May the index be with you – measuring the globalization of FDI

This paper introduces a novel index of the globalization of foreign direct investment (FDI), addressing existing gaps in other indices by incorporating bilateral data and defining three key FDI dimensions: intensity, spread and distance. These dimensions capture the multifaceted nature of FDI globalization, creating a dynamic and responsive tool to monitor cross-border investment trends amidst mounting geopolitical tensions and deglobalization pressures. Leveraging publicly available data from UNCTAD and CEPII, the index minimizes reliance on an extensive set of variables, enhancing its robustness. Empirical findings demonstrate the index's ability to identify structural shifts in FDI patterns over the past two decades, revealing the impact of global crises and geopolitical fragmentation. The overall FDI globalization index increases up until the financial crisis that started in 2008. Following a short period of stagnation, it declines after 2015, which coincides with phases of increasing geopolitical tensions and fragmentation. Compared to other indices, our FDI globalization index provides timely information, offering valuable insights for policymakers that help, for instance, identify vulnerabilities in global FDI networks.