dolution

CASE STUDY

Fluctuations in Foreign Direct Investment Flows to the United States

Table 12.4 shows that the level of foreign direct investments (FDI) in the United States was $16.9 billion in 1980. It declined to $10.4 billion in 1983 (a recession year) before rising to $68.3 billion in 1989. Afterward, it declined to $19.8 billion in 1992 (another recession year) and then rose to the all-time high of $321.3 billion in 2000. It then declined to $63.8 billion in 2003 (a year of slow growth following the recession of 2001). It then rose to $310.1 billion in 2008 but then declined to $158.6 billion in 2009 because of a recession, and it was $236.2 billion in 2010. Thus, flows of FDI to the United States seem to be cyclical, rising during periods of high growth and falling during periods of recession or slow growth. During the second half of the 1980s, many Americans became concerned that foreigners, particularly the Japanese, were “buying up” America. These fears subsided during the early 1990s, as slow growth and recession made FDI in the United States less attractive to foreigners. With the resumption of rapid growth in 1993, FDI in the United States shot up again to much higher levels than during the late 1980s, but with the United States doing much better in international competitiveness than in the 1980s (see Case Study 6-6), the new upsurge in FDI did not cause much concern and was actually welcomed as contributing to rapid growth in the U.S. economy. Foreign acquisitions of high-tech American firms in recent years, however, are causing some anxiety that this could undermine U.S. international competitiveness and threaten national security.