Foreign Direct Investment and the U.S. Economy

By: Tazeem Pasha Issue: Innovation, Growth, Job Creation Section: Government

Invest in America


Foreign direct investment (FDI) is a key source of capital, job creation, innovation, and U.S. exports. Firms invest in the United States to balance business growth and sustainability with global economic pressures to raise productivity and lower operating costs. Their investments contribute to the overall economic strength and competitiveness of the United States.

Businesses worldwide recognize the longstanding, unequivocal U.S. policy of openness to foreign direct investment (FDI). They invest in the United States to access the world’s largest, most innovative single-country economy with an annual GDP (gross domestic product) of approximately $14 trillion and a population of about 310 million, representing 42 percent of the global consumer goods market. The United States is the world’s largest recipient of FDI, and these investments are a sign of U.S. economic strength. Companies invest in the United States because our economy is stable, our workforce is reliable, and our climate of innovation and access to global markets can help achieve unparalleled success.

Even through the global economic volatility in recent years, FDI in the United States has remained steady. Preliminary data from the U.S. Bureau of Economic Analysis (BEA) shows that approximately $190 billion in FDI flowed into the United States in 2010, almost a 30 percent increase from 2009. Overall, the $2.3 trillion stock of FDI in the United States is nearly 16 percent of our total GDP. In numerous confidence indices, the U.S. is consistently ranked among the top. A.T. Kearney ranks the U.S. as second in FDI confidence, and the World Economic Forum has ranked the U.S. fourth in global manufacturing competitiveness. Meanwhile, the World Bank names the United States fifth in its “ease of doing business” index. Given the sheer size and industrial diversity of the U.S. economy, it is impressive to secure uniformly high rankings in business benchmarks.

In addition to new capital, foreign direct investment contributes to the U.S. economy through employment of U.S. workers. In 2009, sSubsidiaries of foreign-owned firms directly employ over 5.2 million U.S. workers, paying almost $408 billion in annual salaries and wages in 2009. Multinational firms value the quality of U.S. education and training. Their U.S. operations are often in specialized functions, leading to job creation in highly skilled sectors. They want the best workers in the world and are willing to pay a premium for U.S. talent. Recent statistics show that nearly 40 percent of U.S. jobs created through FDI are in manufacturing. On average, U.S. employees of foreign-owned firms earn 25 percent higher wages than the U.S. private sector average wage.

Another significant impact of FDI on the U.S. economy is the continued growth of its assets in research and development (R&D) and innovation. Already a world leader in R&D, the U.S. is further enhanced by FDI occurring in this sector. In 2008, over $40 billion was spent on R&D by U.S. subsidiaries of foreign firms. Recently, the National Science Foundation (NSF) collected business data gathered by the NSF, the U.S. Census Bureau, and the U.S. Bureau of Economic Analysis to find that U.S. affiliates of foreign firms have a growing share of R&D investments in the United States. Firms recognize the hospitable climate the U.S. provides for product research and development, intellectual property rights protection, and commercialization.

Not only does the United States excel in R&D, but we also safeguard new inventions and innovations through a robust intellectual property protection rights (IPR) system. Last year, 34 percent of all R&D in the world took place in the United States with almost half of the developed world’s researchers working here. This research yields to impressive results, including the research of 45 percent of all Nobel Prize winners in the fields of chemistry, medicine and physics being completed in the United States. Further contributing to our competitiveness, the U.S. has a clear global advantage in the ability of firms to commercialize their technologies while relying on IPR protection. As the Global Manufacturing Index published by Deloitte and the U.S. Council on Competitiveness notes, “Strong intellectual (property) protection not only encourages innovation, it provides a level of confidence in an economy needed to attract FDI and spur technology transfer.” Multinational companies have choices, and they choose to invest in the United States for its supportive environment for their research, development, and commercialization.

FDI’s impact on the U.S. economy transcends its borders. In addition to introduction of new capital, creation of new jobs and strengthening U.S. competitiveness in R&D, U.S. affiliates of foreign-owned firms account for almost 19 percent of total U.S. exports. In recent years, the steady rise in the proportion of U.S. exports originating from these firms is evidence that multinational companies establish themselves not only to service the U.S. market but to utilize our business climate as an export platform, as well. After all, the United States nearly doubles its market access through strategic trade agreements representing 610 million consumers worldwide. Growing this trend is integral to the success of the President’s National Export Initiative to double U.S. exports over a five-year period.

Foreign firms with U.S. operations contribute to the U.S. economy in numerous ways, ranging from job creation on our shores, to contributing to our global trade balance. These firms recognize the unique opportunity presented by an integrated U.S. platform of economic stability, open-market principles, a well-educated workforce, a focus on innovation, and access to global markets. For these and many more reasons, firms from around the world target the United States for business investment and further strengthen the overall global competitiveness of the United States.

Invest in America is the lead United States government effort to promote and support foreign direct investment (FDI) into the U.S. It is a part of the U.S. Department of Commerce. To learn more, visit Tazeem Pasha is an International Investment Specialist at Invest in America.