Order Code RS21857
Updated August 15, 2008
Foreign Direct Investment in the United
States: An Economic Analysis
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade DivisionNovember 5, 2009
Congressional Research Service
7-5700
www.crs.gov
RS21857
CRS Report for Congress
Prepared for Members and Committees of Congress
Foreign Direct Investment in the United States: An Economic Analysis
Summary
Foreign direct investment in the United States1States declined sharply after 2000, when
a record $300
billion was invested in U.S. businesses and real estate. [Note: The United States defines foreign
direct investment as the ownership or control, directly or indirectly, by one foreign person
(individual, branch, partnership, association, government, etc.) of 10% or more of the voting
securities of an incorporated U.S. business enterprise or an equivalent interest in an
unincorporated U.S. business enterprise. 15 CFR § 806.15 (a)(1).] In 2008In 2007, according
to to
Department of Commerce data, foreigners invested $237325 billion. Foreign direct
investments are
highly sought after by many Statestate and local governments that are
struggling to create additional
jobs in their localities. While some in Congress
encourage such investment to offset the perceived
negative economic effects of U.S.
firms investing abroad, others are concerned about foreign
acquisitions of U.S. firms
that are considered essential to U.S. national and economic security. This report will
be updated as events warrant.
Recent Investments
Foreigners invested $237 billion in U.S. businesses and real estate in 2007, according
to data published by the Department of Commerce.2 As Figure 1 shows, this represents
a slight decrease from the $241 billion invested in 2006. Investments by U.S. firms
abroad increased by 38% in 2007 to $333 billion, up sharply from the $36 billion they
invested abroad in 2005. The increase in foreign direct investment flows, mirrors a turnaround in global flows. According to the United Nations’ World Investment Report,
global foreign direct investment inflows increased by 27% in 2005 and 38% in 2006 after
a slight increase in 2004 and three years of declining flows prior to 2004 that arose from
1
The United States defines foreign direct investment as the ownership or control, directly or
indirectly, by one foreign person (individual, branch, partnership, association, government, etc.)
of 10% or more of the voting securities of an incorporated U.S. business enterprise or an
equivalent interest in an unincorporated U.S. business enterprise. 15 CFR § 806.15 (a)(1).
2
Sauers, Renee M. and Kristy L. Howell, U.S. International Transactions: First Quarter of 2008.
Survey of Current Business, July 2008, p. 67. Direct investment data reported in the balance of
payments differ from capital flow data reported elsewhere, because the balance of payments data
have not been adjusted for current cost adjustments to earnings.
CRS-2
competitive international price pressures leading to greater internationalization of
production, rising commodity prices, and increased international merger and acquisition
activity in some areas.
Figure 1. Foreign Direct Investment in the United States and U.S.
Direct Investment Abroad, Annual Flows, 1990-2007 (in billions of
dollars)
$350
Billions of dollars
Foreign Direct Investment in
the United States
$300
$250
$200
$150
U.S. Direct Investment
Abroad
$100
$50
$0
1990
1992
1994
1996
1998
2000
2002
2004
2006
Year
Source: U.S. Department of Commerce
The cumulative amount, or stock, of foreign direct investment in the United States
on a historical cost basis3 rose from $1.8 trillion in 2006 to about $2.1 trillion in 2007.
This marked an increase of 14%, slightly more than the increase in such investment in
2006.4 The rise in the value of foreign direct includes an upward valuation adjustment of
existing investments and increased investment spending that was driven by a relatively
strong growth rate of the U.S. economy, the world-wide resurgence in cross-border
merger and acquisition activity, and investment in the U.S. manufacturing, chemicals,
utilities, mining, health care, transportation, and the finance and insurance sectors.5
3
The position, or stock, is the net book value of foreign direct investors’ equity in, and
outstanding loans to, their affiliates in the United States. A change in the position in a given year
consists of three components: equity and intercompany inflows, reinvested earnings of
incorporated affiliates, and valuation adjustments to account for changes in the value of financial
assets. The Commerce Department also publishes data on the foreign direct investment position
valued on a current-cost and market value bases. These estimates indicate that foreign direct
investment increased by $271 billion and $230 billion in 2007, respectively, to reach $2.4 and
$3.5 trillion.
4
Ibarra, Marilyn, and Jennifer Koncz, Direct Investment Positions for 2007: Country and
Industry Detail, Survey of Current Business, July, 2008. p. 35.
5
Ku-Graf, Y. Louise, Foreign Direct Investment in the United States: New Investment in 2007,
Survey of Current Business, June 2008, pp. 33-34.
CRS-3
As a share of the total amount of nonresidential investment spending in the U.S.
economy, investment spending by foreign firms was equivalent to 12% in 2007, far below
the 27% reached in 2001. Foreign firms’ spending was sustained by a large increase in
intercompany debt flows as U.S. affiliates turned to net borrowing from their foreign
parent companies. Direct investment was also financed through reinvested earnings and
an increase in equity capital, although the increase in the amount of equity capital was the
lowest amount since the 1995. The lower amount of equity capital represents the
relatively slower rate of economic growth in Europe that reduced the amount of funds
European parent firms had available to invest and the higher rate of economic growth
among the U.S. affiliates which improved their profit position.6
With over $410 billion invested in the United States, Great Britain is the largest
foreign direct investor, as is indicated in Table 1. Japan has moved into the position as
second largest foreign direct investor in the U.S. economy with about $233 billion in
investments. Following the Japanese are the Canadians ($213), the Dutch ($209 billion),
Germans ($202 billion), and the French ($169 billion).
In some cases, investments by one or two countries dominate certain industrial
sectors, suggesting that there is a rough form of international specialization present in the
investment patterns of foreign multinational firms. At year end 2006, the Netherlands and
the United Kingdom accounted for the bulk of foreign investments in the U.S. petroleum
sector, reflecting investments by two giant companies: Royal Dutch Shell and British
Petroleum. Japanese investments in the U.S. wholesale trade sector are also substantial,
followed by British investments, and European investors account for the bulk of foreign
investments in the retail trade sector. German investors are the largest investors in the
information sector as a result of a number of large media company acquisitions. French,
German, and British investments dominate other foreign investments in the banking
sector, while Dutch, Canadian, British, and French investments account for over half of
the investments in the finance sector. Canada’s $93 billion investment in the U.S.
banking and finance sectors far surpasses the $55 billion invested by British firms,
followed by Germany ($50 billion) and France ($47 billion). Foreign direct investment
in the manufacturing sector is represented by a number of countries, each with substantial
investments: investments by Switzerland ($99 billion), the Netherlands ($95 billion). the
United Kingdom ($93 billion), France ($80 billion), and Germany ($62 billion) account
for two-thirds of the total amount of foreign direct investment in this sector.
Investment spending by developed economies accounts for 95% of all foreign direct
investment in the United States. These investments are predominately in the
manufacturing sector, which accounts for about 34% of foreign direct investment in the
United States, a decline from periods when such investment accounted for a majority
share of the total. Another 19% is in the banking and finance sectors, and 15% is in the
retail and wholesale trade sectors, reflecting purchases of department stores and other
investments to assist foreign firms in marketing and distributing their products. The fastgrowing information sector accounts for 7.0%, while services and real estate account for
6
At the same time, U.S. direct investment abroad plummeted in 2005 as U.S. parent firms
reduced the amount of reinvested earnings in their foreign affiliates for distribution to the U.S.
parent firms to take advantage of one-time tax provisions. U.S. direct investment abroad in 2005
totaled $21 billion (in nominal terms).
CRS-4
modest shares of 3.0% and 2.6%, respectively. All other industries account for the
remaining 19%.
Table 1. Foreign Direct Investment Position in the United States on
a Historical-Cost Basis at Year-End 2007
(in millions of U.S. dollars)
All
industries
All countries
Manufacturing
Wholesale
trade
Retail
trade
Information
Banking
Finance
Real
estate
2,093,049
709,545
278,353
41,591
146,428
141,033
263,993
55,277
Canada
213,224
43,118
10,177
7,797
7,081
22,022
71,218
2,744
Europe
1,482,978
557,115
139,133
26,505
133,039
100,392
160,130
25,797
Services
Other
industries
62,956 393,873
1,690
47,378
53,500 287,368
Austria
2,512
1,711
(D)
(D)
–6
(D)
(D)
74
(D)
19
Belgium
19,520
9,369
1,881
(D)
2
(D)
1,248
230
–42
3,231
France
168,576
79,636
8,999
932
11,802
17,709
29,144
434
6,663
13,257
Germany
202,648
61,901
10,772
3,995
48,585
16,406
34,148
8,110
197
18,533
Ireland
33,557
15,742
174
(D)
(D)
(D)
2,691
(D)
–36
7,058
Italy
15,482
2,766
1,511
2,371
25
649
(D)
52
(D)
(D)
Luxembourg
134,310
61,886
1,296
(D)
7,048
0
6,884
282
(D)
49,297
Netherlands
209,449
94,998
21,444
(D)
16,815
(D)
36,766
3,484
6,742
20,213
Sweden
31,857
12,878
7,442
(D)
847
–254
264
(D)
54
(D)
Switzerland
155,696
98,672
7,865
(D)
12,064
(D)
29,388
(D)
474
8,130
United Kingdom
410,787
92,682
72,240
2,641
22,264
49,118
16,023
5,267
Latin America
62,955
9,694
8,687
1,480
2,536
4,243
7,479
9,720
307
1,124
–450
592
(D)
(D)
(D)
(D)
264
–2
484
12,937
2,028
5,908
(D)
(D)
1,305
(D)
640
109
2,090
319,832
98,040
113,857
5,735
(D)
(D)
24,916
16,113
7,353
37,742
49,100
4,656
2,349
(D)
1,023
1,762
4,605
9,190
(D)
25,047
Japan
233,148
79,951
97,827
5,699
1,821
8,273
17,753
6,073
4,685
11,066
OPEC
13,589
47
10,351
(*)
–3
1,383
–9
(D)
–9
(D)
Africa
Middle East
Asia and Pacific
Australia
28,616 121,936
18,811
Source: Ibarra, Marilyn, and Jennifer Koncz, Direct Investment Positions for 2007: Country and Industry
Detail. Survey of Current Business, July, 2008. p. 35.
Note: The position is the stock, or cumulative, book value of foreign direct investors’ equity in, and net
outstanding loans to, their U.S. affiliates. A negative position may result as U.S. affiliates repay debts to
their foreign parents, and as foreign parents borrow funds from their U.S. affiliates. D indicates that data
have been suppressed by the Department of Commerce to avoid the disclosure of data of individual
companies. An asterik (*) indicates that the value of the cell is less than $500,000.
Acquisitions and Establishments
Another way of looking at foreign direct investment is by distinguishing between
transactions in which foreigners acquire existing U.S. firms and those in which foreigners
establish new firms — termed “greenfield” investments. New investments are often
preferred at the local level because they are thought to add to local employment, whereas
a foreign acquisition itself may add little, if any, new employment. In 2007, outlays for
new investments, which include investments made directly by foreign investors and those
made by existing U.S. affiliates, were $277 billion, a 67%increase over the $166 billion
invested in 2006. According to the Department of Commerce, the increase in new
investments reflected faster economic growth in the United States and an increase in
CRS-5
merger and acquisition activity.7 Acquisitions of existing U.S. firms accounted for 92%
of the new investments by value. Investments by the existing U.S. affiliates of foreign
firms accounted for 63% of the total transactions by investor, while other foreign direct
investors accounted for the remaining 37% of transactions. Investment outlays by foreign
firms increased from 2006 to 2007 in all major sectors, except wholesale trade,
information, and finance. Investment in retail trade, manufacturing, and services all
posted substantial increases.
Economic Performance
By year-end 2005, the latest year for which detailed data are available, foreign
firms employed 5.5 million Americans, less than 4% of the U.S. civilian labor force, and
owned over 30 thousand individual business establishments.8 Foreign firms have a direct
investment presence in every state. Employment of these firms ranges from over 543
thousand in California, to about 7 thousand in North Dakota. Following California, New
York (378 thousand), Texas (345 thousand), Pennsylvania (232), Illinois (226 thousand),
and Florida (226 thousand), and have the largest numbers of residents employed by
foreign firms. In 2005, 40% of the foreign firms’ employment was in the manufacturing
sector, more than twice the share of manufacturing employment in the U.S. economy as
a whole, with average annual compensation (wages and benefits) per worker of about
$63,000.
Retail and wholesale trade accounted for another 22% of total affiliate employment. Dutch-affiliated firms are the largest single employers in the retail trade sector and
account for nearly one-third of total affiliate employment in this sector, while Japanese
and British firms account for over half of the employment in the wholesale trade sector.
Employment in the information, finance, real estate and technical services sectors
accounts for another 13% of total affiliate employment. Average employee compensation
is highest in the finance sector — $229,000 — where Swiss, Canadian, Japanese, and
British account for three-fourths of the employment. The rest of the affiliate employment
is spread among a large number of other industries.
The affiliates of foreign firms spent $140 billion in the United States in 2005 on
new plant and equipment, imported $468 billion in goods and services and exported $181
billion in goods and services. Since 1980, the total amount of foreign direct investment
in the economy has increased eight-fold and nearly doubled as a share of U.S. gross
domestic product (GDP) from 3.4% to 6.4%. It is important to note, however, that these
data do not imply anything in particular about the role foreign direct investment has
played in the rate of growth of U.S. GDP.
Foreign-owned establishments, on average, are far outperforming their U.S.-owned
counterparts. Although foreign-owned firms account for less than 4% of all U.S.
manufacturing establishments, they have 14% more value added on average and 15%
7
Ku-Graf, Louise, Foreign Direct Investment in the United States: New Investment in 2007.
Survey of Current Business, June 2008. p. 33.
8
Foreign Direct Investment in the United States: Operations of U.S. Affiliates of Foreign
Companies, Preliminary 2005 Estimates. Bureau of Economic Analysis, 2007, Table 2A-1.
CRS-6
higher value of shipments than other manufacturers. The average plant size for foreignowned firms is much larger — five times — than for U.S. firms, on average, in similar
industries. This difference in plant size apparently rises from an absence of small plants
among those that are foreign-owned. As a result of the larger plant scale and newer plant
age, foreign-owned firms paid wages on average that were 14% higher than all U.S.
manufacturing firms, had 40% higher productivity per worker, and 50% greater output per
worker than the average of comparable U.S.-owned manufacturing plants. Foreign-owned
firms also display higher capital intensity in a larger number of industries than all U.S.
establishments.
These differences between foreign-owned firms and all U.S. firms should be
viewed with some caution. First, the two groups of firms are not strictly comparable: the
group of foreign-owned firms comprises a subset of all foreign firms, which includes
primarily very large firms; the group of U.S. firms includes all firms, spanning a broader
range of sizes. Secondly, the differences reflect a range of additional factors, including
the prospect that foreign firms which invest in the United States likely are large firms with
proven technologies or techniques they have successfully transferred to the United States.
Small foreign ventures, experimenting with unproven technologies, are unlikely to want
the added risk of investing overseas. Foreign investors also tend to opt for larger scale
and higher capital-intensity plants than the average U.S. firm to offset the risks inherent
in investing abroad and to generate higher profits to make it economical to manage an
operation far removed from the parent firm.
Conclusions
Foreign direct investment in the United States in 2005 rose slightly, but still
equaled far less than the record amount recorded in 2000. Other countries have
experienced a similar turn-around in foreign direct investment inflows, especially to some
of the less developed economies where there is a great potential for investment. As the
rate of growth of the U.S. economy rises, interest rates stay low, and the rate of price
inflation stays in check, foreign direct investment in the United States likely will continue
the rebound. Of particular importance will be public concerns over foreign direct
investment in the economy as a whole and on the overall phenomenon referred to as
“globalization,” with its impact on jobs in the economy. Concerns over foreign direct
investment, where they exist, stem not so much from the perceived potential losses of
international competitiveness that characterized similar concerns in the 1980s, but from
potential job losses that could result from mergers and acquisitions, although such losses
could occur whether the acquiring company is foreign- or U.S.-owned. Such concerns are
offset, at least in part, by the benefits that are perceived to be derived from the inflow of
capital and the potential for new jobs being created in local areas.
Although job security is an important public issue, opposition to some types of
foreign direct investment stem from concerns about the impact of such investment on U.S.
economic and security interests, particularly in light of the terrorist attacks of September
11, 2001. The U.S. economy, however, remains a prime destination for foreign direct
investment. As the pace of economic growth in the Nation increases relative to that of
foreign economies, foreign direct investment likely will increase as new investments are
attracted to the United States and existing firms are encouraged to reinvest profits in their
U.S. operations.
Congressional Research Service
Foreign Direct Investment in the United States: An Economic Analysis
Contents
Recent Investments .....................................................................................................................1
Acquisitions and Establishments .................................................................................................4
Economic Performance ...............................................................................................................4
Conclusions ................................................................................................................................5
Figures
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2008 (in billions of dollars).........................................................1
Tables
Table 1. Foreign Direct Investment Position in the United States on a Historical-Cost
Basis at Year-End 2008 ............................................................................................................3
Contacts
Author Contact Information ........................................................................................................6
Congressional Research Service
Foreign Direct Investment in the United States: An Economic Analysis
Recent Investments
Foreigners invested $325 billion in U.S. businesses and real estate in 2008, according to data
published by the Department of Commerce. 1 As Figure 1 shows, this represents a sharp increase
over the $237 billion invested in 2007. Investments abroad by U.S. parent firms fell slightly in
2008 to $318 billion, down from the $333 billion they invested abroad in 2007. The increase in
foreign direct investment flows mirrors a turnaround in global flows. According to the United
Nations’ World Investment Report, global foreign direct investment inflows increased by 30% in
2007 and 38% in 2006. The data indicate that global foreign direct investment flows increased
slightly in 2004 after three years of declining flows that arose from competitive international
price pressures leading to greater internationalization of production, rising commodity prices, and
increased international merger and acquisition activity in some areas.
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2008 (in billions of dollars)
$350
Billions of dollars
$300
Foreign Direct Investment in
the United S tates
$250
$200
$150
$100
U.S. Direct Investment
Abroad
$50
$0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Year
Source: U.S. Department of Commerce
The cumulative amount, or stock, of foreign direct investment in the United States on a historical
cost basis2 rose from $2.1 trillion in 2007 to about $2.3 trillion in 2008. This marked an increase
1
Weinberg, Douglas B., Erin M. Whitaker, and Gregory A. Tenentes, U.S. International Transactions: Fourth quarter
and Year 2008. Survey of Current Business, April 2009, p. 28. Direct investment data reported in the balance of
payments differ from capital flow data reported elsewhere, because the balance of payments data have not been
adjusted for current cost adjustments to earnings.
2
The position, or stock, is the net book value of foreign direct investors’ equity in, and outstanding loans to, their
affiliates in the United States. A change in the position in a given year consists of three components: equity and
intercompany inflows, reinvested earnings of incorporated affiliates, and valuation adjustments to account for changes
in the value of financial assets. The Commerce Department also publishes data on the foreign direct investment
position valued on a current-cost and market value bases. These estimates indicate that foreign direct investment
increased by $197 billion measured at current cost, but that the market value fell by $1.0 trillion in 2008. Both
(continued...)
Congressional Research Service
1
Foreign Direct Investment in the United States: An Economic Analysis
of 8.0%, below the 14.6% percent increase experienced in 2007.3 The rise in the value of foreign
direct investment includes a large increase in equity capital that was partially offset by a large
downward valuation adjustment. The downward adjustment reflects the decline in the value of
equities as a result of the decline in stock values. Tightened credit conditions and the slowdown in
the rate of growth in the U.S. economy, however, tended to push down such mainstays of foreign
direct investment activity as mergers and acquisitions. Foreign direct investments in the U.S.
manufacturing sector generally were higher, while investments in banks, finance, and real estate
were down. Data for the first two quarters of 2009 indicate that foreign direct investment in the
United States is about one-third the amount recorded in the comparable period in 2008. Such
investments may well pick up in the second half of the year as the rate of economic growth
improves.
As a share of the total amount of nonresidential investment spending in the U.S. economy,
investment spending by foreign firms was equivalent to 16% in 2008, far below the 27% reached
in 2001. Foreign firms’ spending was sustained by a large increase in intercompany debt flows as
U.S. affiliates turned to net borrowing from their foreign parent companies. Direct investment
was also financed through reinvested earnings and an increase in equity capital, although the
increase in the amount of equity capital was the lowest amount since 1995. The lower amount of
equity capital represents the relatively slower rate of economic growth in Europe that reduced the
amount of funds European parent firms had available to invest and the higher rate of economic
growth among the U.S. affiliates, which improved their profit position. 4
With over $454 billion invested in the United States, the United Kingdom is the largest foreign
direct investor, as is indicated in Table 1. Japan is the second-largest foreign direct investor in the
U.S. economy with about $259.6 billion in investments. Following the Japanese are the Dutch
($259.4 billion), the Canadians ($222 billion), the Germans ($211 billion), and the French ($163
billion).
In some cases, investments by one or two countries dominate certain industrial sectors,
suggesting that there is a rough form of international specialization present in the investment
patterns of foreign multinational firms. At year end 2008, the Netherlands and the United
Kingdom accounted for the bulk of foreign investments in the U.S. petroleum sector, reflecting
investments by two giant companies: Royal Dutch Shell and British Petroleum. Japanese
investments in the U.S. wholesale trade sector are also substantial, followed by British
investments, and European investors account for the bulk of foreign investments in the retail trade
sector. German investors are the largest investors in the information sector as a result of a number
of large media company acquisitions. French, German, and British investments dominate other
foreign investments in the banking sector, while Dutch, Canadian, British, and French
investments account for over half of the investments in the finance sector. Canada’s $89 billion
investment in the U.S. banking and finance sectors just surpasses the $74 billion invested by
British firms, followed by Germany ($41 billion) and France ($34 billion). Foreign direct
(...continued)
estimates were valued at $2.6 trillion in 2008.
3
Ibarra, Marilyn, and Jennifer Koncz, Direct Investment Positions for 2008: Country and Industry Detail, Survey of
Current Business, July, 2009. p. 34.
4
At the same time, U.S. direct investment abroad plummeted in 2005 as U.S. parent firms reduced the amount of
reinvested earnings in their foreign affiliates for distribution to the U.S. parent firms to take advantage of one-time tax
provisions. U.S. direct investment abroad in 2005 totaled $21 billion (in nominal terms).
Congressional Research Service
2
Foreign Direct Investment in the United States: An Economic Analysis
investment in the U.S. manufacturing sector is dominated by a number of countries, each with
substantial investments: investments by the Netherlands ($131 billion), Switzerland ($107
billion), the United Kingdom ($103 billion), Japan ($87 billion), France ($76 billion), and
Germany ($56 billion) account for nearly three-fourths of the total amount of foreign direct
investment in this sector.
Investment spending by developed economies accounts for 95% of all foreign direct investment
in the United States. These investments are predominately in the manufacturing sector, which
accounts for about 35% of foreign direct investment in the United States, a decline from periods
when such investment accounted for a majority share of the total. Another 16% is in the banking
and finance sectors, and 16% is in the retail and wholesale trade sectors, reflecting purchases of
department stores and other investments to assist foreign firms in marketing and distributing their
products. The fast-growing information sector accounts for 7.0%, while services and real estate
account for modest shares of 2.7% and 2.3%, respectively. All other industries account for the
remaining 21%.
Table 1. Foreign Direct Investment Position in the United States on a HistoricalCost Basis at Year-End 2008
(in millions of U.S. dollars)
All
All
countries
All
industries
2,278,892
Canada
221,870
Europe
1,622,911
Manufacturing
Wholesale
trade
Retail
trade
Information
Banking
Finance
Real
estate
Services
Other
industries
795,336
312,583
44,062
157,973
119,124
248,888
51,995
62,118
486,813
42,851
4,758
7,415
11,808
27,780
62,132
4,128
2,248
58,750
617,579
167,610
28,276
142,042
71,284
177,827
19,956
49,379
348,958
Austria
2,406
1,323
263
(D)
-6
(D)
1
83
(D)
97
Belgium
18,580
2,245
6,147
(D)
4
(D)
1,005
(D)
343
4,687
France
163,430
75,973
10,710
353
16,798
7,559
27,114
385
5,562
18,977
Germany
211,521
55,598
16,415
4,390
50,652
4,677
36,254
6,302
850
36,384
Ireland
34,094
16,514
187
(D)
1,630
(D)
6,644
91
(D)
7,136
Italy
17,575
5,923
1,677
1,641
87
(D)
(D)
(D)
(D)
6,351
Luxembourg
113,248
48,364
1,204
(D)
9,481
0
2,586
(D)
(D)
49,101
Netherlands
259,385
131,423
23,486
4,874
20,133
-760
39,865
3,287
6,980
30,097
35,020
24,660
8,070
95
612
(D)
248
(D)
(D)
1,228
Switzerland
165,697
107,154
7,184
4,050
(D)
31,522
2,351
687
9,324
UK
454,123
102,800
78,758
2,809
21,033
47,882
26,420
5,153
28,805
140,462
L.America
49,233
25,421
8,069
2,100
664
4,115
-19,829
10,261
1,766
16,664
2,002
427
493
-1
8
(D)
(D)
(D)
(D)
878
14,676
2,747
5,868
(D)
952
(D)
(D)
(D)
(D)
4,354
368,200
106,312
125,785
(D)
2,499
(D)
28,501
17,084
8,660
57,208
64,316
5,224
1,469
1
(D)
3,055
4,922
(D)
593
41,094
Japan
259,569
86,952
108,278
6,108
1,814
10,344
21,690
6,918
4,957
12,509
Korea
15,632
212
152
78
-4
Sweden
Africa
Mid. East
Asia
Australia
(D)
Congressional Research Service
(D)
(D)
(D)
(D)
3
(D)
Foreign Direct Investment in the United States: An Economic Analysis
All
OPEC
All
industries
13,345
Manufacturing
-177
Wholesale
trade
Retail
trade
9,026
(*)
Information
11
Banking
Finance
1,258
(D)
Real
estate
Services
255
(D)
Source: Ibarra, Marilyn, and Jennifer Koncz, Direct Investment Positions for 2008: Country and Industry Detail.
Survey of Current Business, July, 2009. p. 34.
Note: The position is the stock, or cumulative, book value of foreign direct investors’ equity in, and net outstanding
loans to, their U.S. affiliates. A negative position may result as U.S. affiliates repay debts to their foreign parents, and
as foreign parents borrow funds from their U.S. affiliates. D indicates that data have been suppressed by the
Department of Commerce to avoid the disclosure of data of individual companies. An asterisk (*) indicates that the
value of the cell is less than $500,000.
Acquisitions and Establishments
Another way of looking at foreign direct investment is by distinguishing between transactions in
which foreigners acquire existing U.S. firms and those in which foreigners establish new firms—
termed “greenfield” investments. New investments are often preferred at the local level because
they are thought to add to local employment, whereas a foreign acquisition itself may add little, if
any, new employment. In 2008, outlays for new investments, which include investments made
directly by foreign investors and those made by existing U.S. affiliates, were $260 billion, a 3.0%
increase over the $252 billion invested in 2007. According to the Department of Commerce, the
increase in new investments reflected several large transactions.5 These transactions include the
acquisition of Anheuser-Busch Cos. Inc., by Stichting Interbrew SA for $52 billion, the
acquisition of Alcon Inc., by Novartis AG for $10.8 billion and large investments in Commerce
Bancorp, New Jersey, Morgan Stanley, and Citigroup. Acquisitions of existing U.S. firms
accounted for 93% of the new investments by value. Investments by the existing U.S. affiliates of
foreign firms accounted for 82% of the total transactions by investor, while other foreign direct
investors accounted for the remaining 18% of transactions. Investment outlays by foreign firms
increased from 2007 to 2008 in all major sectors, except wholesale trade, retail trade, and real
estate. Investment in information, manufacturing, and services all posted increases.
Economic Performance
By year-end 2006, the latest year for which detailed data are available, foreign firms employed
5.8 million Americans, less than 4% of the U.S. civilian labor force, and owned over 30,000
individual business establishments.6 Foreign firms have a direct investment presence in every
state. Employment of these firms ranges from over 573,000 in California, to about 7,000 in North
Dakota. Following California, New York (389,000), Texas (368,000), Pennsylvania (249,000),
Florida (248,000), Illinois (243,000), and New Jersey (230,000) have the largest numbers of
residents employed by foreign firms. In 2006, 40% of the foreign firms’ employment was in the
manufacturing sector, more than twice the share of manufacturing employment in the U.S.
5
Anderson, Thomas, Foreign Direct Investment in the United States: New Investment in 2008. Survey of Current
Business, June 2009. p. 34.
6
Foreign Direct Investment in the United States: Operations of U.S. Affiliates of Foreign Companies, Preliminary
2005 Estimates. Bureau of Economic Analysis, 2007, Table 2A-1.
Congressional Research Service
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Other
industries
2,960
Foreign Direct Investment in the United States: An Economic Analysis
economy as a whole, with average annual compensation (wages and benefits) per worker of about
$63,000.
Retail and wholesale trade accounted for another 22% of total affiliate employment. Dutchaffiliated firms are the largest single employers in the retail trade sector and account for nearly
one-third of total affiliate employment in this sector, while Japanese and British firms account for
over half of the employment in the wholesale trade sector. Employment in the information,
finance, real estate and technical services sectors accounts for another 13% of total affiliate
employment. Average employee compensation is highest in the finance sector—$229,000—
where Swiss, Canadian, Japanese, and British firms account for three-fourths of the employment.
The rest of the affiliate employment is spread among a large number of other industries.
The affiliates of foreign firms spent $187 billion in the United States in 2007 on new plants and
equipment, imported $494 billion in goods and services and exported $205 billion in goods and
services. Since 1980, the total amount of foreign direct investment in the economy has increased
eight-fold and nearly doubled as a share of U.S. gross domestic product (GDP) from 3.4% to
6.4%. It is important to note, however, that these data do not imply anything in particular about
the role foreign direct investment has played in the rate of growth of U.S. GDP.
Foreign-owned establishments, on average, are far outperforming their U.S.-owned counterparts.
Although foreign-owned firms account for less than 4% of all U.S. manufacturing establishments,
they have 14% more value added on average and 15% higher value of shipments than other
manufacturers. The average plant size for foreign-owned firms is much larger—five times—than
for U.S. firms, on average, in similar industries. This difference in plant size apparently rises from
an absence of small plants among those that are foreign-owned. As a result of the larger plant
scale and newer plant age, foreign-owned firms paid wages on average that were 14% higher than
all U.S. manufacturing firms, had 40% higher productivity per worker, and 50% greater output
per worker than the average of comparable U.S.-owned manufacturing plants. Foreign-owned
firms also display higher capital intensity in a larger number of industries than all U.S.
establishments.
These differences between foreign-owned firms and all U.S. firms should be viewed with some
caution. First, the two groups of firms are not strictly comparable: the group of foreign-owned
firms comprises a subset of all foreign firms, which includes primarily very large firms; the group
of U.S. firms includes all firms, spanning a broader range of sizes. Secondly, the differences
reflect a range of additional factors, including the prospect that foreign firms that invest in the
United States likely are large firms with proven technologies or techniques they have successfully
transferred to the United States. Small foreign ventures, experimenting with unproven
technologies, are unlikely to want the added risk of investing overseas. Foreign investors also
tend to opt for larger scale and higher capital-intensity plants than the average U.S. firm to offset
the risks inherent in investing abroad and to generate higher profits to make it economical to
manage an operation far removed from the parent firm.
Conclusions
Foreign direct investment in the United States in 2008 rose slightly over the amount invested in
2007, but set a record in nominal terms for the most amount of foreign direct investment in the
economy in a year. Other countries have experienced a similar turnaround in foreign direct
investment inflows, especially some of the less developed economies where there is a great
Congressional Research Service
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Foreign Direct Investment in the United States: An Economic Analysis
potential for investment. As the rate of growth of the U.S. economy rises, interest rates stay low,
and the rate of price inflation stays in check, foreign direct investment in the United States likely
will continue to increase. Of particular importance will be public concerns over foreign direct
investment in the economy as a whole and on the overall phenomenon referred to as
“globalization,” with its impact on jobs in the economy. Concerns over foreign direct investment,
where they exist, stem not so much from the perceived potential losses of international
competitiveness that characterized similar concerns in the 1980s, but from potential job losses
that could result from mergers and acquisitions, although such losses could occur whether the
acquiring company is foreign- or U.S.-owned. Such concerns are offset, at least in part, by the
benefits that are perceived to be derived from the inflow of capital and the potential for new jobs
being created in local areas.
Although job security is an important public issue, opposition to some types of foreign direct
investment stems from concerns about the impact of such investment on U.S. economic and
security interests, particularly in light of the terrorist attacks of September 11, 2001. The U.S.
economy, however, remains a prime destination for foreign direct investment. As the pace of
economic growth in the nation increases relative to that of foreign economies, foreign direct
investment likely will increase as new investments are attracted to the United States and existing
firms are encouraged to reinvest profits in their U.S. operations.
Author Contact Information
James K. Jackson
Specialist in International Trade and Finance
jjackson@crs.loc.gov, 7-7751
Congressional Research Service
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