By Kersten Stamm, Dana Vorisek
Investment in emerging market and developing economies (EMDEs) is projected to grow at a pace below the average rate of the past two decades through the medium term, after declining in the majority of countries during the pandemic. This outlook for investment is unwelcome news on several counts. Whether the policy priority is bolstering resilience to climate change, improving social conditions, smoothing the transition away from growth driven by natural resources, or supporting long-term per capita income growth, investment (gross fixed capital formation, or buildings, machinery, equipment, and intangible assets used for more than one year) is critical.
Broad-based investment contraction during the pandemic
As business operations were disrupted and uncertainty spiked in 2020, aggregate investment in EMDEs shrank by 1.5 percent. This was a substantially worse performance than during the previous global recession, in 2009, despite easier financial conditions and the provision of sizeable fiscal stimulus in many large EMDEs during the pandemic.
Excluding China, EMDEs suffered a far deeper investment decline in 2020, of more than 8 percent, also a worse performance than in 2009. A key…
