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 2009 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 at Yearend 2009
US Bureau of Economic Analysis, 2010
The U.S. net international investment position at yearend 2009 was
-$2,737.8 billion (preliminary), as the value of foreign investments in the
United States continued to exceed the value of U.S. investments abroad At year end 2008, the U.S. net international investment position was
-$3,493.9 billion (revised).
The $756.0 billion change in the U.S. net investment position from yearend 2008 to yearend 2009 reflected
- price appreciation of U.S.-held foreign stocks that surpassed the price appreciation of foreign-held U.S. stocks,
- appreciation of most major currencies against the U.S. dollar that raised the dollar value of U.S.-owned assets abroad, and
- “other” changes (such as changes in reporting panels and capital gains and losses from the sales of direct investment assets) that raised the value of U.S.-owned assets abroad more than the value of foreign-owned assets in the United States.
The impact of these differences was partly offset by net foreign acquisitions of financial assets in the United States that exceeded net U.S. acquisitions of financial
The following are highlights for 2009:
- Foreign acquisitions of financial assets in the United States, excluding financial derivatives, were $305.7 billion in 2009, down from $454.7 billion in 2008. In 2009, foreign residents, including foreign official institutions, purchased more U.S. Treasury securities and U.S. stocks than they sold, and foreign direct investment in the United States increased. These financial inflows were partly offset by a decrease in U.S. banks’ liabilities to foreign residents and by foreign residents’ net sales of U.S. corporate and agency bonds.
- U.S. acquisitions of financial assets abroad, excluding financial derivatives, were $140.5 billion in 2009, a shift from $156.1 billion in net sales of assets in 2008. In 2009, U.S. banks’ claims against foreign residents and U.S. direct investment abroad increased, and U.S. residents bought more foreign securities than they sold. These financial outflows were partly offset by a decrease in U.S. government assets resulting from the reversal of currency swaps between the U.S. Federal Reserve System and foreign central banks, and by a decrease in U.S. nonbanks’ claims against foreign residents.
- U.S. holdings of financial derivatives as assets (with positive gross fair value) decreased $2,615.4 billion, and as liabilities (with negative gross fair value) decreased $2,583.7 billion. These large changes are mainly due to decreases in U.S. claims and liabilities from interest-rate and credit-default swap contracts. Because changes to U.S. assets and liabilities are offsetting, they have little impact on the U.S. net investment position.
- Price increases in most foreign stock markets raised the value of U.S. holdings of foreign stocks by a large amount. Price increases in the U.S.stock market also raised the value of foreign holdings of U.S. stocks, but by a smaller amount. In 2009, prices of financial assets such as stocks and corporate bonds rose sharply but prices of U.S. Treasury securities and agency bonds fell.
- Appreciation of most major foreign currencies against the U.S. dollar from yearend 2008 to yearend 2009 raised the dollar value of U.S.-owned assets abroad, especially the value of U.S.-owned foreign stocks.
US Direct Investment Abroad
In 2010, the U.S. direct investment abroad historical-cost position grew $361.2 billion to $3,908.2 billion. The 10 percent growth rate was roughly the same as in 2009. Concurrently, foreign direct investment in the United States historical-cost position grew $228.3 billion to $2,342.8 billion. The 11 percent growth rate in 2010 marked a significant jump from 2009, when the position grew 3 percent.
The growth rate in the U.S. direct investment abroad—or “outward”—position was the same as in 2009 despite an increase in reinvested earnings and equity investment because of an increase in U.S. parents’. Direct Investment Positions for 2010
Bureau of Economic Analysis, U.S. Department of Commerce