U.S. Department of Commerce

Economics and Statistics Administration

June 2011

ESA 

Issue Brief 

#02-11

Foreign Direct Investment in the United States

Executive Summary

When foreign companies invest in U.S. businesses, known as foreign direct investment 

(FDI), it not only provides jobs, but relatively high-paying jobs – indeed, up to 30% higherpaying. Encouraging more FDI and expanding the number of countries that invest in the United 

States would potentially lead to more economic growth and create even more new, high-paying 

U.S. jobs.

During the last ten years, majority-owned U.S. affiliates of foreign companies have employed 

between 5-6 million workers.

FDI supported 2 million manufacturing jobs, which have been less affected by the sectorwide losses in employment than domestic manufacturing jobs. 

Workers at majority-owned U.S. affiliates of foreign companies receive 30% higher pay than 

non-FDI supported jobs. (See Figure 1 below.)

U.S. FDI totaled $194 billion in 2010, and $1.7 trillion over the last ten years.

FDI flows vary greatly year-to-year and generally follow the U.S. business cycle: FDI hit a low 

of $64 billion in 2003 and then surged to an historical peak of $328 billion in 2008.

At present, relatively few countries invest in the United States. In fact, 84% of FDI in the U.S. 

in 2010 came from or through eight countries: Switzerland, the United Kingdom, Japan, 

France, Germany, Luxembourg, the Netherlands, and Canada.

By 

David Payne 

and 

Fenwick Yu, 

Office of the 

Chief 

Economist 

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Figure 1: Compensation Per Employee

U.S. dollars per year

Majority-owned U.S. Affiliates of Foreign Firms All U.S. Firms

Note: For foreign -invested firms, data prior to 2007 do not include bank employees. Employees 

include management staff, production workers, and other full- and part-time employees. 

Source: Calculations are based on data from Bureau of Economic Analysis.
2 U.S. Department of Commerce, Economics and Statistics Administration

Employment by majority-owned U.S. affiliates of foreign companies has generally held 

steady over the last decade (see Figure 2), 

with these companies employing more than 

5 million workers in the United States since 

2000. Given the relative size of foreign investment in the manufacturing sector, a 

large portion of FDI-supported jobs – close 

to 2 million – are in manufacturing. FDIsupported manufacturing jobs tend to be 

more stable than domestic manufacturing 

jobs. From 1998 to 2008, total manufacturing employment fell 24 percent, while FDIsupported manufacturing jobs declined only 

11 percent.

In fact, manufacturing employment of 1.8 

million in 2008 accounted for 32.5 percent 

of total employment at majority-owned U.S. 

affiliates of foreign companies. In contrast, 

retail trade – the largest industry outside of 

manufacturing for employment by U.S. affiliates of foreign companies – employed 

489,000 workers in 2008, followed by the 

administration, support, and waste management industry at 453,000. (See Figure 3.)

Compensation per employee at U.S. affiliates of foreign firms has consistently been 

higher than at other U.S. firms, as illustrated 

DEFINITIONS

Foreign direct investment (FDI) occurs when a foreigner invests in an affiliate located in the United States. 

(An affiliate is a business in which the foreign investor has a substantial interest, defined as ownership of at 

least ten percent of the voting stock of the business). This is different from foreign purchases of U.S. equities that do not lead to substantial ownership or purchases of other financial instruments, which are called 

portfolio investments. FDI is therefore more likely to directly support U.S. jobs than portfolio investment.

The FDI described in this paper relates to financial flows, which result in changes in positions. Direct investment positions measure the outstanding levels of investment at a given time. The positions may be 

viewed as the cumulative amount of financing in the form of equity and debt that foreign direct investors 

have provided to their affiliates.

FDI Supports a Significant 

Number of Well-Paying 

U.S. Jobs

0 500 1,000 1,500 2,000

Others

Information

Transportation & warehousing

Prof, sci, & tech services

Accommodation & food services

Finance & insurance

Wholesale trade

Admin, support,& waste mngmt

Retail trade

Manufacturing

Note: U.S. affiliates classified by industry of sales.

Source: Bureau of Economic Analysis.

Figure 3: Employment by U.S. Affiliates of Foreign Firms by Industry, 2008

Majority-owned; thousands of employees

0

1,000

2,000

3,000

4,000

5,000

6,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

All industries

Manufacturing industries

Note: Prior to 2007, data do not include U.S. affiliates of foreign banks; affiliates by industry of sales.

Source: Bureau of Economic Analysis, www.bea.gov/international/di1fdiop.htm for data to 2008. 

2009 data is reported at http://www.bea.gov/newsreleases/international/mnc/mncnewsrelease.htm.

Break in

data series

Figure 2: Employment by U.S. Affiliates of Foreign Firms Majority-owned; thousands of employees
U.S. Department of Commerce, Economics and Statistics Administration

3

in Figure 1 on the front page.1,2 The compensation differential between FDI jobs 

and jobs as a whole has also been widening over time; growing from 28.4% in 1998 

to 37.0% in 2007 before falling slightly to 

33.3% in 2008.

Foreign Direct Investment into the United 

States has been an important factor in the 

U.S. economy for a number of years, with 

FDI totaling $1.7 trillion over the last ten 

years.

3

 Figure 4 shows FDI has fluctuated 

with the U.S. business cycle. Investment 

surged to an historical peak of $328 billion 

in 2008 and reached a similarly high level 

in 2000, though it hit a low of $64 billion in 

2003. FDI rebounded to $194 billion in 

2010.

A significant portion of FDI goes to the U.S. 

manufacturing sector. (See Figure 5.) In 

2010, $78 billion of FDI, or 41 percent of 

total FDI, was spent on the manufacturing 

sector.

4 Over the past 14 years, manufacturing’s share of FDI has varied from a low 

of 15 percent in 2004 to a high of 81 percent in 1998, averaging 39 percent. Other 

sectors that have received significant FDI 

over time include the wholesale and retail 

sector (21 percent in 2010) and financial-

related industries (14 percent in 2010).

5

Since 1997, about two-thirds of the remaining investment has been in information, mining, utilities, and non-bank holding companies.6

 Very little FDI goes to 

construction, transportation services and 

other service industries.

Foreign Direct Investment 

is Important 

to the U.S. Economy -$50

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 5: Foreign Direct Investment into the U.S.

Billions of dollars, historical cost basis

Manufacturing Wholesale and retail Financial-related All other

Source: Bureau of Economic Analysis.

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 4: Foreign Direct Investment into the U.S.

Billions of dollars, current cost basis

Source: Bureau of Economic Analysis, www.bea.gov/international/di1fdibal.htm.
4 U.S. Department of Commerce, Economics and Statistics Administration

Currently, the vast majority of FDI into the 

U.S. comes from a relatively small set of 

countries. In 2010, 84% of FDI into the 

United States came from firms based in 

eight countries: Switzerland, which invested 

the most, followed by the United Kingdom, 

Japan, France, Germany, Luxembourg, the 

Netherlands and Canada (Figure 6). In addition, 6 percent came from other European 

countries and 10% from other countries/

regions such as the Caribbean, Brazil, Australia, etc.7

Figure 7 shows how the concentration of 

these investment positions has changed 

over time. Though there has been some fluctuation in the importance of the “top 8” investor countries over the past 14 years, 

these 8 have nevertheless contributed to 81 

percent of total FDI. Of the remaining 19 

percent, 9 percent derives from other European (mostly West European) countries, and 

10 percent comes from all other countries.

Increasing FDI from a wider array of countries could have significant payoffs for the 

U.S. economy and American jobs. The question then becomes, are there legitimate 

prospects for increasing FDI into the United 

States?

Based on the data in this report, the answer 

is yes, and there are four primary avenues 

for doing so. The first is to obtain a larger 

portion of the total foreign investments being made by the “top 8.” Another approach 

is to cultivate new investment from other 

developed countries that are outside the 

“top 8” traditional investors. For example, 

when FDI increased in 2007, part of the 

growth was due to increasing investment 

from countries such as Sweden, Australia, 

Spain and Belgium. These four countries 

were all in the top eight investor countries 

that year, investing a total of $66.5 billion. 

$0 $5 $10 $15 $20 $25 $30 $35 $40

Switzerland

United Kingdom

Japan

France

Germany

Luxembourg

Netherlands

Canada

Other European

All other

Source: Bureau of Economic Analysis.

Figure 6: Foreign Direct Investment into the U.S. by Country, 2010 

Billions of dollars, historical cost basis

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 7: Flow of Foreign Direct Investment into the U.S.

Billions of dollars, historical cost basis

Top 8 investor countries

Other European countries

All other

"Top 8 investor countries" are the same as in the table: the United Kingdom, Japan, Netherlands, 

Canada, Germany, Switzerland, France, and Luxembourg. Source: Bureau of Economic Analysis.

FDI Comes from a Relatively 

Small Set of Countries
U.S. Department of Commerce, Economics and Statistics Administration 5

However, in 2010, their investment declined back 

to prior levels, (cumulatively $16.6 billion), leaving 

new investment to the traditional “top 8” countries.

A third option for increasing FDI in the United 

States is to look to those countries that run a trade 

surplus with the U.S. China tops this list, with a 

trade surplus of $273 billion in 2010. The Organization of Petroleum Exporting Countries (OPEC) had 

a combined surplus of $96 billion in 2010, and 

Mexico also had a surplus of $66 billion. None of 

these countries are typical FDI investors in the U.S.

Finally, countries that are holding large amounts of 

liquid U.S. assets are another strong potential 

source of additional FDI. China also tops this list of 

countries ($1,611 billion in liquid U.S. assets as of 

June 2010), yet its investment in the U.S. private 

sector has been relatively small. Similarly, Belgium, with substantial liquid assets, is not among 

the traditional “top 8” foreign investors.8

Given the power of FDI as an economic engine and 

the quality of jobs it supports, there is great potential benefit from broadening and deepening foreign direct investment in the United States.

Endnotes

1 Employees include management staff, production workers, 

and other full- and part-time workers.

2 The compensation differential between FDI and other jobs is 

both the result of FDI concentrating in higher paying industries as well as supporting better paying comparable jobs.

3 This includes current cost adjustment, which generally 

slightly increases the total value of FDI to reflect current 

prices of plant and equipment, land, and inventories. Without 

current cost adjustment, the total was $190 billion in 2010, 

which reflects the historical cost of investment. Data by industry and by country are only available without current cost 

adjustment, which is why all the charts following Figure 1 only 

show totals without the current cost adjustment.

4 Manufacturing share is calculated as a percent of the total 

without current cost adjustment (see endnote #1).

5 Financial-related industries consist of finance, insurance, and 

depository institutions.

6 Holding companies hold the securities of other companies. 

The industry categorization of these other companies is not 

reported.

7 It might be argued that, since countries such as Switzerland, 

the Netherlands and Luxembourg are large financial centers, 

these data give a misleading picture of the true scope of the 

number of countries that invest in the U.S. However, looking 

at FDI by country of the “ultimate beneficial owner” (UBO) of 

the investment does not significantly change the overall picture of investment being concentrated in a few countries or 

significantly change the identity of those countries. See UBO 

tables at http://www.bea.gov/international/di1fdibal.htm.

8 Table 5 in “Report on Foreign Portfolio Holdings of U.S. Securities as of June 30, 2010,” Department of the Treasury, Federal Reserve Bank of New York, Board of Governors of the 

Federal Reserve System, April 2011, p. 9. http://

www.treasury.gov/resource-center/data-chart-center/tic/

Documents/shla2010r.pdf

David Payne

(202) 482-3698

E-mail: dpayne@doc.gov

Fenwick Yu

(202) 482-0322

E-mail: fyu@doc.gov

U.S. Department of Commerce

Economics and Statistics Administration

1401 Constitution Ave., NW

Washington, DC 20230

www.esa.doc.gov

The authors are economists in the Office of the Chief 

Economist of the U.S. Department of Commerce’s 

Economics and Statistics Administration. Direct all 

inquiries to: