Foreign direct investment in the United States: trends, motives, and the state experience.

Over the past two decades, most American states have been actively involved in international economic activities to promote economic development and to cope with increasing global economic interdependence (e.g., Luke & Caiden, 1989; Kline, 1984a, 1984b; McIntyre, 1983; Neuse, 1982). Major activities these states have conducted are, for example, increasing exports to other countries, encouraging foreign investment, and inducing tourists from other countries to visit their states. Among the states, foreign investment has emerged as a top priority of their economic development policy because it brings fresh capital and new jobs into the state.

The current interest in foreign investment focuses not on incoming portfolio investment in U.S. stocks and bonds but on incoming direct investment that implies a managerial role of foreign investors in the home companies (Awanohara, 1990, p. 30). Because of its unique nature, foreign direct investment (FDI) has met mixed reviews from the American public. Opponents of FDI express concerns about possible negative effects, such as foreign ownership of American real estate, control over our national resources, decreased productive and technological capacity, excessive influence over our politics (particularly at the local-government level) and potential threat to our national security (e.g., Tolchin & Tolchin, 1988a; Choate, 1990). Proponents of FDI, on the other hand, argue that FDI benefits our economy by promoting U.S. employment, technological progress, and U.S. competitiveness (e.g., Graham & Krugman, 1989; Becker, 1989; Glickman & Woodward, 1990).

The purpose of this study is to examine recent developments of FDI in the United States. The study first reviews trends of FDI in the United States during the period of 1970-1989 and explains major causes for the growth. Focusing on the experience of state governments, the study then explains major strategies state governments have used to attract FDI and analyzes statistical data to reveal the current FDI position and the change of FDI among the United States' regions and leading states. Based on this statistical data, this paper addresses FDI location and discusses the value of state incentive strategies.

Trends and Motives of Foreign Direct Investment

Trends of FDI in the United States, 1970-1989

Foreign direct investment rose dramatically in the United States during 1970-1989. To show this increase, we collected data of FDI in the United States (FDIUS) during the survey period to see the trend of development and also analyzed the data of the United States' direct investment abroad (USDIA) to compare the difference between the two. As presented in Table 1, the book value of USDIA ($75.48 billion) was about 5.7 times the value of FDIUS ($13.27 billion) in 1970. USDIAs dominance continued during most of the 1970s and decreased during the 1980s. In 1989, the book value of USDIA position ($373 billion) was about $27 billion less than the value of FDIUS ($400 billion). During the total period, the USDIA value increased about four times its original book value and the FDIUS value about 29 times its original book value. The ratio between USDIA and FDIUS decreased from 5.7 in 1970 to 0.9 in 1989. Figure 1 shows the trend of USDIA and FDIUS during the period.

 
Table 1 
United States Direct Investment Position Abroad (USDIA) and 
Foreign Direct Investment Position in the United States 
(FDIUS), 1970-1989(*) 
            USDIA     FDIUS     Difference   Ratio 
Year         (A)       (B)         A-B        A/B 
1970        75,480    13,270      62,210      5.7 
1971        82,760    13,914      68,846      5.9 
1972        89,878    14,868      75,010      6.0 
1973       101,313    20,556      80,757      4.9 
1974       110,078    25,144      84,934      4.4 
1975       124,050    27,662      96,388      4.5 
1976       136,809    30,770     106,039      4.4 
1977       149,848    34,595     115,253      4.3 
1978       167,804    42,471     125,333      4.0 
1979       192,648    54,462     138,186      3.5 
1980       215,375    83,046     132,329      2.6 
1981       228,348   108,714     119,634      2.1 
1982       207,752   124,677      83,075      1.7 
1983       207,203   137,061      70,142      1.5 
1984       211,480   164,583      46,897      1.3 
1985       230,250   184,615      45,635      1.2 
1986       259,800   220,414      39,386      1.2 
1987       314,307   271,788      42,519      1.2 
1988       333,501   328,850       4,651      1.0 
1989(**)   373,436   400,817     -27,381      0.9 
* book value at year end, in millions of U.S. dollars 
** preliminary 
Note: Data taken from Statistical abstract of the United States 
(U.S. Department of Commerce, 1977, 1981, 1991). 

The increase of FDIUS is further evidenced in the analysis of capital outflows and inflows of foreign investment during the period. As Table 2 indicates, the capital outflows increased about four times, from $7.6 billion in 1970 to $31.7 billion in 1989. During the same period, the capital inflows increased about 48 times from $1.5 billion to $72.2 billion. The net outflows of foreign investment changed from the positive figures in the 1970s to the negative figures in the 1980s. The …