Closing the US$1.5 trillion Gap: How FDI can Help Achieve SDGs in Asia & the Pacific

By Heather Lynne Taylor-Strauss and Eiichiro Takinami
BANGKOK, Thailand, Sep 16 2025 – Over the past two decades, foreign direct investment (FDI) has been the single largest and most stable source of external development capital in Asia and the Pacific (see Figure).

In 2022 alone, FDI flows into the region exceeded US$300 billion, outpacing official development aid (ODA), remittances and portfolio investment flows. Even in 2023, when global investment slowed under higher interest rates and geopolitical uncertainty, FDI into the region remained close to $290 billion.

Figure: External capital inflows to developing countries in Asia and the Pacific

Source: Created by ESCAP based on World Development Indicators, UNCTAD, and IMF data.

For a region facing a $1.5 trillion annual financing gap to achieve the Sustainable Development Goals (SDGs), this is more than a statistic. It is a reminder that the future of development finance and achievement of the 2030 Agenda for Sustainable Development depends on whether countries can effectively attract and channel FDI.

From the Addis Ababa Action Agenda (AAAA) in 2015 to the most recent Sevilla Commitment agreed at the International Conference on Financing for Development (FFD4), the global community is aligned to leveraging FDI for sustainable development. In fact, the Sevilla Commitment elevated the role of FDI.

While the AAAA positioned FDI as complementary to public finances for sustainable development, the Sevilla Commitment identified FDI as a key source of development capital, devoting an entire subsection to scaling up FDI.

ODA, portfolio investments and remittances all play important roles. But none match the stability, scale or transformative power of FDI. While ODA is vital for humanitarian and social priorities, donor budgets are increasingly squeezed by competing demands such as defence spending and climate adaptation.

Portfolio investments represent a large volume but are more susceptible to global economic events and often seek short-term returns. Personal remittances are stable and sustain household welfare. However, remittances are primarily consumption-oriented and often are not channelled to building productive capacity. FDI is different. It can build renewable energy plants, expand digital infrastructure, and create jobs. It is not just money flowing in; it is productive capital tied to long-term development.

Nonetheless, not all FDI is equal. Its impact depends on whether investments are effectively channelled towards SDG priorities. To accomplish this, investment promotion agencies (IPAs), with their mandates to promote, attract, and facilitate FDI, play a crucial role. With the right strategies and tools, IPAs can ensure that the FDI contributes to sustainable development needs.

The following three areas are particularly important for action by the IPAs.

1. Aligning and implementing IPA’s investment attraction strategies with SDGs.

IPAs need to create medium-term investment promotion and attraction strategies that are aligned with their SDG priorities. This involves IPAs finding their country’s “niche” target sectors to attract investments.

Aligning strategies with the SDGs is essential because many corporate investors now value alignment as part of their ESG investment criteria. Over the past several years, ESCAP has supported its member States in developing and implementing practical, targeted investment promotion and attraction strategies. These projects have enabled IPAs to narrow their focus, identify niche opportunities, and connect with high-potential investors.

2. Leveraging regional cooperation on investment promotion.

While IPAs often compete for investors, regional cooperation can be even more powerful—especially in attracting cross-border investments that require scale. By pooling markets and aligning promotion efforts, countries can present themselves not as fragmented destinations but as part of a larger, integrated investment destination. This approach not only makes the region more attractive to global investors but also enables each country to highlight its comparative strengths within wider value chains.

ESCAP has been at the forefront of advancing such cooperation. In South East Asia, the ASEAN Regional Investment Promotion Action Plan (RIPAP) 2025–2030 was endorsed by all ASEAN member States as the first region-wide initiative to jointly promote investment opportunities.

In Central Asia, ESCAP and the International Islamic Trade Finance Corporation launched the Boosting Exports through FDI programme, which helps countries attract investment that strengthens regional value chains and to become more competitive. Regional collaboration of this kind demonstrates that cooperation—not just competition—can unlock larger, more sustainable flows of FDI.

3. Developing impact measurement tools.

Developing and utilizing impact measurement tools can help IPAs demonstrate how their work is contributing to advancing the SDGs. With database systems and tools, IPAs can track growth in sectors like green industries or progress on digital transformation, making their impact more visible. For example, Investment Fiji has tailored its Customer Relationship Management system to more effectively monitor how the investment they have helped facilitate contributes to the SDGs.

As traditional development aid budgets plateau, FDI remains the most stable and transformative capital for building productive capacity. FDI has already been instrumental in driving SDGs in areas such as transitioning to clean energy, accelerating digital connectivity, and generating decent jobs needed for inclusive growth. But to fully realize this potential, governments and IPAs must be strategic, collaborative and impact-driven.

ESCAP stands ready to support its member States and their IPAs in developing and implementing FDI promotion and attraction strategies aligned with SDGs.

Heather Lynne Taylor-Strauss is Economic Affairs Officer, ESCAP; Eiichiro Takinami is Junior Economic Affairs Officer, ESCAP.

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