BEA reported today that 91.2% of foreign direct
investment in the US during 2005 was to acquire
the worldwide assets of existing US-incorporated
firms. Only 8.8% of FDI was used to establish a
new business within the US.
That is, foreign sources spent $79.2 billion to
acquire the worldwide assets of US incorporated
firms in 2005 (such as China’s Lenovo purchase of
IBM’s personal computer division) but only $7.6
billion to establish new businesses.
For many years FDI has had an overwhelming
preference for acquiring the existing worldwide
assets of firms incorporated in the US rather than
to establish new businesses in the US. Since 1992,
$1,402 billion ($1.4 trillion) of FDI (90.0%) has
gone to acquire existing US assets while only $156
billion in FDI has gone to establish new
businesses in the US.
In 2005, FDI to acquire existing US assets
worldwide rose by 9% (from $72.7 billion in 2004)
while FDI to establish new business in the US fell
by –44% (from $13.5 billion.)
Some theoretical academics and others still insist
that today’s $2.2 billion daily current account
deficits and the exchange strength of the US
dollar is largely the result of the strong appeal
of the US economy to foreign investors. However,
the actual experience with FDI has been far
different for many years.
Charles W. McMillion, Ph.D.
President & Chief Economist
Washington, DC 20002-4928