The United States is the largest foreign direct investor in the world and the largest recipient of such investment funds. This active role in foreign investment continues to drive a national debate over various aspects of foreign investment, including the impact on employment; the implications for national security of foreign direct investment in U.S. industrial firms; the effect on corporate research and development; and the implications for high-technology jobs, especially on science and engineering activities that are deemed to be important for continuing economic advancement. In 2004, Congress awarded a grant through P.L. 108-447 to the National Academy of Public Administration (NAPA) to conduct a comprehensive study on outsourcing, or off-shoring, and its major economic effects, particularly on any "associated shifts in employment." The NAPA study distinguished between outsourcing, or the contracting of services or activities to unaffiliated firms located either domestically or internationally, and off-shoring, or the shifting of services or activities abroad to unaffiliated firms or to affiliated firms. The data used in this report, however, do not distinguish between outsourcing and off-shoring or among a broad range of other activities that may be associated with foreign investment. In addition to foreign direct investment, the focus of this report, in which firms take a direct equity stake in an investment project, multinational corporations are engaging in an increasingly complex array of activities to build interdependent networks of operations in global value chains. The United Nations refers to these mechanisms, or alternative forms of governance of global value chains by multinational companies, as non-equity modes (NEM) of investment, that include partial ownership, joint ventures, contract manufacturing, services outsourcing, contract farming, franchising and licensing, and other forms of contractual relationships through which firms coordinate and control the activities of partner firms. As a result of these mechanisms, firms no longer must choose between full control of a foreign affiliate through direct investment or no control, but among a range of modes in which control is exercised in various configurations and to various degrees. Evidence to date suggests that such forms of control are not specific to any particular part of the value chain or type of activity, but are prevalent in shaping global trade patterns in such industries as automotive components, consumer electronics, garments, hotels, and information technology and business process services. The United Nations estimates that NEM investment generated $2 trillion in sales in 2010. While NEM investments can enhance the productive capacities of developing countries through integration into global value chains, employment in the affected industries can be highly cyclical and easily displaced. Currently, foreign investment spans all countries, industrial sectors, industries, and economic activities and has become a major conduit for goods, capital, and technology flows between the developed and the developing economies. Foreign direct investment often is a much-needed source of funds for capital formation in developing countries and foreign investment accounts for important shares of employment, sales, income, and R&D spending in developing countries. On a historical cost basis, or book value basis, the Department of Commerce estimates that by the end of 2011, U.S. firms had accumulated $4.1 trillion worth of direct investment abroad, compared with the $2.6 trillion foreign investors had spent to acquire or establish businesses in the United States, when direct investment is measured at historical cost. As Figure 1 shows, direct foreign investment flows generally have increased since 2003, while U.S. direct investment abroad dropped sharply in 2005 as a result of one-time tax provisions, but then rebounded sharply in 2006. New spending by U.S. firms on businesses and real estate abroad, or U.S. direct investment abroad, rose by 27% in nominal terms in 2011 over the amount invested in 2010, reflecting improvements in the rate of economic growth in Europe and elsewhere. Net investments rose from $328 billion in 2010 to $419 billion in 2011, including adjustments for changes in the value of some components, according to the Department of Commerce. According to preliminary data, U.S. direct investment abroad in 2012 was about $350 billion, a drop of 16% from the amount invested in 2011. Similarly, foreign direct investment in the United States in 2012 dropped by 25% from the amount invested in 2011. U.S. direct investment abroad slowed due to reductions in reinvested earnings, intercompany debt investment, and net equity investment. Despite increases in income and earnings in 2012 compared with 2011, foreign direct investment in the United States fell by $60 billion to $175 billion in 2012, a drop of 25% compared with the $234 billion invested in 2011, due to a sharp reduction in net equity investment and in intercompany debt. Globally, the total, or cumulative, amount of foreign direct investment exceeded $21 trillion in 2011 (the latest year for which detailed data are available), as indicated in Figure 2 . Nearly three-fourths of this amount is invested in the most economically advanced developed economies. The developed economies not only are the greatest recipient of investment funds, but they are also the greatest source of those funds. Similar to the United States, those countries that are the largest overseas investors also tend to be the most attractive destinations for foreign investments. The clear exception to this general observation is Japan, which had invested over $900 billion abroad through 2011, but had received over $225 billion in investment inflows. Among the developing economies, Asia, which includes China, has accumulated $4 trillion in direct investment, followed by Latin America ($2 trillion) and Africa ($600 billion). Global direct investment flows picked up sharply after 2004, following three years of reduced flows. According to the United Nations' World Investment Report , the largest 100 multinational corporations in the world experienced a stagnation of their sales, employment, and growth in assets from 2000 to 2003, but global foreign direct investment flows picked up in the 2006-2007 period before falling in 2008, as indicated in Table 1 . In 2006 and 2007 global direct investment flows grew by 38% and 18%, respectively, to reach nearly $2 trillion. The rise in global direct investment flows was driven by an increase in corporate profits worldwide and resulting higher stock prices that raised the value of cross-border mergers and acquisitions. In 2008, global direct investment flows fell by 14% to total $1.7 trillion, due in part to the tightening up of credit markets and slowing economic growth. Furthermore, the global financial crisis sharply reduced global investment flows in 2009 to $1.1 trillion as capital markets reduced funds available for mergers and acquisitions. The developed economies generally absorb about two-thirds of global direct investment flows, with the developing economies sharing the rest. Africa continues to receive the smallest share, generally less than 3%, with Latin America receiving about 8% and Asia getting between 18% and 22%. These shares changed abruptly in 2009 as the financial crisis tightened credit and reduced merger and acquisition activity, a major factor in direct investment in the developed economies. In 2011, however, global direct investment flows increased to all major geographic regions, but particularly to developed economies, which experienced a 21% increase in direct investment from the amount received in 2010. By the end of 2010, there were more than 2,300 U.S. parent companies with nearly 27,000 affiliates operating abroad, as Table 2 indicates. In comparison, foreign firms had over 6,000 affiliates operating in the United States. U.S. parent companies employed nearly 23 million workers in the United States, compared with the 13.3 million workers employed abroad by U.S. firms and slightly less than 6 million persons employed in the United States by foreign firms. Although the U.S.-based affiliates of foreign firms employ fewer workers than do the foreign affiliates of U.S. firms, they paid almost as much in aggregate employee compensation in the United States as did the U.S. affiliates operating abroad. The data also suggest that U.S. parent companies are more efficient than either the U.S. affiliates of U.S. firms or foreign firms operating in the United States with higher output per employee. Foreign firms operating in the United States are more capital intensive relative to employment than U.S. parent firms or U.S. affiliates, likely reflecting the newer age of the capital stock of the foreign firms. The U.S. affiliates of foreign companies, however, had one-quarter higher value of gross product than did the foreign affiliates of U.S. firms operating abroad. The foreign affiliates of U.S. firms, however, had total sales that were nearly twice as high as that of the U.S. affiliates of foreign firms, likely reflecting the slowdown in economic growth that had begun in the United States. The foreign affiliates of U.S. firms, however, paid considerably more in taxes to foreign governments than did the affiliates of foreign firms operating in the United States. The overseas affiliates of U.S. parent companies also paid nearly twice as much in taxes relative to their sales as did U.S. parent companies and as did foreign-owned affiliates operating in the United States. U.S. multinational companies also play an important role in the U.S. economy, as indicated in Table 3 . According to the total output of U.S. parent companies, or gross product, they produced $2.9 trillion in goods and services in 2010, up slightly from the $2.4 trillion dollars they produced in 2009. This amount represented about 23% of total U.S. private industry gross product, a share of total gross product of U.S. parent companies that was the highest since 2000. The data also demonstrate the impact the improvement in the U.S. economy in 2010 had on the operations of U.S. multinational companies, as those companies grew slightly faster than the economy as a whole and increased their share of private gross product. The manufacturing sector presents a similar picture.