The Rationale for FDI

Contributions of FDI to the U.S. Economy

Big picture information from SelectUSA:

  • $253.6 billion total FDI slows in the U.S. (2018)
  • $62.6 billion in R&D spending by majority foreign-owned firms (2017)
  • 7.4 million U.S. workers employed by foreign-owned firms (2017)
  • More than $382 billion of U.S. goods exported is by foreign-owned firms (2017)

Benefits of FDI for Communities

1. FDI strengthens local economies — higher wages, improved productivity, stronger manufacturing base

Brookings: FDI in U.S. Metro Areas — The geography of jobs in foreign-owned establishments

Not only does FDI directly employ millions of U.S. workers; it also spreads technologies, facilitates knowledge exchange, and forges new trading relationships—all crucial ingredients to economic development.” (p. 3)

  • “… pay well-above average wages” (p. 4)
  • “… boosts productivity through spillovers”(p. 4)
  • “… bolsters the country’s manufacturing base … shoring up the … eroding production base… [And] served to restructure the sector through the diffusion of product and process innovations, the introduction of new labor practices, and integration into global production networks” (p. 4)
  • “… increases trade and exports” (p. 4)
  • “… conduct a large amount of R&D”(p. 4)
  • “…transmits knowledge and best practices between clusters” (p. 4)

IERC Final Report:  FDI is “inextricably bound up with industry clusters — geographic concentrations of skilled workers, innovation assets, infrastructure, and supply chains. High-quality FDI is drawn to such clusters and strengthens them further with infusions of knowledge, technology, and ideas. Clusters also accelerate spillovers and integrate new investors into the economy …”

2. FDI provides a community with greater global fluency

Brookings: FDI in U.S. Metros Areas — The geography of jobs in foreign-owned establishments

(p. 5): “… in two key respects the foreignness of FDI itself is important: It brings with it exposure to new knowledge, customs, and practices, and it establishes trade and investment linkages between regions globally. In the process, FDI can increase the global fluency — which is itself an increasingly important determinant of regional competitiveness in the modern economy — of host regions … The foreignness of FDI therefore serves to integrate its host regions more fully into a rapidly globalizing economy where 85 percent of economic growth through 2019 is projected to occur outside of the United States — even if the capacity to take advantage of the opportunity varies by region.”

3. FDI provides communities with exposure to innovative practices that can advance local economic development

Brookings: FDI in U.S. Metro Areas — The geography of jobs in foreign-owned establishments

(p. 6): Report provides examples of communities benefiting from the adoption of the German apprenticeship model: “German multinationals in the United States have begun experimenting with replicating their trusted model from home and adapting it to local contexts — enabling suppliers, educational providers, competitors, and policymakers to learn alongside.” Examples provided include: Siemens in North Carolina, Volkswagen in Tennessee, and Robert Bosch and BMW in South Carolina.

4. Foreign investment compares favorably to domestic investment in terms of the the amount of new capital and the ability to strengthen local clusters.

Brookings Blog — Does the ‘foreign’ in ‘foreign direct investment’ matter?

Blog describes the additional value FDI can bring to a community (versus domestic investment):

  • FDI M&A often includes cash infusion (less true for domestic M&A)
  • Foreign investment can put a spotlight on a local cluster, increasing its perceived, as well as actual, strength
  • FDI itself attracts additional investment from the same nation
  • Foreign-owned firms tend to export at higher rates than domestically owned firms; consequently, FDI tends to increase a community’s exports

 

Investment Trends, Intelligence, and Statistics

Click here for U.S. government and other sources of data on FDI in the U.S., as well as sources of data on global investment trends and individual investments.