Recently, the Organization for International Investment released a report showing that the United States received $194.5 billion in foreign direct investment (FDI) in 2010. This FDI is responsible for millions of jobs, billions of dollars in exports, and higher wages for U.S. workers.
FDI occurs when someone in another country directly builds a facility in the U.S., like the $1.5 billion Toyota Tundra plant in San Antonio, Texas, that employs nearly 1,700 people. FDI does not include the billions of dollars that foreigners invest in the U.S. each year by buying stock in U.S. companies or loaning money to the federal government.
Critics say that companies prefer to invest in low-wage countries, causing job losses in the U.S. However, the U.S. is the world’s largest recipient of FDI. As such, the U.S. receives the many benefits associated with foreign direct investment, including job creation, higher wages, increases in exports, and increases in research and development.
- Job creation. Inflows of foreign direct investments create good American jobs. According to the Bureau of Economic Analysis, in 2008 U.S. affiliates of foreign companies accounted for 4.7 percent of the total private-sector workforce, a total of 5.5 million jobs. Of those 5.5 million jobs, approximately 40 percent are in American manufacturing, accounting for 15 percent of all of our manufacturing jobs.
- Higher wages. These affiliates also tend to pay their employees higher wages—as much as 30 percent higher—than resident U.S. companies. With a payroll in the U.S. of $408 billion, the average compensation for each worker is $73,000 a year.
- Increases exports. Since by definition FDI comes from foreign-owned companies, it is only natural that many of their products are shipped elsewhere, boosting U.S. exports. In fact, U.S. subsidiaries of foreign companies accounted for 18 percent of all U.S. exports in 2008, amounting to $232.4 billion.
- Increases research and development. In 2008, foreign companies invested over $40 billion in research and development and spent $187 billion on plants and equipment.
As the Heritage Foundation’s Index of Economic Freedom shows, countries that do the best job of promoting investment freedom are the most likely to prosper. FDI, like any investment into the economy, spawns economic growth and opportunity. Therefore, maintaining a welcoming environment for FDI is one way to help jumpstart the economy again.
Aaron Walling is currently a member of the Young Leaders Program at The Heritage Foundation.
