Foreign Direct Investment in the U.S.: Changes Over Three Decades

Abstract

U.S. direct investment inflows in the 1980s were almost half the world's total. Even this large inflow leaves foreign firms employing less than 5 per cent of the U.S. labor force, but twice that share in manufacturing. That increase is related to the internationalization of production by foreign firms more than to competitive weakness of U.S. firms. Foreign affiliates import more relative to their exports than U.S. firms but are moving closer to the behavior of U.S. firms. The trade balances of both are sensitive to exchange rates. The financing of foreign direct investment from retained earnings dropped almost to zero in the 1980s. One reason is the rapid growth of this investment and another is its low profitability.