September 18, 2013
WASHINGTON—Two new studies published by the Peterson Institute for International Economics argue in favor of policies both to encourage greater freedom of foreign investment into the United States, and to reduce threats to investment overseas by US-based multinational corporations (MNCs).
Disproving the often expressed claim that overseas investments by American companies come at the expense of economic growth and job creation in the United States, the authors' econometric analyses show that the reality is US-based companies investing abroad are also the biggest job creators, investors, and exporters at home. They also establish that foreign investment in the United States creates highly paid jobs and spurs innovation in the United States. These studies are part of the Peterson Institute's ongoing efforts to provide solid evidence and research about the impact of foreign direct investment (FDI) on the US economy, a subject of recurrent, passionate, but often misleading political debate.
On September 19, PIIE will hold a conference at which the studies will be presented and subjected to critical discussion by stakeholders in US economic activity from across the political spectrum. Particular attention will be given to the taxation of US multinationals' foreign activities and to the national security issues raised by Chinese takeovers and investments in the United States. This event will be webcast live and available for later download on the Institute's website. Both books are also available for purchase online at the PIIE bookstore.
"Many public discussions of FDI, whether inwards or outwards, are filled with emotional and misleading invocations of 'economic patriotism' and 'corporate responsibility.' We are proud of the Institute's new studies by Hufbauer, Moran, and Oldenski, which employ objective analysis of firm-level data to investigate the issues," said Adam S. Posen, president of the Peterson Institute. "This work responds to the current misplaced furor about FDI with sound analyses and constructive policy suggestions—much as prior Institute studies set forth realistic appraisals of US costs and benefits during the angst over offshoring and Japanese investment in the US two decades ago."
The first study by Theodore H. Moran, a nonresident senior fellow at the Peterson Institute and the Marcus Wallenberg Chair at Georgetown University's School of Foreign Service, and Lindsay Oldenski, an assistant professor at Georgetown University's School of Foreign Service, explains that US firms do more investing in other countries than other countries do in the United States, but that both types of investments provide enormous benefits to the United States.
Foreign investment in the United States often creates controversy. Americans worry that inward foreign investment might jeopardize US national security or control over vital resources, particularly energy. On the whole, these worries are misplaced. The book gives special attention to activity by Chinese firms—in the first serious empirical analysis of their investments, Moran and Oldenski find that there is nothing special about Chinese firms' investments, and the benefits to the US economy are the same. The authors recommend that the United States improve its physical infrastructure and simplify its investment review system to further attract foreign investment.
The second study by Gary Clyde Hufbauer, Reginald Jones Senior Fellow at the Institute, and Professors Moran and Oldenski, analyzes the impact on jobs and economic activity in the United States when US MNCs invest overseas. Confronting with data the concern that such investments substitute for economic activity in the United States, the study finds that such investments abroad actually complement and strengthen operations at home.
This result is based on exciting new research, tracing the observed behavior of some 1,500 US MNCs over two decades to evaluate how the home operations have changed as these firms expanded or contracted their foreign operations. The authors' analysis shows that an increase in outward FDI by a US company is associated with an increase in productive domestic US activity by that same firm, in terms of employment, sales, capital expenditures, and R&D expenditures.
Foreign Direct Investment in the United States: Benefits, Suspicions, and Risks with Special Attention to FDI from China
Theodore H. Moran and Lindsay Oldenski
ISBN paper 978-0-88132-660-4
August 2013 • 90 pp. • $22.95
Outward Foreign Direct Investment, US Exports, US Jobs, and US R&D: Implications for US Policy
Gary Clyde Hufbauer, Theodore H. Moran, and Lindsay Oldenski, assisted by Martin Vieiro
ISBN paper 978-0-88132-668-0
August 2013 • 84 pp. • $21.95
About the Peterson Institute
The Peterson Institute for International Economics is a private, nonprofit institution for rigorous, open, and intellectually honest study and discussion of international economic policy. Its purpose is to identify and analyze important issues to making globalization beneficial and sustainable for the people of the United States and the world and then to develop and communicate practical new approaches for dealing with them. The Institute is widely recognized as nonpartisan. It receives its funding from a wide range of corporations, foundations, and private individuals from the United States and around the world, as well as from income on its endowment.