U.S. Direct Investment Abroad:
Trends and Current Issues
James K. Jackson
Specialist in International Trade and Finance
July 28, 2010February 1, 2011
Congressional Research Service
7-5700
www.crs.gov
RS21118
CRS Report for Congress
Prepared for Members and Committees of Congress
U.S. Direct Investment Abroad: Trends and Current Issues
Summary
The United States is the largest investor abroad and the largest recipient of direct investment in
the world. For some Americans, the national gains attributed to investing overseas are offset by
such perceived losses as displaced U.S. workers and lower wages. Some observers believe U.S.
firms invest abroad to avoid U.S. labor unions or high U.S. wages, however, 70% of U.S. foreign
direct investment is concentrated in high income developed countries. Even more striking is the
fact that the share of investment going to developing countries has fallen in recent years. Most
economists conclude that direct investment abroad does not lead to fewer jobs or lower incomes
overall for Americans and that the majority of jobs lost among U.S. manufacturing firms over the
past decade reflect a broad restructuring of U.S. manufacturing industries.
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U.S. Direct Investment Abroad: Trends and Current Issues
Contents
Recent Investments .....................................................................................................................1
U.S. Multinationals .....................................................................................................................4
Employment ...............................................................................................................................5
Conclusions ................................................................................................................................6
Figures
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2009 (in billions of dollars).........................................................2
Tables
Table 1. U.S. Direct Investment Position Abroad on a Historical-Cost Basis at Year-End
2009 ........................................................................................................................................3
Contacts
Author Contact Information ........................................................................................................7
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U.S. Direct Investment Abroad: Trends and Current Issues
Recent Investments
New spending by U.S. firms on businesses and real estate abroad, or U.S. direct investment
abroad,1 although substantial, fell by almost one-fourth in nominal terms in 2009 compared to
2008, reflecting the
financial crisis and the economic downturn. Net investments fell from $351
billion in 2008 to
$269 billion in 2009, according to the Department of Commerce. 2 A sharp drop
in U.S. direct
investment abroad that occurred in 2005 reflects actions by U.S. parent firms to
reduce the
amount of reinvested earnings going to their foreign affiliates for distribution to the
U.S. parent
firms in order to take advantage of one-time tax provisions in the American Jobs
Creation Act of
2004 (P.L. 108-357).
Generally, relative rates of growth between U.S. and foreign economies largely determine the
direction and magnitude of direct investment flows. These flows also are affected by relative rates
of inflation, interest rates, and expectations about the performance of national economies, which
means they can be quite erratic at times. The drop in U.S. direct investment abroad in 2009
compared with 2008 reflected a sharp drop in equity capital, a turnaround in intercompany debt
from positive to negative, and a slight decrease in reinvested earnings arising from a decrease in
distributed earnings. The sharp drop in stock market valuations around the world in 2008
devalued U.S. direct investment abroad, measured at market value, by $2.2 trillion. During the
same period, the market value of foreign firms operating in the United states experienced a loss of
over $1.0 trillion in 2008. In 2009, the recovery of foreign stock markets increased the value of
U.S.-owned foreign securities by over $1 trillion, while the value of foreign-owned U.S. stocks
rose by over $600 billion.
Since the mid-1990s, the combination of strong growth and low inflation in the U.S. economy has
attracted foreign investors, as indicated in Figure 1. From 2002 to 2007, U.S. direct investment
abroad averaged more than twice the amount foreigners invested in the U.S. economy, reflecting
the period of slower growth in the economy from 2001-2003. In 2009, both U.S. and foreign
direct investment dropped from the values of the previous year, but U.S. direct investment abroad
was double the amount foreigners invested in U.S. businesses and real estate. Such investments
way well pick up in the first half of 2010 as the rate of economic growth improves. On the whole,
U.S. firms are the most prolific overseas investors: a recent study by the United Nations indicates
that U.S. firms are the largest foreign direct investors in the world and own as much abroad as the
British and Germans combined, the next largest foreign direct investors.
1
The United States defines direct investment abroad as the ownership or control, directly or indirectly, by one person
(individual, branch, partnership, association, government, etc.) of 10% or more of the voting securities of an
incorporated business enterprise or an equivalent interest in an unincorporated business enterprise. 15 CFR § 806.15
(a)(1).
2
Thomas, Sarah Scott, Erin M. Whitaker, and Daniel R. Yorgason, U.S. International Transactions: First Quarter 2010.
Survey of Current Business, July 2010, p. 54. 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.
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U.S. Direct Investment Abroad: Trends and Current Issues
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2009 (in billions of dollars)
$500
$400
$300
$200
$100
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
$0
U.S. Direct Investment Abroad
Foreign Direct Investment in the U.S.
Source: U.S. Department of Commerce
Note: The drop in U.S. direct investment abroad in 2005 reflects actions by U.S. parent firms to reduce the
amount of reinvested earnings going to their foreign affiliates for distribution to the U.S. parent firms in order to
take advantage of one-time tax provisions in the American Jobs Creation Act of 2004 (P.L. 108-357).
Table 1 indicates that the overseas direct investment position of U.S. firms on a historical-cost
basis,3 or the cumulative amount at book value, reached $3.5 trillion in 2009, the latest year for
such investment position data.4 The Department of Commerce does not attempt to deflate the
annual nominal amounts for direct investment with a specific price deflator. Instead, the
Department publishes alternative estimates based on current cost and market value to provide
other measures of the value of direct investment. Slightly less than 70% of U.S. overseas
Slightly less than 70% of these overseas investments are in
developed countries: Europe alone accounts for over half of all U.S. direct
investment abroad, or
$2 trillion. Europe has been a prime target of U.S. investment since U.S.
firms first invested
abroad in the 1860s. American firms began investing heavily in Europe following World War II as
European countries rebuilt their economies and later when they formed an intra-European
economic union.
3
The position, or stock, is the net book value of U.S. parent company’s equity in, and outstanding loans to, their
affiliates abroad. 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 U.S. direct investment position valued on a
current-cost and market value bases. These estimates indicate that U.S. direct investment abroad measured at current
cost increased by $308 billion and rose by $1.2 trillion in 2009 when measured by market value, to reach $4.1 trillion
and $4.3 trillion, respectively.
4
Ibarra-Caton, Marilyn, and Jennifer Koncz, Direct Investment Positions for 20082009: Country and Industry Detail, Survey of
Current Current
Business, July, 20092010. p. 3221.
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U.S. Direct Investment Abroad: Trends and Current Issues
following World War II as European countries rebuilt their economies and later when they formed
an intra-European economic union.
Table 1. U.S. Direct Investment Position Abroad on a Historical-Cost Basis
at Year-End 2009
(in billions of dollars)
All
industries
All
Manufacturing
Wholesale trade
Information
Banking
Finance
Services
Holding
companies
Other
$3,508.1
$541.1
$199.0
$149.8
$114.0
$747.0
$77.5
$1,280.0
$228.7
259.8
65.0
21.9
6.4
5.0
43.0
5.7
58.2
35.7
Europe
1976.2
284.8
102.4
103.9
77.5
363.9
48.9
824.5
123.1
Belgium
69.8
26.1
5.7
-0.6
(D)
31.5
1.7
2.6
(D)
France
85.8
28.1
5.6
2.5
4.5
6.1
2.8
25.8
10.2
Germany
116.8
31.8
10.6
4.0
1.7
17.3
6.4
36.7
8.4
Ireland
165.9
16.2
4.2
32.7
0.1
12.4
9.4
53.6
31.5
12.6
3.2
2.2
(D)
4.1
1.2
2.0
Luxemb.
174.1
8.3
0.0
6.0
(D)
37.6
0.1
115.2
Netherl.
471.6
30.7
19.8
12.7
(D)
50.4
5.7
331.6
(D)
Spain
50.6
15.0
3.5
0.8
2.4
5.0
0.5
20.1
3.2
Sweden
27.4
3.4
0.7
(D)
10.6
0.6
9.7
(D)
Switzer.
148.2
24.4
22.5
3.7
(D)
4.4
1.6
73.9
(D)
6.3
1.6
1.9
-0.0
(D)
0.1
0.0
0.0
(D)
UK
471.4
53.4
14.6
36.7
17.4
173.5
16.7
114.3
39.4
LAmerica
679.0
69.8
32.9
10.3
-13.0
220.3
2.3
286.7
29.8
Brazil
56.7
25.6
2.1
3.6
3.9
11.2
0.7
6.3
0.3
Chile
22.6
2.7
0.8
0.1
1.5
3.8
0.3
0.8
Venez’
14.5
4.5
(D)
0.5
0.3
6.5
(D)
Mexico
97.9
24.4
3.0
3.0
1.9
15.9
0.4
32.4
11.6
Bermuda
245.7
1.8
6.4
0.8
(D)
98.1
0.3
133.3
7.1
Dom.
Republic
1.0
(D)
-25.1
0.0
0.0
0.0
0.0
UK Car.
141.5
0.6
0.6
(D)
70.8
0.1
76.7
2.1
Africa
44.8
3.6
1.3
0.2
2.2
2.4
0.4
7.8
1.9
Middle
East
37.0
12.5
2.2
1.7
0.2
0.7
1.3
10.4
0.8
Canada
Italy
Turkey
0.6
(D)
(D)
(D)
(D)
(D)
(D)
6.1
(D)
(D)
Asia
511.3
105.3
38.3
27.4
42.2
116.7
18.9
92.3
37.4
Austral.
106.4
15.4
5.2
14.5
2.4
23.9
4.5
12.6
9.1
China
49.4
22.6
2.9
0.5
10.8
1.8
0.6
3.9
2.6
HK
50.4
4.4
8.3
1.5
3.3
13.6
3.3
13.3
2.7
Japan
103.6
16.9
8.2
5.0
49.9
2.4
8.3
Korea
27.0
10.9
2.2
0.5
(D)
4.2
0.4
(D)
(D)
Singapore
76.9
10.1
5.7
1.2
3.7
7.8
3.1
42.1
2.4
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(D)
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(D)
U.S. Direct Investment Abroad: Trends and Current Issues
Holding
companies
All
industries
Manufacturing
Wholesale trade
Information
Taiwan
19.5
4.3
3.3
0.2
1.7
8.4
0.2
0.1
(D)
OPEC
56.0
11.1
2.0
0.2
(D)
1.0
1.2
21.0
(D)
Banking
Finance
Services
OtherChina
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U.S. Direct Investment Abroad: Trends and Current Issues
All
industries
Manufacturing
Wholesale trade
Information
50.4
4.4
8.3
1.5
Japan
103.6
16.9
8.2
5.0
Korea
27.0
10.9
2.2
0.5
Singapore
76.9
10.1
5.7
Taiwan
19.5
4.3
OPEC
56.0
11.1
HK
Banking
3.3
Finance
Services
Holding
companies
Other
13.6
3.3
13.3
49.9
2.4
8.3
(D)
4.2
0.4
(D)
(D)
1.2
3.7
7.8
3.1
42.1
2.4
3.3
0.2
1.7
8.4
0.2
0.1
(D)
2.0
0.2
(D)
1.0
1.2
21.0
(D)
(D)
Source: Ibarra, Marilyn, and Jennifer Koncz, Direct Investment Positions for 2009: Country and Industry Detail.
Survey of Current Business, July 2010. p.32.
Note: A (D) indicates that the data have been suppressed by the Department of Commerce to avoid disclosing
the data of individual companies.
Typically, U.S. firms have placed the largest share of their annual investments in developed
countries, primarily in Western Europe, but this tendency has increased since the mid-1990s. In
the last half of the 1990s, U.S. direct investment abroad experienced a dramatic shift from
developing countries to the richest developed economies: the share of U.S. direct investment
going to developing countries fell from 37% in 1996 to 21% in 2000. In 2009, U.S. firms focused
a slightly smaller percent of their investment funds in Europe and Asia, while increasing their
share of their investment spending in all other areas Canada. Developed countries received nearly
70% of the investment funds of U.S. multinational firms, while developing countries received
about 30%.
Patterns in U.S. direct investment abroad generally reflect fundamental changes that occur in the
U.S. economy during the same period. As investment funds in the U.S. economy shifted from
extractive, processing, and manufacturing industries toward high technology services and
financial industries, U.S. investment abroad mirrored these changes. As a result, U.S. direct
investment abroad focused less on the extractive, processing, and basic manufacturing industries
in developing countries and more on high technology, finance, and services industries located in
highly-developed countries with advanced infrastructure and communications systems. The total
amount of U.S. direct investment abroad, or the position, during the 2000-2009 period more than
tripled, rising from $920 billion to $3.5 trillion. Investments in the banking, finance, and
insurance sectors all fell in 2008, reflecting the financial crisis. Generally, service-oriented sectors
continued to grow through 2008. Within the manufacturing sector, the direct investment position
fell in most sectors in 2008, reflecting the economic recession that had started earlier in that year.
U.S. Multinationals
Nations once hostile to American direct investment now compete aggressively by offering
incentives to U.S. firms. A debate continues within the United States, however, over the relative
merits of U.S. direct investment abroad. Some Americans believe that U.S. direct investment
abroad, directly or indirectly, shifts some jobs to low wage countries. They argue that such shifts
reduce employment in the United States and increase imports, thereby affecting negatively both
U.S. employment and economic growth. Economists generally believe that firms invest abroad
because those firms possess some special process or product knowledge or because they possess
special managerial abilities which give them an advantage over other firms. On the whole, U.S.
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2.7
(D)
U.S. Direct Investment Abroad: Trends and Current Issues
firms invest abroad to serve the foreign local market, rather than to produce goods to export to the
United States, although some firms do establish overseas operations to replace U.S. exports or
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U.S. Direct Investment Abroad: Trends and Current Issues
production, or to gain access to raw materials, cheap labor, or other markets. On average, about
8% of affiliate sales are to the U.S. parent companies.5
U.S. multinational corporations (MNCs) rank among the largest U.S. firms. According to data
collected by the Commerce Department’s Bureau of Economic Analysis (BEA), when American
parent companies and their foreign affiliates are compared by the size structure of employment
classes, 40% of the more than 2,000 U.S. parent companies employ more than 2,499 persons.
These large parent firms account for 95% of the total number of people employed by U.S. MNCs.
Employment abroad is even more concentrated among the largest foreign affiliates of U.S. parent
firms: the largest 2% of the affiliates account for 90% of affiliate employment.6
While U.S. MNCs used their economic strengths to expand abroad between the 1980s and early
2000s, the U.S.-based parent firms lost market positions at home, in large part due to corporate
downsizing efforts to improve profits. U.S. MNC parent companies’ share of all U.S. business
gross domestic product (GDP)—the broadest measure of economic activity—declined from 32%
to 25% from 1977 to 1989.7 In 2007 (the latest year for which estimates are available), U.S.
parent companies accounted for about 21% of total U.S. business activity. These MNC parent
companies accounted for about 41% of total U.S. manufacturing activity, down from 46% in
2000.
As U.S. MNC parent companies were losing their relative market positions at home, their
cumulative amount of direct investment abroad doubled. This increase did spur a shift in some
economic activity among the U.S. MNCs from the U.S. parent companies to the foreign affiliates.
During the period from 2000 to 2007, the foreign affiliates increased their share of the total
economic activity within U.S. MNCs—the combined economic output of the U.S. parent and the
foreign affiliates—from 22% to 30%.8
Employment
One of the most commonly expressed concerns about U.S. direct investment abroad is that U.S.
parent companies invest abroad in order to send low-wage jobs overseas. Such effects are difficult
to measure because they are small compared with much larger changes occurring within the U.S.
economy. In addition, a cursory examination of the data seems to indicate that employment losses
among parent firms occurred simultaneously with gains in foreign subsidiaries, thereby giving the
impression that jobs are being shifted abroad. Employment among U.S. parent companies fell
during the early 1980s, but increased in the 1992-2000 period, from 17.5 million to 23.9 million.
From 2000 to 2003, however, employment among U.S. parent companies fell by 12% to 21.1
million, before rising after 2003 to reach 22 million in 2007 as U.S. economic growth picked up.
Employment among foreign affiliates also rose in 2007 by 4.0% to 10.0 million, from 9.6 million
in 2006.
5
U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates, Preliminary 2004
Estimates, October 2006. Table III. F. 1.
6
Mataloni, Raymond J. Jr. U.S. Multinational Companies: Operations in 1998. Survey of Current Business, July 2000.
pp. 24-45.
7
Mataloni, Raymond J. Jr. U.S. Multinational Companies: Operations in 2003. Survey of Current Business, July 2005.
p. 15.
8
Ibid., p. 31.
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Employment among foreign affiliates also rose in 2007 by 4.0% to 10.0 million, from 9.6 million
in 2006.
After employment losses in the early 1980s, employment at both the parent firms and the foreign
affiliates increased after 1992, although at different rates and in different industries. Both the U.S.
parent companies and the foreign affiliates lost employment during the first part of the 2000s as
the U.S. economy recovered from a period of slow growth. During such downturns, U.S. parent
firms and their foreign affiliates often lose or gain employment in many of the same industries.
Both the parent firms and the affiliates lost employment in the petroleum and finance sectors,
although both gained employment in the services and wholesale trade sectors. Furthermore,
employment gains and losses among MNCs more likely reflect fundamental shifts within the U.S.
economy, than any formal or informal efforts to shift employment abroad.
Some observers also contend that U.S. direct investment abroad supplants U.S. exports, thereby
worsening the U.S. trade deficit and eliminating some U.S. jobs. Most analyses indicate,
however, that intra-company trade, or trade between the U.S. parent company and its foreign
subsidiaries, represents a large share of U.S. trade and that foreign investment typically boosts
U.S. exports more than it contributes to a rise in imports or to a loss of exports. For instance,
American multinational corporations account for over 60% of U.S. exports and 40% of U.S.
imports, indicating that U.S. parent firms tend to be a more important source of supply to their
affiliates than the affiliates are to their parent companies.
Conclusions
American direct investment abroad has grown sharply since the mid-1990s, raising questions for
many observers about the effects of such investment on the U.S. economy. These questions seem
pertinent since American multinational corporations lost shares of U.S. GDP over the last decade
and their domestic employment had declined until the mid-1990s. Increased economic activity
abroad relative to that in the United States increased overseas affiliate employment in some
industries, including manufacturing. Most of this affiliate activity, however, is geared toward
supplying the local markets in which they are located. In 2004, 9.5% of the sales of the foreign
affiliates of U.S. firms was accounted for by exports back to the United States,9 although this
share is nonetheless substantial.
Some observers believe U.S. direct investment abroad is harmful to U.S. workers because it shifts
jobs abroad. There is no conclusive evidence in the data collected to date to indicate that current
investment trends are substantially different from those of previous periods or that jobs are
moving offshore at a rate that is significantly different from previous periods.10 There are
instances when firms shift activities abroad to take advantage of lower labor costs. However, it is
clear from the data that the majority of U.S. direct investment abroad is in developed countries
where wages, markets, industries, and consumers’ tastes are similar to those in the United States.
U.S. direct investment in these developed countries is oriented toward serving the markets where
the affiliates are located and they tend, in the aggregate, to boost exports from the United States.
In addition, foreign firms have been pouring record amounts of money into the United States to
acquire existing U.S. firms, to expand existing subsidiaries, or to establish “greenfield” or new
investments.
9
Mataloni, Operations of U.S. Multinational Companies. p. 41.
CRS Report RL32461, Outsourcing and Insourcing Jobs in the U.S. Economy: Evidence Based on Foreign
Investment Data, by James K. Jackson.
10
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U.S. Direct Investment Abroad: Trends and Current Issues
acquire existing U.S. firms, to expand existing subsidiaries, or to establish “greenfield” or new
investments.
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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