U.S. Direct Investment Abroad:
Trends and Current Issues
James K. Jackson
Specialist in International Trade and Finance
December 11, 2013
Congressional Research Service
7-5700
www.crs.gov
RS21118
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, 74% of the
accumulated U.S. foreign direct investment is concentrated in high income developed countries,
who are members of the Organization for Economic Cooperation and Development (OECD).
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 responding primarily to domestic economic forces.
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U.S. Direct Investment Abroad: Trends and Current Issues
Contents
Recent Investments .......................................................................................................................... 1
U.S. Multinationals .......................................................................................................................... 5
Employment ..................................................................................................................................... 6
Conclusions ...................................................................................................................................... 7
Figures
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2012 (in billions of dollars) ........................................................... 2
Tables
Table 1. U.S. Direct Investment Position Abroad on a Historical-Cost Basis at Year-End
2012 .............................................................................................................................................. 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 fell by 5% in nominal terms in 2012 from the amount invested in 2011, reflecting a slow
rate of economic growth in Europe and elsewhere. Net investments fell from $409 billion in 2011
to $388 billion in 2012, 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 2013 is estimated to be about $368 billion, a drop of 5% from the amount
invested in 2012. 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). U.S. direct investment
abroad also dropped between 2008 and 2010 below the amount recorded in 2007, reflecting the
financial crisis that sharply reduced the availability of investment funds. Similarly, despite
increases in income and earnings in 2012 compared with 2011, foreign direct investment in the
United States fell by $66 billion to $166 billion in 2012, a drop of 28% compared with the $230
billion invested in 2011, due to a sharp reduction in net equity investment and 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.
According to balance of payments data, U.S. direct investment abroad dropped in 2012 compared
with 2011 as a result of a sharp reduction in net equity investment that overshadowed increases in
reinvested earnings and intercompany debt investment. Equity capital fell from $65 billion in
2011 to $35 billion in 2012, or by half. Reinvested earnings, which comprised about 86% of total
U.S. direct investment abroad in 2012, increased slightly over that recorded in 2011.
Intercompany debt also increased slightly as the foreign affiliates reduced the amount of funds
they borrowed from their parent companies. An increase in stock market valuations around the
world in 2012 increased the overall value of U.S. direct investment abroad, measured at market
value, by $736 billion. During the same period, the market value of foreign firms operating in the
United States experienced an increase of over $1.0 trillion in 2012. In 2012, changes in the values
of stocks owned by U.S. firms abroad increased by $900 billion, while the value of stocks owned
in the United States by foreign firms increased by about $585 billion.3
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
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: Second Quarter of 2013. Survey of Current Business, October 2013,
p. 74. 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 the End of the First Quarter of 2013
and Year 2012, Survey of Current Business, July 2013, p. 14.
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abroad was about a third more than the amount foreigners invested in the U.S. economy. In 2010,
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 picked up again in
2011, reaching more than $400 billion, but fell to $388 billion in 2012. 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.
Figure 1. Foreign Direct Investment in the United States and U.S. Direct Investment
Abroad, Annual Flows, 1990-2012 (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,4 or the cumulative amount at book value, reached $4.4 trillion in 2012, the latest year for
4 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 2012 U.S. direct investment abroad measured at
current cost increased by $414 billion and by $736 billion when measured by market value, to reach $5.1 trillion and
$5.2 trillion, respectively.
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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
other measures of the value of direct investment. About 74% of the accumulated U.S. foreign
direct investment is concentrated in high income developed countries, who are members of the
Organization for Economic Cooperation and Development (OECD): Europe alone accounts for
over half of all U.S. direct investment abroad, or $2.5 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 2012
(in billions of dollars)
All
Manu-
Whole-
Infor-
Holding
industries
facturing
sale trade
mation Banking Finance Services
companies Other
All
$4,453.3 $637.1 $205.1 $146.6 $119.7 $775.6 $94.1
$1,949.0 $303.8
Canada
351.5 75.4 21.5 8.0 6.4 55.0 8.4 109.0 38.8
Europe 2,477.0 311.4 83.7 98.1 73.3 380.3 53.5
1,288.8
174.0
Belgium
53.8 27.5 6.0 1.0 0.8 12.7 1.1 1.5 3.1
France
82.6 25.2 6.3 2.3 1.5 7.5 3.7 15.3 20.7
Germany 121.2 35.1 12.0 7.0 1.3 19.5 5.1 30.5 10.4
Ireland
203.8 27.4 -1.0 24.8 (D) -3.0 9.2 102.5 (D)
Italy
26.8 8.0 2.4 3.4 2.5 3.0 0.4 0.7 6.1
Luxemb. 383.6 10.2 (D) 6.7 (D) 47.1 0.4
302.1 (D)
Netherl. 645.1 50.4 17.0 8.0 (D) 38.4 7.4 499.2 (D)
Spain
31.4 13.4 2.6 1.0 1.4 5.3 0.3 4.5 2.6
Sweden 24.5 3.7 1.7 1.3 (D) 12.8 0.7 1.1 (D)
Switzer. 130.3 23.0 14.3 7.5 2.9 14.0 2.3 46.4 19.7
Turkey
6.0 1.7 1.7 0.1 (D) 0.4 0.0 0.9 (D)
UK
597.8 54.0 14.9 30.1 21.7 194.9 21.2 209.3 44.8
LAmerica 869.3 93.6 43.0 13.3 5.9 215.0 4.3 386.0 42.3
Brazil
79.4 29.6 4.2 5.6 (D) 14.7 1.3 11.3 (D)
Chile
39.9 4.6 1.6 0.3 (D) 5.7 0.5 (D) (D)
Venez’
15.0 8.2 0.9 (D) (D) 1.8 0.9 (D) 0.6
Mexico
101.0 35.6 3.3 1.8 1.2 15.6 0.0 25.0 10.2
Bermuda 304.5 2.2 3.3 1.3 0.2 61.0 0.2
217.7 18.4
5 Barefoot, Kevin B., Marilyn Ibarra-Caton, Direct Investment Positions for 2012: Country and Industry Detail, Survey
of Current Business, July, 2013. p. 26.
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All
Manu-
Whole-
Infor-
Holding
industries
facturing
sale trade
mation Banking Finance Services
companies Other
Dom.
Republic
1.7 1.1 0.0 0.0 (D) (D) 0.0 0.0 (D)
UK
Car. 219.9 0.2 20.8 0.9 -2.3 92.4 0.6 98.5 2.7
Africa
61.4 4.0 1.4 0.2 2.5 6.7 0.8 9.0 1.8
Middle
East
42.9 15.2 2.1 1.2 0.3 0.7 1.2 7.5 1.4
Asia
651.3 137.5 53.3 25.7 31.3 137.9 26.0 148.6 45.6
Austral. 132.8 15.7 6.3 13.7 -0.1 17.7 7.3 39.2 6.4
China
51.4 31.5 4.9 -4.3 3.3 3.2 1.4 2.4 6.2
HK
47.8 4.5 13.9 1.2 1.9 5.3 2.3 15.7 2.9
Japan 134.0
18.8
9.7
5.9
4.2
78.7 3.0 3.6 10.0
Korea
35.1 13.1 2.0 0.2 (D) 8.1 0.7 0.7 (D)
Singapore 138.6 23.2 9.6 4.1 0.3
13.7 0.8 79.2 6.5
Taiwan
16.5 6.1 3.1 0.2 (D) 2.0 0.2 -0.1 (D)
OPEC
63.4 15.9 3.1 1.2 (D) 2.3 1.6 14.7 (D)
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. A negative position may result as foreign affiliates repay debts to their U.S.
parents, and as U.S. parents borrow funds from their foreign affiliates.
Typically, U.S. firms have placed the largest share of their annual investments in developed
countries, primarily in Western Europe, but this tendency increased after 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 2012, U.S. firms
focused 51% of their investments in the highly developed economies of Europe, down from a
share of about 60% of total overseas direct investment recorded in 2011. The share of investments
directed to all developed economies, as defined by membership in the Organization for Economic
Development and Cooperation (OECD) was 71% of total U.S. direct investment abroad. Another
24% of U.S. direct investment abroad was sent to Latin America (less Mexico and Chile) and
14% of investment was located in Asia (less Australia, Japan, New Zealand, and South Korea).
New investments in Africa accounted for about 1.0% of total U.S. direct investment abroad in
2012, with investments in the Middle East accounting for about 2% 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 developed countries with advanced infrastructure and communications systems. The total
amount of U.S. direct investment abroad, or the position, during the 2000-2012 period more than
quadrupled, rising from $920 billion to $4.4 trillion. Annual investments in most sectors increased
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in 2012 over the amount invested in 2011, except for investment in the banking sector. Generally,
service-oriented sectors continued to grow through 2012. Within the manufacturing sector, direct
investments increased in 2012 relative to 2011 in all sectors except electrical appliances,
reflecting the slow economic recovery as a result of the impact of the widespread impact
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
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 2011, the latest
year for which U.S. direct investment abroad data are available, 7.6% of affiliate sales were sold
to the U.S. parent companies.6
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.7
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 1989.8 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.
6 U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates, Preliminary 2011
Estimates, October 2013. Table II. E. 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.
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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
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, no U.S. government agency collects data on U.S. firms in such a way that it
is possible to track a plant closing in the United States with a comparable plant opening in a
foreign country. As a result, most data on the activity of U.S. firms shifting plants or jobs abroad
are anecdotal. 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 patterns, however, are determined by
a broad range of factors, and shifts in plant locations by U.S. multinational firms likely represent
a small part, at best, of the overall pattern of employment in the United States.
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 2011, however, employment among U.S. parent companies rose slightly over the 22.8 million
employed in 2010 to reach 22.9 million. Employment among foreign affiliates also rose by 4.2%
in 2011 over 2010 to reach 11.8 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,
9 Ibid., p. 31.
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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 2009, 8% of the sales of the foreign
affiliates of U.S. firms was accounted for by exports back to the United States,10 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.11 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
10 U.S. Direct Investment Abroad, Table IIF1.
11 CRS Report RL32461, Outsourcing and Insourcing Jobs in the U.S. Economy: Evidence Based on Foreign
Investment Data, by James K. Jackson.
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