PPI | Trade Fact of the Week | June 25, 2003
Foreign Investment in the United States Has Fallen by 90 Percent Since 2000
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Foreign direct investment flows to the U.S., 2000:
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$314 billion |
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Foreign direct investment flows to the U.S., 2001:
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$144 billion |
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Foreign direct investment flows to the U.S., 2002:
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$30 billion |
Global foreign direct investment levels ("FDI," the money businesses spend to set up or acquire plants overseas) grew rapidly in the 1990s, from about $200 billion in 1993 to a peak of $1.5 trillion in 2000. Since then they have fallen back, to about $530 billion in 2002. Whether annual levels are high or low, though, most FDI goes to wealthy countries; in recent years the United States usually received the most. In 2000 -- a peak for FDI in the U.S. as well as worldwide -- foreign firms spent over $314 billion to buy companies and set up new plants in the United States. By sector, the largest single recipient was manufacturing, at $150 billion; by state, Hawaii and South Carolina rely most heavily on FDI for employment, with 8.3 percent and 7.4 percent of jobs provided by foreign-based firms.
Since 2000, global FDI flows have receded and FDI flows to the United States have nearly dried up altogether. Total FDI in the U.S. dropped to $144 billion in 2001 and to $30 billion (including only $4.5 billion in manufacturing) last year. Within the United States, investment from the United Kingdom has fallen most dramatically (from $82 billion to $14 billion since 2000); investment from France and Japan held up best. By sector, the most dramatic fall has been in the computer and electronics industry, where foreign outlays fell from $42.6 billion in 2000 to less than half a billion dollars last year. (Outlays are a slightly different statistic from total inflows; for example they include money raised within the United States but exclude new investment in existing facilities, and include borrowing within the U.S. for purchases.) Telecom has seen a similar steep drop, from $91 billion to $2.4 billion. On the relatively bright side, foreigners set up 9,785 new businesses in the United States last year; but this is still down from 32,885 in 2000.
Why the crash? Several explanations, none of them mutually exclusive: (1) slow global growth and thus a smaller global FDI pool; (2) weak technology investment levels; (3) falling confidence in long-term U.S. growth prospects, as perceptions of terrorist threats grow and structural budget deficits re-emerge after recent tax bills; and (4) higher dollar values relative to the euro in 2001 and 2002, raising the price of acquisitions here.
PPI on foreign direct investment:
Statistics from the Commerce Department's Bureau of Economic Analysis:
www.bea.doc.gov/bea/di1.htm
The U.N. Conference on Trade and Development offers global context:
www.unctad.org/Templates/webflyer.asp?docid=2832
&intItemID=1634&lang=1
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