Foreign direct investment refers to a situation when a foreign firm invests in an affiliate located in the United States in a substantial enough way that it gains some voice in the management of the enterprise. This is often defined in terms of having ownership of at least 10 percent of the voting stock of the company. After an inflow of $348 billion in foreign direct investment to the US economy in 2015, the total stock of foreign direct investment in the US economy is $2.9 trillion. Rudy Telles Jr. lays out these facts and other evidence in \”Foreign Direct Investment in the United States: Update to 2013 Report,\” written by for the Economics and Statistics Administration of the U.S. Department of Commerce (ESA Issue Brief #02-16, June 20, 2016).
Here\’s a figure showing the pattern of FDI into the U.S. economy on a year-to-year basis.
Here are some bullet points from Telles about key patterns (footnotes omitted):
- The United States is the largest recipient of global FDI with an inward FDI stock of $2.9 trillion on a historical-cost basis in 2014. On a current-cost basis, the United States’ FDI stock was more than three times larger than that of the next largest destination country in 2014.
- Investment in the United States remains strong; total stock of FDI in the United States grew at an average annualized rate of 6 percent per year from 2009-2014. …
- Advanced economies, led by the United Kingdom, Japan and Germany, hold the largest FDI positions in the United States.
- Majority-owned U.S. affiliates of foreign entities affiliates produced $360.0 billion in goods exports in 2013, and are a catalyst for research and development in America, spending $53.0 billion in R&D and accounting for a record high 16.4 percent of the U.S. total expenditure on R&D by businesses.
- Majority-owned U.S. affiliates of foreign entities employed 6.1 million U.S. workers in 2013, up from 5.8 million in 2011, and generally provide compensation at higher levels than the U.S. average, at nearly $80,000 per U.S. employee in 2013 as compared to average earnings of $60,000 for workers in the economy as a whole.
- The U.S. manufacturing sector continues to benefit greatly from inbound FDI flows, as nearly 70 percent of FDI flows in 2015 and over one-third of jobs at U.S. majority-owned affiliates of foreign entities were in manufacturing in 2013.
I would add that the growth of foreign direct investment fits with other emerging patterns in international trade. For example, companies that use global supply chains will often find it useful to have a substantial ownership share in many of the links of that chain–which means more foreign direct investment. When exporting services, it will often be useful to have a physical presence in the country where the buyers of those services are located, to improve both communication and marketing. Clearly, it is increasingly unwise to assume that because a good or services is produced in the geographical area of a certain country, it is also being produced by a company that is owned by investors from that same country.