Direct investment, 2007-2009: detailed historical-cost positions and related financial and income flows.
Lowe, Jeffrey H.
THIS ARTICLE presents detailed statistics on direct investment
positions at historical cost (book value) and related financial and
income flows for U.S. direct investment abroad and foreign direct
investment in the United States. Summary estimates of services
transactions with foreign affiliates and foreign parent companies are
also presented. (1) (For definitions, see the box "Key
Terms.") The statistics for both U.S. direct investment abroad and
for foreign direct investment in the United States cover 2007-2009.
These statistics complement the statistics presented in two articles in
the July 2010 SURVEY OF CURRENT BUSINESS by providing more detail by
country, industry, and account. (2)
For both U.S. direct investment abroad--or "outward direct
investment"--and foreign direct investment in the United States--or
"inward direct investment"--the statistics for 2007 forward
reflect the incorporation of new or revised data from BEA's
quarterly surveys of transactions between parents (both U.S. and
foreign) and their affiliates and annual surveys of financial and
operating data of U.S. parent companies, their foreign affiliates and
U.S. affiliates of foreign companies.
Two changes to the statistics in this report reflect BEA's
efforts to align its statistics with recently updated guidelines for
international economic accounts. (3) The first is a change in the
classification of permanent bank debt. Beginning with the statistics for
2007, permanent debt between affiliated domestic and foreign banks is
reclassified from direct investment to other investment accounts. This
change reduces the outward direct investment position for 2008 by $5.3
billion, and it reduces the inward direct investment position for 2008
by $6.5 billion. This change also affects financial flows through its
impact on intercompany debt flows and direct investment income through
its impact on net interest. (For additional details, see the box
"Change in the Treatment of Permanent Bank Debt" in
Ibarra-Caton, 28.) The second is a change in terminology:
"financial flows" replaces "capital flows," and
"equity" or "equity investment" replaces
"equity capital."
Tables
After this article, two sets of tables are presented--one for
outward direct investment and one for inward direct investment. In each
set, tables 1-15 present similar data.
* Table 1 shows the direct investment positions and rates of return
at historical cost, current cost, and market value.
* Table 2 presents the position and related flows for 1998-2009 at
historical cost and as they are presented in the international
investment position accounts and international transactions accounts.
* Tables 3-16 for outward direct investment and 3-17 for inward
direct investment present the direct investment positions and
international transactions by country of foreign affiliate or foreign
parent, by industry of affiliate, and by account. For outward direct
investment, table 16 presents estimates that are also classified by
industry of U.S. parent. For inward direct investment, table 16 presents
estimates that are classified not only by country of foreign parent but
also by country of ultimate beneficial owner (UBO).
* Table 17 for inward direct investment provides a breakdown of the
foreign direct investment position in the United States by the industry
of the UBO of the U.S. affiliate. It shows the value of investments
owned by private entities (businesses and individuals, estates, and
trusts) and the value owned by foreign governments and
government-related entities.
* The statistics in this report differ from some of the counterpart
statistics in the international investment position and international
transactions accounts. (4)
* The statistics in this report are at historical cost, the only
way detailed statistics by country and industry are available. In
contrast, the statistics on the direct investment position in the
international investment position accounts are presented at current cost
and market value.
* The statistics in this report are presented without a
current-cost adjustment. In contrast, the statistics on direct
investment income (in the current account) and financial flows (in the
financial account) in the U.S. international transactions accounts are
presented with a current-cost adjustment.
Revisions
Outward direct investment
The revised statistics on the U.S. direct investment position
abroad at yearend, financial flows, and income reflect the incorporation
of revised data from quarterly surveys of transactions between U.S.
parents and their foreign affiliates and annual surveys of financial and
operating data of foreign affiliates.
As noted in the July 2010 SURVEY article on direct investment
positions for all areas, the outward direct investment position at
historical cost was revised up $77.1 billion for 2007 and $57.7 billion
for 2008 (table A). The upward revision for 2007 mostly resulted from a
large upward revision to valuation adjustments and a smaller upward
revision to financial outflows without current-cost adjustment.
(Financial outflows without current-cost adjustment, which increase the
U.S. direct investment position abroad, consist of reinvested earnings
without current-cost adjustment and equity and intercompany debt
transactions. Financial inflows reduce the position.) The upward
revision for 2008 was the net result of the upward revision to the
position for 2007, a smaller upward revision to 2008 financial outflows,
and a downward revision to 2008 valuation adjustments.
Financial outflows without current-cost adjustment were revised up
$15.2 billion for 2007, $18.7 billion for 2008, and $46.8 billion for
2009. For 2007 and 2008, the revisions were more than accounted for by
upward revisions to equity investment; in both years, the upward
revisions to equity investment were partly offset by downward revisions
to intercompany debt investment and reinvested earnings. For 2009, the
revision mainly resulted from a large upward revision to reinvested
earnings; an upward revision to intercompany debt investment also
contributed.
Income without current-cost adjustment was revised up for all 3
years--$7.2 billion for 2007, $32.0 billion for 2008, and $43.3 billion
for 2009. In all 3 years, the revisions resulted from upward revisions
to earnings.
Inward direct investment
The revised statistics on the foreign direct investment position at
yearend, financial flows, and income reflect the incorporation of
revised data from quarterly surveys of transactions between U.S.
affiliates and their foreign parents and annual surveys of financial and
operating data of U.S. affiliates.
As noted in the July 2010 SURVEY article on direct investment
positions, for all areas, the inward direct investment position at
historical-cost was revised down $54.7 billion for 2007 and down $113.1
billion for 2008 (table B). The revision for 2007 was mainly
attributable to a downward revision to valuation adjustments; a small
downward revision to financial inflows also contributed. The revision
for 2008 was the net result of the downward revision to the 2007
position and a downward revision to valuation adjustments that were
partly offset by an upward revision to financial inflows. (Financial
inflows without current-cost adjustment, which increase the foreign
direct investment position in the United States, consist of rein vested
earnings without current-cost adjustment and equity and intercompany
debt transactions. Financial outflows reduce the position.)
Financial inflows without current-cost adjustment were revised down
$5.2 billion for 2007, up $8.4 billion for 2008, and down $18.6 billion
for 2009. The downward revision for 2007 was accounted for by downward
revisions to intercompany debt investment and equity investment that
were partly offset by an upward revision to reinvested earnings. The
upward revision for 2008 resulted from upward revisions to equity
investment and to intercompany debt investment that were partly offset
by a downward revision to reinvested earnings. The downward revision for
2009 was more than accounted for by a sizable downward revision to
intercompany debt investment that was partly offset by small upward
revisions to equity investment and to reinvested earnings.
Income without current-cost adjustment was revised up $1.9 billion
for 2007, down $5.5 billion for 2008, and down $2.3 billion for 2009.
The revisions for all years were entirely attributable to revisions to
earnings. For 2008, the downward revision to affiliates' earnings
was partly offset by an upward revision to interest payments.
Key Terms
For a more detailed discussion of the terms in this box, see
Foreign Direct Investment in the United States: Final Results From the
2002 Benchmark Survey and U.S. Direct Investment Abroad: Final Results
From the 2004 Benchmark Survey. These methodologies are available on
BEA's Web site at www.bea.gov.
Direct investment
This is investment in which a resident fin the broad legal sense,
including a company) of one country obtains a lasting interest in, and a
degree of influence over a business enterprise in another country. In
the United States (and in the international statistical guidelines), the
criterion used to define direct investment is ownership of at least 10
percent of the voting securities of an incorporated business enterprise
or the equivalent interest in an unincorporated business enterprise.
U.S. direct investment abroad (outward direct investment)
represents the ownership or control, directly or indirectly, by one U.S.
resident (U.S. parent) of at least 10 percent of a foreign business
enterprise, which is called a foreign affiliate.
Foreign direct investment in the United States (inward direct
investment) represents the ownership or control, directly or indirectly,
by one foreign resident (foreign parent) of at least 10 percent of a
U.S. business enterprise, which is called a U.S. affiliate. Foreign
direct investment includes equity and net debt investments by the
foreign parent as well as net debt investment by any other members of
the foreign parent group. The foreign parent group consists of (1) the
foreign parent, (2) any foreign person (including a company), proceeding
up the foreign parent's ownership chain, that owns more than 50
percent of the person below it, up to and including the ultimate
beneficial owner (UBO), and (3) any foreign person, proceeding down the
ownership chain(s) of each of these members, that is owned more than 50
percent by the person above it.
The UBO of a U.S. affiliate is the first person, proceeding up the
affiliate's ownership chain beginning with the foreign parent, that
is not more than 50 percent-owned by another person. The UBO ultimately
owns or controls the affiliate and derives the benefits and assumes the
risks associated with ownership or control. Unlike the foreign parent,
the UBO of a U.S. affiliate may be located in the United States.
Direct investment position
This is the value of direct investors' equity in, and net
outstanding loans to, their affiliates. The direct investment position
may be viewed as the direct investors' net financial claims on
their affiliates. BEA prepares statistics of the positions for U.S.
direct investment abroad and foreign direct investment in the United
States at historical cost, current cost, and market value. In this
report, the historical-cost measure is featured. This valuation is
principally derived from the financial accounting records of affiliates
and generally reflects the acquisition cost of the investments,
cumulative reinvested earnings, and cumulative depreciation of fixed
assets. For additional information, see the box "Alternative
Measures of the Direct Investment Positions" in Ibarra-Caton, 23.
Direct investment financial flows arise from transactions that
change financial claims (assets) and liabilities between U.S. parents
and their foreign affiliates or between U.S. affiliates and their
foreign parents. Financial outflows arise from transactions that
increase U.S. assets or decrease U.S. liabilities. Financial inflows
arise from transactions that decrease U.S. assets or increase U.S.
liabilities. Direct investment financial flows consist of equity
investment, intercompany debt investment, and reinvested earnings.
Equity investment is the difference between equity increases and
equity decreases. Equity increases arise from (1) parents'
establishments of new affiliates, (2) payments by parents to
unaffiliated parties for the purchase of capital stock or other equity
interests when they acquire an existing business, (3) payments made to
acquire additional ownership interests in their affiliates, and (4)
capital contributions to their affiliates. Equity decreases are the
funds parents receive when they reduce their equity interest in their
affiliates.
Key Terms
Intercompany debt investment results from changes in net
outstanding loans between parents (or, for inward investment, other
foreign parent group members) and their affiliates, including loans by
parents to affiliates and loans by affiliates to parents.
Reinvested earnings (without current-cost adjustment) are the
parents' share of the current-period operating earnings of their
affiliates, less distributions of earnings that affiliates make to their
parents. A related measure of reinvested earnings is featured in the
international transactions accounts; this measure includes a
current-cost adjustment that reflects current-period prices. This
adjustment converts depreciation charges to a current-cost, or
replacement-cost, basis; it adds charges for depletion of natural
resources back to income and reinvested earnings because these charges
are not treated as production costs in the national income and product
accounts; and it reallocates expenses for mineral exploration and
development across periods, so that they are written off over their
economic lives rather than all at once.
Various valuation adjustments to the historical-cost position are
made to account for the differences between changes in the
historical-cost positions, which are measured at book value, and direct
investment financial flows, which are measured at transaction value.
(Unlike the positions on current-cost and market-value bases, the
historical-cost position is not usually adjusted to account for changes
in the replacement cost of the tangible assets of affiliates or in the
market value of parent companies' equity in affiliates.)
Valuation adjustments to the historical-cost position consist of
currency-translation adjustments and "other" adjustments.
Currency-translation adjustments account for changes in the exchange
rates that are used to translate affiliates'
foreign-currency-denominated assets and liabilities into U.S. dollars.
"Other" valuation adjustments are made to account for (1)
differences between the proceeds from the sale or liquidation of
affiliates and their book values, (2) differences between the purchase
prices of affiliates and their book values, (3) writeoffs resulting from
uncompensated expropriations of affiliates, (4) the reclassification of
investment positions between direct investment and other investment, and
(5) capital gains and losses (excluding currency-translation
adjustments) on transactions, such as the sale of assets (excluding
inventories) or capital gains and losses that represent the revaluation
of the assets of ongoing affiliates for reasons other than exchange-rate
changes, such as the write-down of assets. In addition, for individual
industries, offsetting valuation adjustments may be made to effect
changes in the industry classification of an affiliate. For individual
countries, offsetting adjustments may be made when the political
boundaries of countries change. In addition, for inward direct
investment, offsetting adjustments are made when transactions between
foreign residents result in a change in the country of the foreign
parent.
Direct investment income (without current-cost adjustment)
This is the return on the direct investment position. It consists
of (1) earnings, that is, the parents' shares in the net income
from the operations of their affiliates and (2) net interest received by
parents (or parent groups) from affiliates from outstanding loans and
trade accounts. As in the case of reinvested earnings (see above), a
related measure including a current-cost adjustment is featured in the
international transactions accounts.
Services transactions
These are receipts and payments between parents and their
affiliates for services provided by one to the other. They consist of
royalties and license fees for the use or sale of intangible property or
rights (including patents, trademarks, and copyrights) and other private
services (consisting of service charges, including management fees and
allocated expenses, rentals for tangible property, and film and
television tape rentals).
Acknowledgments
The statistics on the U.S. direct investment position abroad and
related financial and income flows are based largely on data from
BEA's quarterly surveys of transactions between U.S. parent
companies and their foreign affiliates. The surveys were conducted under
the supervision of Mark W. New, who was assisted by Iris Branscome,
Laura A. Downey, David L. Grayton, Anthony A. Ippoliti, Marie K.
Laddomada, Sherry Lee, Louis C. Luu, Leila C. Morrison, and Dwayne
Torney.
Computer programming for data estimation and tabulation was
provided by Marie Colosimo and Kevin R. Smith.
The statistics on the foreign direct investment position in the
United States and related financial and income flows are based largely
on data from BEA's quarterly surveys of transactions between U.S.
affiliates of foreign companies and their foreign parents.
The surveys were conducted under the supervision of Gregory G.
Fouch, who was assisted by Peter J. Fox, Barbara C. Huang, Susan M.
LaPorte, Robert L.
Rosholt, and Helen R Yiu. Computer programming for data estimation
and tabulation was provided by Karen E. Poffel and Paula D. Brown.
The statistics on royalties and license fees and other private
services (shown in table 2) are based largely on data from BEA's
quarterly surveys of transactions in selected services and intangible
assets with foreign persons. The surveys were conducted under the
supervision of Christopher J. Emond.
Data Availability
Detailed statistics on the direct investment positions and on
transactions between parents and their affiliates that enter the U.S.
international transactions (balance of payments) accounts are available
on BEA's Web site. To access the series featured in this report, go
to www.bea.gov, and under "International" click on
"Operations of Multinational Companies" Under either
"U.S. direct investment abroad" or "Foreign direct
investment in the United States," click on the link to either
"Selected Tables" or "Interactive Tables" that
appears next to "Balance of payments and direct investment position
data." The interactive tables allow users to access detailed
balance of payments and direct investment position data, including
statistics for years earlier than those presented in this report.
(1.) Global totals (all countries and all industries) for royalties
and license fees and other private services are shown in table 2 (for
outward investment, see page 60 and for inward investment, see page 95).
Breakdowns by country and by industry are not included in this
presentation. Country detail and detail by type of service or intangible
asset will be available in the October SURVEY OF CURRENT BUSINESS
article on U.S. international services.
(2.) See Marilyn Ibarra-Caton, "Direct Investment Positions
for 2009: Country and Industry Detail," SURVEY 90 (July 2010):
20-35 and Helen Y. Bai and Mai-Chi Hoang, "Annual Revision of the
U.S. International Transactions Accounts," SURVEY 90 (July 2010):
36-50.
(3.) Balance of Payments and International Investment Position
Manual, 6th ed. (Washington, DC: International Monetary Fund, 2009) and
Benchmark Definition of Foreign Direct Investment, 4th ed. (Paris:
Organisation for Economic Co-operation and Development, 2008). See
Kristy L. Howell and Robert E. Yuskavage, "Modernizing and
Enhancing BEA's International Economic Accounts," SURVEY 90
(May 2010): 6-20 for a discussion of BEA's plans to introduce other
changes recommended in the new international statistical standards in
its international economic accounts.
(4.) See Elena L. Nguyen, "The International Investment
Position of the United States at Yearend 2009," SURVEY 90 (July
2010): 9-19 and Sarah Scott Thomas, Erin M. Whitaker, and Daniel R.
Yorgason, "U.S. International Transactions: First Quarter of
2010," SURVEY 90 (July 2010): 56-101.
Table A. U.S. Direct investment Abroad: Comparison of Previously
Published and Revised Estimates by Area, 2007-2009
[Millions of dollars]
Direct investment position
on a historical-cost basis
Previously
By area published Revised Revision
2007
All areas 2,916,930 2,993,980 77,051
Canada 233,971 250,642 16,671
Europe. 1,659,499 1,682,023 22,524
Of which:
United Kingdom 424,612 426,357 1,746
Latin America and Other
Western Hemisphere 508,711 556,160 47,450
Africa 32,496 32,607 111
Middle East 28,256 28,448 192
Asia and Pacific 453,997 444,101 -9,896
2008
All areas 3,162,021 3,219,725 57,704
Canada 227,298 239,170 11,872
Europe. 1,809,876 1,831,246 21,370
Of which:
United Kingdom 420,873 449,521 28,648
Latin America and Other
Western Hemisphere 563,809 591,363 27,554
Africa 36,640 37,221 581
Middle East 32,488 31,886 -602
Asia and Pacific 491,910 488,839 -3,071
2009 (1)
All areas ... ... ...
Canada ... ... ...
Europe ... ... ...
Of which:
United Kingdom ... ... ...
Latin America and Other
Western Hemisphere ... ... ...
Africa ... ... ...
Middle East ... ... ...
Asia and Pacific ... ... ...
Financial outflows without
current-cost adjustment
Previously
By area published Revised Revision
2007
All areas 378,362 393,518 15,156
Canada 22,659 22,331 -328
Europe. 234,577 239,803 5,225
Of which:
United Kingdom 24,239 21,978 -2,261
Latin America and Other
Western Hemisphere 48,099 55,324 7,225
Africa 4,421 4,490 69
Middle East 3,857 4,070 213
Asia and Pacific 64,748 67,500 2,752
2008
All areas 311,796 330,491 18,695
Canada 13,034 5,986 -7,047
Europe. 180,172 192,691 12,519
Of which:
United Kingdom 21,791 37,138 15,348
Latin America and Other
Western Hemisphere 64,492 77,018 12,526
Africa 3,348 3,764 416
Middle East 4,058 3,907 -150
Asia and Pacific 46,693 47,125 432
2009 (1)
All areas
201,322 248,074 46,752
Canada 13,214 18,085 4,871
Europe 109,852 129,014 19,161
Of which:
United Kingdom 16,786 20,119 3,333
Latin America and Other
Western Hemisphere 45,701 66,149 20,448
Africa 6,161 5,733 -427
Middle East 5,946 4,925 -1,021
Asia and Pacific 20,448 24,168 3,720
Income without
current-cost adjustment
Previously
By area published Revised Revision
2007
All areas 343,012 350,237 7,225
Canada 19,936 21,170 1,234
Europe. 176,794 175,702 -1,092
Of which:
United Kingdom 26,308 21,412 -4,896
Latin America and Other
Western Hemisphere 65,063 72,600 7,537
Africa 6,716 6,726 10
Middle East 7,699 7,692 -7
Asia and Pacific 66,804 66,347 -457
2008
All areas 350,531 382,575 32,044
Canada 25,433 32,410 6,977
Europe. 172,490 191,650 19,160
Of which:
United Kingdom 23,872 27,214 3,342
Latin America and Other
Western Hemisphere 71,508 78,558 7,050
Africa 6,895 6,801 -94
Middle East 9,041 9,064 23
Asia and Pacific 65,163 64,092 -1,071
2009 (1)
All areas
282,192 325,467 43,275
Canada 17,053 19,865 2,811
Europe 146,257 173,623 27,366
Of which:
United Kingdom 19,682 22,561 2,879
Latin America and Other
Western Hemisphere 59,379 69,598 10,220
Africa 4,893 5,067 174
Middle East 4,771 5,100 329
Asia and Pacific 49,839 52,214 2,374
(1.) The only accounts for which 2009 statistics were previously
available by country were financial outflows without current-cost
adjustment and income without current-cost adjustment. The
estimates of the direct investment position for 2009 are
preliminary and were first published in the July 2010 SURVEY OF
CURRENT BUSINESS.
NOTE. The statistics in the "revised" columns were presented in the
July 2010 SURVEY.
Table B. Foreign Direct Investment in the United States: Comparison
of Previously Published and Revised Estimates by Area for 2007-2009
[Million of dollars]
Direct investment position
on a historical-cost basis
Previously
By area published Revised Revision
2007
All areas 2,109,876 2,055,176 -54,700
Canada 207,925 205,381 -2,544
Europe 1,507,594 1,478,383 -29,212
Of which:
United Kingdom 426,545 424,046 -2,499
Latin America and Other
Western Hemisphere 55,816 49,828 -5,988
Africa 1,396 1,535 139
Middle East 15,058 14,896 -162
Asia and Pacific 322,087 305,154 -16,933
2008
All areas 2,278,892 2,165,748 -113,144
Canada 221,870 194,140 -27,729
Europe 1,622,911 1,555,208 -67,703
Of which:
United Kingdom 454,123 454,328 204
Latin America and Other
Western Hemisphere 49,233 46,130 -3,103
Africa 2,002 2,309 307
Middle East 14,676 17,242 2,566
Asia and Pacific 368,200 350,718 -17,482
2009 (1)
All areas ... ... ...
Canada ... ... ...
Europe ... ... ...
Of which:
United Kingdom ... ... ...
Latin America and Other
Western Hemisphere ... ... ...
Africa ... ... ...
Middle East ... ... ...
Asia and Pacific ... ... ...
Financial inflows without
current-cost adjustment (outflows (-))
Previously
By area published Revised Revision
2007
All areas 271,176 265,957 -5,219
Canada 43,962 47,425 3,463
Europe 172,361 161,704 -10,657
Of which:
United Kingdom 18,388 37,183 18,795
Latin America and Other
Western Hemisphere -5,577 -4,658 919
Africa -358 -207 152
Middle East 4,809 5,196 387
Asia and Pacific 55,979 56,497 518
2008
All areas 316,112 324,560 8,449
Canada 23,684 21,998 -1,686
Europe 206,453 202,924 -3,528
Of which:
United Kingdom 54,711 41,314 -13,397
Latin America and Other
Western Hemisphere 27,445 29,509 2,064
Africa 780 948 168
Middle East 1,355 3,652 2,297
Asia and Pacific 56,395 65,529 9,134
2009 (1)
All areas 148,522 129,883 -18,639
Canada 29,143 25,813 -3,330
Europe 98,492 83,725 -14,767
Of which:
United Kingdom 14,233 12,632 -1,601
Latin America and Other
Western Hemisphere 11,508 8,372 -3,135
Africa -165 -787 -622
Middle East 1,880 600 -1,280
Asia and Pacific 7,664 12,160 4,496
Income without
current-cost adjustment
Previously
By area published Revised Revision
2007
All areas 121,950 123,881 1,931
Canada 11,691 10,342 -1,349
Europe 74,530 79,343 4,813
Of which:
United Kingdom 22,021 26,292 4,271
Latin America and Other
Western Hemisphere 6,276 7,678 1,401
Africa 180 175 -5
Middle East 581 470 -110
Asia and Pacific 28,691 25,873 -2,818
2008
All areas 117,237 111,764 -5,472
Canada 11,578 8,064 -3,513
Europe 88,606 86,662 -1,944
Of which:
United Kingdom 22,752 23,890 1,138
Latin America and Other
Western Hemisphere 2,936 6,772 3,836
Africa 72 75 3
Middle East -714 -467 247
Asia and Pacific 14,759 10,658 -4,101
2009 (1)
All areas 91,481 89,186 -2,296
Canada 5,789 6,715 927
Europe 80,381 76,981 -3,400
Of which:
United Kingdom 18,433 23,344 4,911
Latin America and Other
Western Hemisphere -861 48 909
Africa 16 (D) (D)
Middle East 184 (D) (D)
Asia and Pacific 5,973 5,656 -317
(1.) The only accounts for which 2009 statistics were previously
available by country were financial inflows without current-cost
adjustment and income without current-cost adjustment. The
estimates of the direct investment positions for 2009 are
preliminary and were first published in the July 2010 Survey of
Current Business.
NOTE. The statistics in the "revised" columns were presented in the
July 2010 Survey.
