Foreign direct investment in the United States: an economic analysis.(Report)

 Contents  Recent Investments Acquisitions and Establishments Economic Performance Conclusions 

February 1, 2011

Summary

Foreign direct investment in the United States 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 [section] 806.15 (a)(1).] In 2008, according to Department of Commerce data, foreigners invested $325 billion. Foreign direct investments are highly sought after by many state 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.

Recent Investments

Foreigners invested $269 billion in nominal terms in U.S. businesses and real estate in 2009, according to data published by the Department of Commerce. (1) As Figure 1 shows, this represents a sharp decrease from the $351 billion invested in 2008. Investments abroad by U.S. parent firms fell sharply in 2009 to $269 billion, down from the $351 billion they invested abroad in 2008. The decrease in foreign direct investment flows mirrors a slowdown in global flows. According to the United Nations' World Investment Report, global foreign direct investment inflows decreased by 16% in 2008 and 37% in 2009. The data indicate that global foreign direct investment flows increased slightly in early 2010, marking the bottom of the global slump in direct investment spending.

[FIGURE 1 OMITTED]

The cumulative amount, or stock, of foreign direct investment in the United States on a historical cost basis (2) rose from $2.2 trillion in 2008 to about $2.3 trillion in 2009. This marked an increase of 7.0%, below the 14.6% percent increase experienced in 2008. (3) 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 …