The world economy is bound together by trade in goods and services, financial flows, and the movement of people. As national economies develop, their links expand and grow more complex. The indicators in this section measure the size and direction of these flows and document the effects of policy interventions and aid flows on the world economy. The optimistic economic momentum at the beginning of 2011 slowed over the course of the year. The adverse effects of the tsunami in Japan coupled with intensification of the sovereign debt crisis in the euro area shook confidence at the global level. The slowdown became more pronounced in high-income economies, reducing the growth in capital inflows to developing countries. Net debt and equity inflows to developing economies in 2011 were $1.1 trillion—or 8 percent lower than in 2010 and below the level reached before the global financial crisis. The downturn was driven by the collapse of portfolio equity, again the most volatile of capital flows. Equity flows to emerging markets with good growth prospects, such as China, Brazil, and India, dropped substantially. Low- and middle-income economies recorded net inflows of only $8.3 billion in 2011, compared with $130 billion in 2010. Debt net inflows to developing countries in 2011 were $437 billion—down 9 percent from 2010. The slowdown was led by a drop in lending by official creditors from $77 billion in 2010 to $30 billion in 2011. However, commercial bank financing tripled to $110 billion, and the private sector created more liquidity through bond issuances, reaching their highest stock level of $1.5 trillion. Net inflows of short-term debt shrank 27 percent in 2011 after being the fastest growing debt component the previous year.
Economy
States and markets
Global foreign direct investment (FDI) rose 22.7 percent in 2011, to its pre-crisis level. Some 40 percent of those investments were directed to developing economies. In 2011 many developing countries continued to implement policy changes to further liberalize and facilitate FDI entry and operations and to regulate FDI. The largest recipients of FDI inflows were Brazil, China, India, and the Russian Federation, accounting for more than half of inflows to developing economies. China was the largest recipient, with net FDI inflows of $220 billion, a decline of 10 percent compared with 2010. In 2011 world merchandise exports to developing countries increased 27 percent from 2010, while exports to high-income countries increased 20 percent. Brazil, China, India, and the Russian Federation were among the top traders, with China accounting for 70 percent of East Asia and Pacific’s merchandise trade. Official development assistance, a stable source of development financing and buffer against the impact of several financial crises, was $134 billion in 2011, or 0.58 percent of developing countries’ combined gross national income, down from 0.65 percent in 2010. Worldwide tourism continues to grow and has become one of the largest and fastest growing economic sectors in the world. The number of international tourist arrivals in 2011 reached a record high of over 1 billion, and inbound tourism expenditures increased 12 percent to $1.3 trillion from 2010. The only developing region that saw a drop in tourist arrivals in 2011 was the Middle East and North Africa, due to political instability and armed conflict in the region.
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