Foreign direct investment (FDI) flows to and from developed countries contracted by more than 40% in 2009 to $566bn and $821bn respectively, following a similar decline in the previous year, according to the United Nations agency UNCTAD´s annual study of worldwide investment trends. Yet this decline was not as severe as the one during the previous economic downturn of 2000-2003.

The World Investment Report 2010 , subtitled Investing in a Low-Carbon Economy, released Thursday indicates that FDI flows to developed countries were nevertheless four times higher in the first quarter of 2010 than in the same period in 2009.

The report says the global economic and financial crisis hit inward FDI of different regions unevenly. North America was most affected. Flows to the United States - - the largest host country in the world - - declined by 60%, while FDI flows to Canada more than halved. FDI flows to Japan also shrank by 51%. The 27 members of the European Union (EU) weathered the blow better (33%). Although FDI shrunk in some large host countries, such as the United Kingdom, Belgium and Spain, FDI flows increased to other major host economies, such as Germany, Ireland and the Netherlands. This yielded a different ranking of the largest recipient developed countries in 2009. While the bulk of FDI inflows to developed countries originated in other developed countries, transnational corporations (TNCs) from developing countries, too, became active investors in 2009.

Ireland had inflows of $25bn in 2009 and outflows of $21bn. The report puts Ireland's inward stock at $193bn in 2009 and outward stock at $192bn. The latter figure is not reliable. Ireland's one TNC, building materials giant CRH, has a market value of $15bn, about 95,000 staff with just over 2,000 employed in Ireland. Foreign shareholders own about 90% of the capital.

In 2009, Ireland had 132,000 employed in TNCs  - - less than the total in 1998.

Cross-border mergers and acquisitions, the main mode of FDI flows to and from developed countries, fell sharply in 2009 but are recovering in 2010. Greenfield investments were hit less, as they follow longer planning and investment periods and react less to shocks like the recent economic and financial crisis. Therefore, the value of cross-border M&As rose by 48% for the first five months of 2010 over the same period of the previous year, while the number of greenfield investments remained almost at the same level as in the same period in 2009 during the first four months.

Outward FDI flows from developed countries declined by 48%. Falling profits and financial pressures resulted in depressed reinvested earnings, re-channelled dividends and withdrawn intra-company loans. Like recipients countries, the ranking of the largest investors is quite different in 2009.

The report says the current crisis has made the question of outward FDI-related employment particularly important. Fast-growing outward FDI over the past decade has resulted in growing employment at the foreign affiliates of developed countries´ TNCs. In contrast, the impact of outward FDI on home-country employment is mixed. While outward FDI may reduce employment at home, particularly in the case of market-seeking FDI, it can save or create jobs if it leads to more exports for the home country, or better competitiveness for the investing firm. The impact also depends on the type of investment, the location of affiliates and TNCs´ employment strategies.

TNCs with a home base in relatively small economies (e.g. Austria and Switzerland) employ a relatively large share of their total workforce in foreign affiliates. TNCs based in large home economies, like the United States and Japan, typically employ a high share of their workforce in headquarters and domestic affiliates: in 2007, the majority of the workforce of United States TNCs (69% or 22 million workers) was employed in parent firms in the United States; and data on Japanese TNCs show that about half of their consolidated employment is still located at home.

In 2009, a continued trend towards investment liberalization could be observed in developed countries, particularly in the air transport industry (Australia and between the EU and Canada). In addition, foreign investors benefited from State aid supplied in response to the financial crisis. However, in certain countries, screening requirements for foreign investment for national security reasons were tightened (Canada and Germany).

Prospects for FDI flows to developed countries have improved during the first half of 2010 thanks to economic recovery. In addition, large public debts can force some EU countries to engage in a new round of privatizations (e.g. Greece), opening the way for higher FDI inflows. On the other hand, the perception of increased risk of sovereign debt default in certain European countries and its possible transmission to the Eurozone could easily disrupt this upward trend.