The U.N. Conference on Trade and Development (UNCTAD) issued preliminary estimates showing FDI flows amounted to US$1.538 trillion (1.045 trillion euros) in 2007, beating the previous record of US$1.4 trillion in 2000, just before the Internet bubble burst.

“The financial and credit crisis that began in the latter half of 2007 has not affected the overall volume of FDI inflows,” UNCTAD said.

Increased corporate profits and an “abundance” of cash helped boost the value of cross-border mergers and acquisitions (M&A) which constitute a large portion of FDI flows, it noted.

However, the outlook is not so rosy for 2008 as fears increase of a recession in the United States and its impact on the global economy.

“Continuing global external imbalances, sharp exchange rate fluctuations, rising interest rates, and increasing inflationary pressures, as well as high and volatile commodity prices, pose risks that may have a chilling effect on global FDI flows,” UNCTAD warned.

Financial markets and institutions have already undergone months of turbulence in the wake of the U.S. subprime home loan crisis, where billions of dollars have been lost on mortgage-backed securities.

The crisis has also led to a sharp fall in the dollar but UNCTAD said this actually may have helped maintain high levels of FDI flows into the United States, particularly from Asian and European countries with appreciating currencies.

The U.S. remained the top destination for FDI inflows with US$193 billion in 2007, although this was a growth of just 10 percent from 2006, a noticeably lower pace than many other countries.

China received the most FDI inflows of any developing country at US$67.3 billion, although this was actually a fall of 3.1 percent on 2006.

Overall, more than half of all FDI to developing countries — some US$224 billion — went to economies in southern and eastern Asia and Oceania, such as China, Hong Kong, Indonesia and Malaysia.

Russia showed particularly strong growth with FDI inflows up 70.3 percent at US$48.9 billion.

Future prospects, however, are clouded by the impact of tightening Russian natural resource regulations and disputes over environmental protection and extraction costs, UNCTAD noted.

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