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Information > Financial Terms > This page Foreign Investment Foreign ownership of assets in the United States is rapidly growing. Congress and the general public is increasingly concerned over the impact of foreign investment on the industrial and real estate structure and employment as well as regional economies. These inflows of capital reflects the interaction of national economies and complicate U.S. economic policies. State governments are also heavily involved in attracting foreign investments. The U.S. currently places few restrictions on foreign direct investment. This provides an attractive investment climate for such investments by allowing the relatively free international flow of capital. Restrictions on such investments generally relate to keeping public services or services which impact on national security from coming under foreign control. In the 1970x, Congress passed legislation that provided for increased collection of data and additional disclosure for foreign owners of U.S. assets. Since 1970 there has been a sharp rise and dramatic decline in the rate of U.S. foreign direct investment (see appended table). U.S. foreign investment grew at a compound annual rate of 10.4% in the 1970-1974 period and at 12.0% in the 1975-1979 period. The growth was due to the increasing development of petroleum resources and the stagnating U.S. economy. From 1980-1985, the rate declined to 3.6%. This decline was attributed in part to the wide differential in interest rates favoring capital markets in the U.S. In 1970 developed countries received 69% of U.S. foreign investment; less developed countries received 25%. At the end of the 1985 U.S. investment was proportioned with 74% in developed countries and 23% in less developed countries. In 1989 the Commerce reported that U.S. debt to the rest of the world rose sharply to $532.5 billion which made the U.S. the world's largest debtor. The debt at the end of 1988 was 40% greater than the $378.3 billion reported for 1987. Foreigners' assets in the U.S. increased 15.4% to $1.786 trillion while U.S. assets overseas grew only 7.2% to $1.254 trillion. The U.S. began the 1980s as a large creditor but became a debtor nation in 1985. A deficiency of U.S. savings forced the U.S. to borrow from abroad to finance investments. Bush administration economists insist that the flow of foreign capital to the U.S. reflects continued confidence in the U.S. economy. Foreign direct investment in factories and companies in the U.S. reached a record $57.1 billion, representing a 21% increase for 1988. Britain and Japan accounted for approximately three-fourths of the increase. Foreign holdings of Treasury securities increased almost 19% to $96.6 billion in 1988. The Commerce Department reported that borrowing by U.S. banks from foreign offices to meet strong domestic loan demand pushed up bank liabilities to foreigners by 11.3% to $609.5 billion. Approximately three quarters of U.S. direct investment abroad is in developed countries. In 1988, Britain and Japan reflected the largest increase in direct investment with $48 billion and $16.9 billion, respectively. BIBLIOGRAPHY Foreign Investments. U.S. Superintendent of Documents (Subject Bibl., 275). Back to Information |