Tradeology, the ITA Blog

By Elizabeth Schaefer, Director of Investment Analysis, SelectUSA

As Director of Investment Analysis, I am responsible for leading SelectUSA’s data evaluation efforts related to foreign direct investment (FDI) promotion in the United States. So, it was with great interest (and I’ll admit excitement) that I reviewed the newly released preliminary 2015 and revised 2014 FDI activity data from the Bureau of Economic Analysis (BEA), which follows the July release of 2016 FDI Inward Stock data.

You may be asking, “What does this mean?” Here’s the breakdown…

The updated data provides a picture of the inward flow of FDI into the United States, as well as the economic activity of U.S. affiliates of foreign-owned firms, from employment figures to research and development (R&D) spending. Overall, the numbers reflect continued, steady FDI growth in America.

But as always, it makes the most sense to start at the beginning.

FDI Definition and Parameters 

FDI, as defined by BEA, generally captures a long-term relationship with the management of a foreign enterprise, which is usually linked with the real output of the country in which it operates. In other words, FDI refers to businesses based in other countries and markets.

At the end of 2016, FDI stock (the total amount) reached $3.7 trillion, a 12.8 percent increase from the revised $3.3 trillion 2015 end-of-year figure. This year, on-year growth outpaces the trend in FDI stock growth over time. On average, during the last five years, FDI stock has grown nearly 9 percent each year.

Sources of Inward FDI Stock 

The latest available 2016 data show continued strong investment relationships with the United Kingdom, Canada, Japan, and Germany, all of which are historically large sources of investment into the United States. In fact, these top four sources of direct investment alone account for nearly half of all FDI in the United States. However, compared to the previous year of available data, this concentration has slightly dissipated, with economies like Ireland and Switzerland gaining overall shares of U.S. FDI.

The top four fastest-growing sources of FDI in the United States, calculated by looking at annual growth rates since 2011, are Thailand, Argentina, China, and Singapore. In contrast to the largest sources of investment, these top four relatively new sources of investment make up less than 4 percent of total FDI stock in the United States.

It is important to note that these figures attribute FDI ownership to the market at the top of each investment’s ownership chain – the ultimate beneficial owner or “parent company” – rather than capturing investment passed through intermediate markets via subsidiaries.

Industry Destinations of Inward FDI Stock 

The latest available data continue to show enduring ties between FDI and the manufacturing sector. Manufacturing industries attracted an incredible 41 percent of the FDI pie at the end of 2016. Diving a bit deeper, the chemicals, transportation equipment, food, and machinery manufacturing industries captured 64 percent of manufacturing FDI. Looking at year-on-year changes, the professional, scientific, and technical services sectors experienced dramatic growth, increasing in value by more than 28 percent. The diverse mix of industry and sector destinations for FDI in the United States continues to demonstrate that the United States is an important destination and market for globally competitive companies.

Jobs 

In 2015, FDI from majority foreign-owned firms was responsible for 6.8 million direct jobs in the United States, an increase of 1.5 million since the end of the 2009 recession. These are high-impact jobs, too; the average annual compensation per direct worker in 2015 was $79,040, almost a quarter higher than the national average.

Other Related Activities

R&D

FDI continues to enhance U.S. global competitiveness by bolstering R&D spending in the United States. The U.S.-based affiliates of majority foreign-owned firms spent nearly $57 billion on R&D activities in the United States in 2015.

Exports

Linkages between trade and investment also remain clear. Exports of goods shipped by majority foreign-owned affiliates declined nearly 20 percent in 2015 compared to 2014. Despite this dip, the $353 billion in goods exports accounted for 23 percent of all U.S. goods exports.

What’s Next?

You can explore this data and more with SelectUSA’s data visualization tool and updated fact sheets at SelectUSA.gov. Additionally, I encourage you to check out #FDIintheUSA on Twitter, our annual campaign that highlights the economic benefits of FDI at the state/territory and national levels through infographics and interactive conversations.