Summary
Flows of direct investment capital, both inbound to the U.S. economy and outbound, rose significantly starting in the 1990s. However, FDI flows have been more or less flat in recent years.
Direct investment by foreign-owned companies accounts for about 15% of the eightfold increase in the U.S. capital stock over the past four decades. Strong investment helps to drive productivity growth, which in turns leads to rising real income. The doubling in per capita real income in the United States since 1980 is due in part to foreign investment.
Employment at American affiliates of foreign companies grew significantly faster than total payrolls during the economic expansion of 2010-2019, and compensation at those affiliates is higher on average than among domestic companies. If FDI inflows were to downshift in coming years, then growth in productivity and real income could weaken marginally.
The value of directly invested capital held abroad by American companies rose from about $200 billion in the early 1980s to roughly $6.5 trillion in 2021. Foreign affiliates of U.S. companies generated $1.5 trillion in net income on revenues of $7.7 trillion in 2019. With the global economy growing faster than U.S. real GDP, foreign operations represent important growth opportunities for American companies.
Despite strong inflows and outflows of capital over the past few decades, the performance of the U.S. economy is determined largely by domestic factors. U.S. businesses account for the vast majority of American employment and the capital stock. Smaller flows of direct investment capital would have some negative repercussions for the U.S. economy, but the effects likely would not be catastrophic.