Part VI :   Some Myths broken regarding US Direct Investment
by Sophia Barkat

Abstract:    Paper shows that US Direct Investment in foreign manufacturing sectors does NOT account for most of US direct investment abroad. Also, Europe and developed nations are where US corporations are investing and it's happening mostly in the non-depository financial sector.

Paper:      A commonly held belief is that US domestic investment -- primarily in the manufacturing sector -- is falling because US corporations are opting to invest abroad.

I wanted to see what part of US Direct Investment Abroad went to Manufacturing Sectors of foreign countries. I also wanted to see which countries got the most direct investment in dollars.

To find out the composition of US Direct Investment Abroad, I considered data for 1998 statistics --  http://www.bea.gov/bea/di/diacap_98.htm  -- the most current available data.

Here are data for US Direct Investment Abroad in 1998:

         billions $US                As fraction of total investment by US

                       ALL      PETROL    MANUFAC      FINANCE     SERVICE    WHOLE    BANK                           

UK                 29                     1/5            1/4         1/7
Netherlands    22                                     9/11
Switzerland      8                                      2/3                      1/3
Ireland             8                      1/5            1/2         1/4
Canada            7      1/3           1/7            1/7
Australia          6      3/20                          3/5
Japan              6                                     120%
France            4                      2/5                          1/4                    1/4
Luxemborg      4                                       7/8
Brazil              4                     3/10
Mexico            4                    11/20                               
Germany         3                    11/20                                    7/20
Bermuda         2                                      110%  
Israel              1                      2/3
Hong Kong      1                      1/5             3/5                             
China              1                      4/5
Argentina        1                                                                               3/5
Belgium         0.9                   11/20
Saudi
   Arabia         0.9
Costa Rica     0.6                    1/2  
Venezuela      0.6     3/20         1/5                          2/5
Panama         0.6                                     100%
Egypt            0.6      3/5          3/10
Indonesia       0.5      3/5
Nigeria           0.4     17/20
Denmark        0.4      1/2   
Thailand         0.4                    100%
Trinidad          0.3     100%
Chile              0.3                    110%      
Finland           0.3                    11/20             
Ecuador         0.2     11/20
Guatemala      0.2     3/20         3/20
Singapore       0.2     -250%      150% Phillipines       0.2                                     2/5         9/10   
UAE               0.1     1/3
Turkey            0.10                   1/5
India               0.08                   140%

US Direct Investment Abroad by Continents (1998)

                       in billions ($US)

Europe               86
      EU                              76
      Eastern Europe              2 (includes Russia)


Latin Am           16
      Central Am                   6
      South Am                     6
      West Indies                  4


Middle East        2
       Israel                          1
       Arab                           1


Africa                 3
       Arab                          1
       Rest                          2


Asia &
Pacific               15              

       Australia,
       Japan,
       China                       13

1998 US Direct Investment Abroad by Sector :

                               in billions


Total                             131

Petrol                                7

Manufacturing                   23

    Food                             2
    Chemical                       6
    Metal                            3
    Machine                       1.8
    Electronics                   2.8
    Transport                     -1.3
    Other                            8

Wholesale                         5.5

Depository                         2

Insurance                         62
& Real-estate
 
Services                           11

Other                               18

    

Lessons from Data:

US Direct Investment Abroad was $131 billion in 1998, about a third of defense spending.

Contrary to the belief that US direct investment abroad was in manufacturing industries it was in fact in Finance -- Real Estate, Securities, Insurance and other non-depository financial industries (46%). US investment in foreign Manufacturing accounted for 17% and other industries accounted for 14%.

Also, US direct investment was highest in developed nations like UK, Netherlands, Switzerland, Ireland, Canada, Japan, Australia, France, Belgium and Germany (total is $97 billion out of $131 billion) -- with investment in Non-depository Financial Industries being 50% or more, followed by investment in Manufacturing and in Services. 

The listed OPEC countries and Energy Efficient countries like Denmark, came next in order of US Direct Investment and saw a high investment in their petroleum/energy sectors, except for Saudi Arabia.

Poor nations saw less than a billion dollars each, and more than half of the funds were invested in Manufacturing. Mexico and Brazil are the only two that saw about 4 billion each in US direct investment.  Poor nations (Asia, Africa, Latin America, Middle East) got just 23 billion.

China, though with First Trader Nation Status, only saw one billion invested in it and mostly in its Manufacturing Sector. I guess this means that US corporations are not necessarily starting subsidiaries there.

Data here included investment by companies based in the US and thus US tax-payers. They do not include companies that may have been formed in the US but have now moved their official headquarters abroad. Nor do they include multinational corporations formed and based abroad.