Impacts of Foreign Direct Investment in the U.S. Economy
Investment Policy Central
Seven national business associations have an information
clearinghouse, Investment Policy Central,
to highlight the importance of an open investment climate.
Foreign Direct Investment in the United States
U.S. Department of Commerce
The United States is the world’s largest recipient of foreign direct investment. In 2012 alone, the United States received $130 billion in FDI. Foreign direct investment impacts the U.S. economy in many positive ways. For example, FDI:
- Creates New Jobs: U.S. affiliates of foreign companies (majority-owned) employ approximately 5.6 million U.S. workers, or 4.7% of private industry employment. Between 2003 and February 2011, over 7500 greenfield projects were announced or opened by foreign companies. Once (and if) all of these projects are finalized, they will yield over $413 billion in investment and create almost 858,000 jobs in the United States.
- Boosts Wages: U.S. affiliates of foreign companies tend to pay higher wages than other U.S. companies. Internationally owned companies support an annual U.S. payroll of $408 billion, with average annual compensation per employee of $73,000. On average, U.S. subsidiaries of foreign firms pay 30 percent higher wages and salaries than that of all U.S. establishments.
- Increases U.S. Exports: U.S. companies use multinationals’ distribution networks and knowledge about foreign tastes to export into new markets. In 2008, over 18 percent of all U.S. exports ($232.4 billion) come from U.S. subsidiaries of foreign companies.
- Strengthens U.S. Manufacturing and Services: Forty percent of the jobs supported by U.S. affiliates of foreign companies are in the manufacturing sector, accounting for 15 percent of all manufacturing jobs in the United States. Approximately 40 percent of all foreign investment in the United States is in the service sector, improving the global competitiveness of this critical segment of the U.S. economy.
- Brings in New Research, Technology, and Skills: Affiliates of foreign companies (majority-owned) spent over $40 billion on research and development in 2008 and $187 billion on plants and equipment.
- Contributes to Rising U.S. Productivity: Inward investment leads to higher productivity growth through an increased availability of capital and resulting competition. Productivity is a key factor that increases U.S. competitiveness abroad and raises living standards at home.
U.S. Net International Investment Position: End of First Quarter 2013, Year 2012, and Annual Revisions
US Bureau of Economic Analysis, June 2013
The U.S. net international investment position at yearend 2012 was
-$3,863.9 billion (revised), as the value of foreign investments in the
United States continued to exceed the value of U.S. investments abroad. At year end 2011, the U.S. net international investment position was
-$3,730.6 billion (revised).
The $133.3 billion change in the U.S. net investment position from yearend 2011 to yearend 2012 reflected a $134.8 billion increase in the value of foreign-owned assets in the United States that was slightly offset by a $1.5 billion increase in the value of U.S.-owned assets abroad.
The following are highlights for 2012:
- Foreign acquisitions of U.S. assets exceeded U.S. acquisitions of foreign assets by $439.4 billion. Foreign acquisitions of U.S. assets were concentrated in U.S. securities, including $433.2 billion in acquisitions of U.S. Treasury securities by foreign official agencies and $156.4 billion in acquisitions by all other foreigners.
- Foreign acquisitions of U.S. assets and U.S. acquisitions of foreign assets were reduced by declines in both U.S. claims on and liabilities to foreigners reported by U.S. banks and securities brokers.
- The appreciation of foreign stock prices raised the value of U.S. holdings of foreign stocks abroad. Similarly, the appreciation of U.S. stock prices raised the value of foreign holdings of U.S stocks, but by a lower amount.
- The mixed performance of the U.S. dollar against major foreign currencies resulted in a $5.1 billion change in the U.S. net international investment position from exchange-rate changes.
- The -$188.6 billion in other changes mostly reflected the incorporation of newly available and revised source data.
- The U.S. net international investment position was equal to 2.3% of the value of all U.S. financial assets at the end of 2012, down from the peak of 2.4% at the end of 2011.
US Direct Investment Abroad
In 2012, the U.S. direct investment abroad historical-cost position grew $368.6 billion to $4,453.3 billion. The 9 percent growth rate was roughly the same as in 2011. Concurrently, foreign direct investment in the United States historical-cost position grew $148.2 billion to $2,650.8 billion. The 6 percent growth rate in 2012 marked a slight decrease from 2011, when the position grew almost 10 percent.