Trade and Development brought into light a 13% decrease in global FDI flows for the third consecutive year, underscoring a troubling trend. Interestingly, countries like India and the UAE emerged as sources of FDI during this period, reflecting shifts in investment patterns. To counteract declining FDI flows, host countries can adopt strategies such as maintaining a stable exchange rate, reducing bureaucratic hurdles, and establishing transparent regulatory frameworks. These measures can create a more attractive investment climate, encouraging foreign entities to invest. Thus, the decline in global FDI flows in 2018 was influenced by a complex interplay of economic and geopolitical factors, necessitating strategic responses from potential host countries.