U.S. Direct Investment Abroad:
Trends and Current Issues
James K. Jackson
Specialist in International Trade and Finance
October 26, 2012May 17, 2013
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 .......................................................................................................................... 45
Employment ..................................................................................................................................... 6
Conclusions...................................................................................................................................... 67
Figures
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-20112012 (in billions of dollars) ........................................................... 2
Tables
Table 1. U.S. Direct Investment Position Abroad on a Historical-Cost Basis at Year-End
2011 .............................................................................................................................................. 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 rose by 27% in nominal terms in 2011 over the amount invested in 2010, reflecting
improvements in the rate of economic growth in Europe and elsewhere. Net investments rose
from $328 billion in 2010 to $419 billion in 2011, including adjustments for changes in the value
of some components, according to the Department of Commerce.2 According to preliminary data,
U.S. direct investment abroad in 2012 was about $350 billion, a drop of 16% from the amount
invested in 2011. A sharp drop in U.S. direct 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).
2004 (P.L. 108-357).
According to preliminary data, U.S. direct investment abroad in 2012 was about $350 billion, a
drop of 16% from the amount invested in 2011.3 Similarly, foreign direct investment in the
United States in 2012 dropped by 25% from the amount invested in 2011. U.S. direct investment
abroad slowed due to reductions in reinvested earnings, intercompany debt investment, and net
equity investment. Despite increases in income and earnings in 2012 compared with 2011, foreign
direct investment in the United States fell by $60 billion to $175 billion in 2012, a drop of 25%
compared with the $234 billion invested in 2011, due to a sharp reduction in net equity
investment and in intercompany debt.
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 the flows can be quite erratic at times. The rise in U.S. direct investment abroad in 2011
compared with 2010 reflected a 10% increase in reinvested earnings, which accounted for 87% of
the total amount of U.S. foreign direct investment as the foreign affiliates relied more on their
own earnings than on funds borrowed from their U.S. parent companies. Investments were also
supported by a nearly 30% increase in equity capital and a shift to outflows in intercompany debt
also contributed to the total amount of direct investment abroad. A decline in stock market
valuations around the world in 2011 decreased the overall value of U.S. direct investment abroad,
measured at market value, by $266 billion. During the same period, the market value of foreign
firms operating in the United statesStates experienced an increase of over $816 billion in 2011. In
2011,
changes in the values of stocks owned by U.S. firms abroad dropped by $569 billion, while the
the value of stocks owned in the United States by foreign firms increased by about $8 billion.3
4
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
Scott, Sarah P., U.S. International Transactions: First Quarter of 2012. Survey of Current Business, July 2012, p. 59.
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.
3
Scott, Sarah P., U.S. International Transactions: Fourth Quarter and Year 2012. Survey of Current Business, April
2013, 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.
4
Nguyen, Elena L., the International Investment Position of the United States at Yearend 2011, Survey of Current
(continued...)
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U.S. Direct Investment Abroad: Trends and Current Issues
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 2006 to 2010, U.S. direct investment
abroad was about a third more than the amount foreigners invested in the U.S. economy. In 2010, both
both U.S. and foreign direct investment rose over the values of the previous year, but U.S. direct
investment abroad was greater than the amount foreigners invested in U.S. businesses and real
estate, reflecting the low rate of growth in the U.S. economy. Such investments were strong again
in the first half of 2011, but are unlikely to remain as strong during the second half of the year, as
the European financial and debt crisis and the slowdown in the U.S. economy are negatively
affecting economic growth in Europe and elsewhere. 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
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
Scott, Sarah P., U.S. International Transactions: First Quarter of 2012. Survey of Current Business, July 2012, p. 59.
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.
3
Nguyen, Elena L., the International Investment Position of the United States at Yearend 2011, Survey of Current
Business, July 2012, p. 17.
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U.S. Direct Investment Abroad: Trends and Current Issues
largest foreign direct investors in the world and own as much abroad as the British and Germans
combined, the next largest foreign direct investors.
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2011 (in billions of dollars)
$450
$400
$350
$300
$250
$200
$150
$100
$50
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
20
10
20
11
$0
US direct investment abroad
Foreign direct investment in the US2012 (in billions of dollars)
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,45 or the cumulative amount at book value, reached $4.1 trillion in 2011, the latest year for
such investment position data.5 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
4
(...continued)
Business, July 2012, p. 17.
5
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 in 2011 U.S. direct investment abroad measured at
current cost increased by $375 billion and fell by $267 billion when measured by market value, to reach $4.7 trillion
and $4.5 trillion, respectively.
5
Barefoot, Kevin B., Marilyn Ibarra-Caton, Direct Investment Positions for 2011: Country and Industry Detail, Survey
of Current Business, July, 2012. p. 20.
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U.S. Direct Investment Abroad: Trends and Current Issues
(continued...)
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U.S. Direct Investment Abroad: Trends and Current Issues
such investment position data.6 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
investments are in developed countries: Europe alone accounts for over half of all U.S. direct
investment abroad, or $2.3 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.
Table 1. U.S. Direct Investment Position Abroad on a Historical-Cost Basis
at Year-End 2011
(in billions of dollars)
All
industries
All
Manufacturing
Wholesale
trade
Information
Banking
Finance
Services
Holding
companies
Other
$4,155.6
$588.7
$193.8
$127.2
$107.9
319.0
73.8
20.7
8.3
Europe
2,307.7
277.4
86.7
Belgium
52.9
26.4
France
89.3
Germany
Ireland
Services
Holding
companies
$777.2
$90.1
$1,809.1
$273.6
319.0
73.8
20.7
8.3
5.9
54.9
6.9
89.4
36.2
Europe
2,307.7
277.4
86.7
73.4
66.8
384.6
55.2
1,181.9
152.3
Belgium
52.9
26.4
9.5
-0.4
0.8
11.3
1.2
1.1
2.9
France
89.3
25.6
6.3
1.8
7.2
14.1
4.0
15.3
14.9
Germany
106.9
31.1
8.2
3.8
0.2
16.2
6.7
32.0
8.4
Ireland
188.3
25.3
-3.1
19.5
(D)
12.5
8.8
89.5
(D)
25.3
8.2
2.2
3.0
0.3
3.0
1.4
0.9
6.2
Luxemb.
335.3
9.7
-0.1
5.8
(D)
47.6
0.1
258.3
(D)
Netherl.
595.1
37.4
21.7
7.0
(D)
44.2
5.9
457.8
(D)
Spain
58.6
14.7
3.3
0.7
2.1
3.9
0.4
30.7
2.8
Sweden
27.0
6.0
0.7
1.2
(D)
(D)
1.0
3.5
(D)
Switzer.
125.0
21.9
14.9
5.7
5.4
7.7
1.9
50.9
16.2
5.2
2.1
1.2
0.1
(D)
(D)
0.0
(D)
0.2
UK
549.4
42.5
13.4
21.5
13.4
206.2
20.7
177.2
48.3
LAmerica
831.2
87.6
35.6
12.6
4.1
208.6
2.9
387.2
36.2
Brazil
71.1
31.8
2.9
5.7
(D)
10.5
1.3
9.0
(D)
ChileAll
Canada
Italy
Turkey
Brazil
All
industries
Banking
Finance
(...continued)
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 in 2011 U.S. direct investment abroad measured at
current cost increased by $375 billion and fell by $267 billion when measured by market value, to reach $4.7 trillion
and $4.5 trillion, respectively.
6
Barefoot, Kevin B., Marilyn Ibarra-Caton, Direct Investment Positions for 2011: Country and Industry Detail, Survey
of Current Business, July, 2012. p. 20.
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U.S. Direct Investment Abroad: Trends and Current Issues
Manufacturing
Wholesale
trade
Information
34.2
3.7
0.7
0.4
(D)
3.9
0.4
(D)
(D)
Venez’
12.1
5.8
0.4
0.3
(D)
1.1
0.4
2.4
(D)
Mexico
91.4
30.4
2.4
2.2
1.1
11.3
-0.3
27.7
10.2
Bermuda
327.2
2.5
2.1
1.1
0.2
92.2
0.0
214.6
14.4
Dom.
Republic
1.7
1.1
0.2
0.0
(D)
0.0
0.0
(D)
(D)
UK Car.
180.8
0.7
(D)
(D)
-2.8
69.2
0.5
88.0
(D)
Africa
56.6
3.6
1.2
0.3
2.3
7.5
1.0
6.1
1.5
Middle
East
35.9
12.6
2.2
0.9
0.3
0.5
1.3
8.6
0.7
Asia
605.2
133.8
47.3
31.6
28.5
121.2
22.9
135.8
46.8
Canada
Italy
Turkey
Asia
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U.S. Direct Investment Abroad: Trends and Current Issues
All
industries
Austral.
Manufacturing
Wholesale trade
Information
Banking
Finance
Services
Holding
companies
OtherAustral.
136.2
17.3
6.2
13.1
0.3
30.2
6.2
29.1
13.2
China
54.2
26.7
4.8
3.0
3.0
2.5
1.3
4.8
5.2
HK
52.5
4.8
9.8
1.9
1.7
6.1
1.8
23.0
3.4
Japan
116.5
23.3
7.2
6.2
4.4
54.5
2.9
7.9
10.1
Korea
31.8
12.7
1.7
0.6
(D)
5.7
1.0
0.6
(D)
116.6
21.4
8.4
2.5
0.4
13.7
0.6
65.3
3.5
Taiwan
15.8
5.5
3.5
0.2
(D)
2.2
0.4
0.0
(D)
OPEC
54.4
11.4
2.6
0.5
(D)
2.5
1.4
14.5
(D)
SingaporeAll
industries
Chile
Singapore
Banking
Finance
Services
Holding
companies
Source: Lowe, Jeffrey H., Direct Investment for 2009-2011: Detailed Historical-Cost Positions and Related
Financial and Income Flows. Survey of Current Business, September 2012. p. 45.
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. By location, in 2010 and
2011, U.S. firms focused slightly more than half of their investments in the highly developed
economies of Europe with investments in other developed economies raising the share of
investments going to developed economies to about 70% of total U.S. direct investment abroad.
Another 20% of U.S. direct investment abroad is sent to Latin America and 15% of investment
are is
located in Asia. Investments in Africa account for about 1.5% of total U.S. direct investment
abroad, with investments in the Middle East accounting for about 1% of the total.
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-
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U.S. Direct Investment Abroad: Trends and Current Issues
highly developed countries with advanced infrastructure and communications systems. The total
amount of U.S. direct investment abroad, or the position, during the 2000-2011 period more than
quadrupled, rising from $920 billion to $4.1 trillion. Annual investments in most sectors increased
in 2011 over the amount invested in 2010, except for investment in the banking sector. Generally,
service-oriented sectors continued to grow through 2011. Within the manufacturing sector, direct
investments increased in 2011 relative to 2010 in all sectors, reflecting the nascent economic
recovery from the impact of the economic recession.
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
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U.S. Direct Investment Abroad: Trends and Current Issues
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.
firms invest abroad to serve the foreign local market, rather than to produce goods to export back
to the United States, although some firms do establish overseas operations to replace U.S. exports
or production, or to gain access to raw materials, cheap labor, or other markets. In 2009, the latest
year for which U.S. direct investment abroad data are available, 6.8% of affiliate sales were sold
to the U.S. parent companies.67
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.78
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. In addition, U.S. multinational companies were
disproportionately negatively affected in 2008 and 2009 by the global economic recession as a
result of the geographic distribution of the multinational firms’ activities and the industrial
composition of their operations. 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 1989.89 In 2007 (the latest year for which estimates are available), U.S. parent
7
U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates, Preliminary 2009
Estimates, October 2012. Table II. F. 1.
8
Mataloni, Raymond J. Jr. U.S. Multinational Companies: Operations in 1998. Survey of Current Business, July 2000.
pp. 24-45.
9
Mataloni, Raymond J. Jr. U.S. Multinational Companies: Operations in 2003. Survey of Current Business, July 2005.
p. 15.
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U.S. Direct Investment Abroad: Trends and Current Issues
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%.9
6
U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates, Preliminary 2009
Estimates, October 2012. Table II. F. 1.
7
Mataloni, Raymond J. Jr. U.S. Multinational Companies: Operations in 1998. Survey of Current Business, July 2000.
pp. 24-45.
8
Mataloni, Raymond J. Jr. U.S. Multinational Companies: Operations in 2003. Survey of Current Business, July 2005.
p. 15.
9
Ibid., p. 31.
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U.S. Direct Investment Abroad: Trends and Current Issues10
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. Employment fell again in 2008 to 21
million as the rate of U.S. economic growth slowed. By 2009, however, employment among U.S.
parent companies rose 11% to reach 23 million. Employment among foreign affiliates also rose by
by 9.8% in 2009 over 2008 to reach 13 million.
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 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.
10
Ibid., p. 31.
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U.S. Direct Investment Abroad: Trends and Current Issues
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 2009, 8% of the sales of the foreign
affiliates of U.S. firms was accounted for by exports back to the United States,1011 although this
share is nonetheless substantial.
10
U.S. Direct Investment Abroad, Table IIF1.
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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.1112 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.
Author Contact Information
James K. Jackson
Specialist in International Trade and Finance
jjackson@crs.loc.gov, 7-7751
11
U.S. Direct Investment Abroad, Table IIF1.
CRS Report RL32461, Outsourcing and Insourcing Jobs in the U.S. Economy: Evidence Based on Foreign
Investment Data, by James K. Jackson.
12
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