Survey of Current Business
August 2019
Volume 99, Number 8

Direct Investment Positions for 2018

Country and Industry Detail

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The U.S. direct investment abroad position, or cumulative level of investment, decreased 1.0 percent to $5.6 trillion in 2018 (table A and chart 1). The decrease mainly reflected a shift to negative reinvested earnings, which resulted from increased dividends received by U.S. parent companies from their foreign affiliates. U.S. parent companies repatriated larger dividends from their foreign affiliates in 2018 because of provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that generally eliminated taxes on repatriated earnings. The foreign direct investment in the United States position increased 7.9 percent to $4.3 billion, consistent with better economic conditions in the United States. U.S. real gross domestic product accelerated from 2.2 percent in 2017 to 2.9 percent in 2018.

Chart 1. Direct Investment Positions on a Historical-Cost Basis, 1982–2018. Line Chart.

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The annual changes in the U.S. direct investment abroad (outward) and foreign direct investment in the United States (inward) investment positions reflect various types of financial transactions as well as revaluations of assets and liabilities. Financial transactions consist of equity and debt investment. Other changes in the position consist of capital gains and losses, currency-translation adjustments, and other changes in volume and valuation. Outward financial transactions shifted from net outflows of $300.4 billion in 2017 to net inflows of $90.6 billion in 2018 (table B). This shift mostly reflected a shift to negative reinvestment of earnings in ongoing operations. Other changes in the outward position decreased from $126.9 billion in 2017 to $28.3 billion in 2018. Inward financial transactions were 8.5 percent lower in 2018 ($253.6 billion), compared with 2017 ($277.3 billion) (table D) because of a fourfold decrease in debt liabilities as U.S. affiliates paid down debt owed to their foreign parents. Other changes in the inward position shifted from −$16.9 billion to $65.6 billion in 2018 following a decline in capital gains and losses of affiliates and translation adjustments.

This article highlights the changes in the outward and inward direct investment positions from 2017 to 2018 by type of direct investment transaction, such as equity or debt, by country, and by industry.

 

 

The U.S. direct investment position abroad valued at historical cost—the book value of U.S. direct investors’ equity in, and net outstanding loans to, their foreign affiliates—was $6.0 trillion at the end of 2018 (table A). The position declined by $62.3 billion, or 1.0 percent, in 2018 after growing 7.6 percent in 2017. The decline in 2018 primarily reflected reinvestment of earnings in ongoing operations of −$251.9 billion (table B, line 4), which reflected dividends of $776.5 billion that exceeded foreign affiliates’ earnings in 2018 of $524.6 billion, and translation adjustments of −$34.1 billion (table B, line 11). These negative amounts were partly offset by an increase in equity other than reinvestment of earnings, comprised of greenfield investment and equity contributions to existing affiliates, of $78 billion (table B, line 5).

U.S. multinational enterprises (MNEs) invest in nearly every country around the world, but five host countries accounted for more than half of the total position at the end of 2018 (table C and charts 2 and 3). The Netherlands was the top host country with a position of $883.2 billion, followed by the United Kingdom ($757.8 billion), Luxembourg ($713.8 billion), Ireland ($442.2 billion), and Canada ($401.9 billion). Much of the position in the Netherlands and Luxembourg represents investments that are routed through holding companies in those countries to operating affiliates in other countries. (See “Indirect Ownership of U.S. Direct Investment Abroad.”)

Chart 2. Outward Direct Investment Position by Country of Foreign Affiliate at Yearend, 2018. Bar Chart.

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Changes by component

The $62.3 billion decrease in the outward direct investment position reflected financial transactions of −$90.6 billion and other changes in position of $28.3 billion (table B and chart 4).

Financial transactions

Financial transactions resulted in net inflows of $90.6 billion in 2018, shifting from net outflows of $300.4 billion in 2017. The shift to inflows mostly consisted of a shift to negative reinvestment of earnings in ongoing operations.

Chart 4. Change in the Outward Direct Investment Position by Component, 2009–2018. Line Chart.

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Reinvestment of earnings. Reinvestment of earnings—the difference between the U.S. parents’ share of their foreign affiliates’ current-period earnings and dividends paid by the foreign affiliates to their U.S. parents—shifted to net inflows of $251.9 billion in 2018 from net outflows of $306.5 billion in 2017. The shift was largely due to the repatriation of accumulated prior earnings by U.S. multinationals from their foreign affiliates, largely in response to the TCJA. Current-period earnings of foreign affiliates of U.S. MNEs can either be repatriated to the parent company in the United States in the form of dividends or reinvested in foreign affiliates. Dividends can be paid from either current-period earnings or prior-period earnings that had been reinvested. When dividends exceed current-period earnings, reinvested earnings (calculated as a residual) are negative, indicating a withdrawal of equity assets. In 2018, reinvestment of earnings of −$251.9 billion reflected the difference between direct investment earnings of $524.6 billion and dividends of $776.5 billion (table B and chart 5).1

While dividends increased overall for the year, they were particularly large and exceeded current-period earnings in three of the four quarters of 2018. Almost one-half of the dividends were from affiliates in Bermuda and the Netherlands, and the next largest share of dividends was from affiliates in Ireland. The largest increases in dividends by industry of U.S. parent were in the chemicals manufacturing, computers and electronic products manufacturing, and information industries. The share of current-year earnings that were reinvested (the reinvestment ratio) shifted from approximately 66 percent for 2017 to −48 percent for 2018 because of the large dividends in 2018.

Chart 5. Components of Outward Direct Investment Earnings, 1987–2018. Line Chart.

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Equity other than reinvestment of earnings. Net equity outflows other than reinvestment of earnings increased $48.2 billion, or 161.2 percent, to $78.0 billion in 2018. The net outflows in 2018 resulted from equity increases of $139.2 billion (table B, line 6) that were partly offset by equity decreases, including divestments, of $61.2 billion (table B, line 7).2 The $139.2 billion in equity increases was split between equity for the acquisition or establishment of new foreign affiliates, including greenfield investment, and equity contributions to existing foreign affiliates. Equity increases in 2018 were up 62.5 percent from 2017, reflecting a 24.4 percent increase in U.S. outbound cross-border merger and acquisition activity in 2018.3 The $61.2 billion in equity decreases primarily resulted from withdrawals of capital from foreign affiliates by their U.S. parents.

Debt instruments investment. In 2018, U.S. parents’ borrowing and lending transactions with their foreign affiliates increased their net debt claims on affiliates by $83.2 billion, compared with a decrease of $36.0 billion in 2017 (table B, line 8). The increase in net debt claims in 2018 was concentrated in finance affiliates and can be disaggregated into a $44.5 billion increase in U.S. parent debt claims on their foreign affiliates and a $38.7 billion decrease in U.S. parent debt obligations to their foreign affiliates. Some U.S. parents that repatriated income through dividends reduced their debt obligations to their foreign affiliates.

Other changes in position

Other changes in position were $28.3 billion in 2018, compared with $126.9 billion in 2017 (table B, line 9). Other changes in position in 2018 consisted of currency-translation adjustments of −$34.1 billion, capital gains of $7.8 billion, and other changes in volume and valuation of $54.5 billion (table B, lines 10–12). Translation adjustments reflected the increase in the U.S. dollar value of investments in foreign affiliates caused by a 4.4 percent depreciation of the U.S. dollar’s direct-investment-weighted exchange value at yearend. Depreciations against the Euro and the British pound contributed the most to the depreciation of direct-investment-weighted exchange rate. Other changes in volume and valuation most commonly reflect the difference between the book value and sale price of a foreign affiliate when it is sold or liquidated. When a foreign affiliate is sold, the direct investment position decreases by the amount of the U.S. parent’s share of the foreign affiliate’s book value. In cases where the sale price (included in the financial transactions as an equity decrease) exceeds the book value of the foreign affiliate, the Bureau of Economic Analysis (BEA) incorporates positive adjustments to volume and valuation to reconcile the financial transactions and the direct investment position.

Changes by area and by country

In 2018, the outward direct investment position decreased in three of the six major geographic areas: Latin America and Other Western Hemisphere, Africa, and Asia and Pacific (tables 1.1 and 1.2). The decreases in position were driven by large dividend payments following the TCJA.

Latin America and Other Western Hemisphere. The U.S. direct investment position in Latin America and Other Western Hemisphere decreased by $75.8 billion to $932.3 billion in 2018. Dividends paid by foreign affiliates increased by $241.5 billion in 2017 to $267.0 billion in 2018. The largest decrease in the outward position occurred in Bermuda, which accounted for $221.9 billion of the increase in dividends.

Asia and Pacific. The U.S. direct investment position in Asia and Pacific decreased $54.9 billion to $886.3 billion in 2018. Dividends paid by foreign affiliates increased by $65.2 billion from 2017 to $96.6 billion in 2018. The largest decrease in the outward position occurred in Singapore, which accounted for $46.2 billion of the increase in dividends.

Europe. The U.S. direct investment position in Europe increased $57.0 billion to $3.6 trillion in 2018. The largest increases occurred in Luxembourg, Switzerland, the United Kingdom, Belgium, and Italy. A large decrease in the outward position of $53.5 billion occurred in the Netherlands. That decrease corresponded with a $109.2 billion increase in dividends paid by foreign affiliates in 2017 to $138.8 billion in 2018.

 

 

The foreign direct investment position in the United States valued at historical cost—the book value of foreign direct investors’ equity in, and net outstanding loans to, their U.S. affiliates—was $4.3 trillion at the end of 2018 (table A). The position grew $319.1 billion, or 7.9 percent, in 2018 after growing 6.9 percent in 2017. The growth in 2018 reflected $253.6 billion of financial transactions inflows, mostly consisting of net increases in equity investment other than reinvestment of earnings of $210.4 billion (table D, line 5) and reinvestment of earnings in ongoing operations of $131.9 billion (table D, line 4).

MNEs from nearly every country invest in the United States; however, five investing countries accounted for more than half of the overall foreign direct investment position in the United States at the end of 2018 (table E and charts 6 and 7). The United Kingdom was the top investing country with a position of $560.9 billion, followed by Canada ($511.2 billion), Japan ($484.4 billion), the Netherlands ($479.0 billion), and Luxembourg ($356.0 billion). Foreign direct investment was concentrated in the U.S. manufacturing sector, which accounted for 41 percent of the inward position at the end of 2018.

Chart 6. Inward Direct Investment Position by Country of Each Member of the Foreign Parent Group at Yearend, 2018. Bar Chart.

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Changes by component

The $319.1 billion increase in the inward direct investment position reflected financial transactions of $253.6 billion and other changes in position of $65.6 billion (table D and chart 8).

Financial transactions

Financial transactions resulted in net inflows of $253.6 billion in 2018, down $23.7 billion, or 8.5 percent, from $277.3 billion in 2017. Most of the net inflows in 2018 reflected equity investment other than reinvestment of earnings (table D, line 5). Equity increases (table D, line 6), including greenfield investment, were nearly three times as large as equity decreases.

Chart 8. Change in the Inward Direct Investment Position by Component, 2008–2018. Line Chart.

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Reinvestment of earnings. Reinvestment of earnings—the difference between the foreign parent’s share of their U.S. affiliates’ current-period earnings and dividends paid by U.S. affiliates to their parents—increased $38.9 billion, or 41.8 percent, to $131.9 billion. The increase was the net result of a $37.7 billion increase in U.S. affiliate earnings and a $1.2 billion decrease in dividends. The share of current-year earnings that was reinvested (the reinvestment ratio) increased from 67.1 percent in 2017 to 74.8 percent in 2018.

Equity other than reinvestment of earnings. Net equity inflows other than reinvestment of earnings increased $9.8 billion, or 4.9 percent, to $210.4 billion in 2018. The increase partly reflected a 19 percent increase in the value of merger and acquisition deals targeting U.S. companies in 2018.4 The net inflows in 2018 resulted from equity increases other than reinvestment of earnings, including greenfield investment, of $324.2 billion (table D, line 6) that were partly offset by equity decreases, including divestments, of $113.8 billion (table D, line 7).5 Over 75 percent of the equity increases was accounted for by the acquisition of new affiliates and the remainder reflected equity contributions to existing affiliates. The $113.8 billion of equity decreases primarily resulted from withdrawals of equity capital from existing affiliates.

Debt instruments investment. U.S. affiliates’ borrowing and lending transactions with their foreign parent groups decreased their net debt liabilities by $88.7 billion. The decrease in 2018 resulted from a $60.1 billion decrease in U.S. affiliate debt obligations to members of their foreign parent groups and a $28.6 billion increase in U.S. affiliate debt claims on members of their foreign parent groups.

Other changes in position

Other changes in position totaled $65.6 billion in 2018, compared with −$16.9 billion in 2017 (table D, line 9). Other changes in position in 2018 consisted of capital losses of $24.5 billion, currency-translation adjustments of −$2.7 billion, and other changes in volume and valuation of $92.7 billion (table D, lines 10–12). Other changes in volume and valuation mainly resulted from differences between the sales price and book value of sold or liquidated U.S. businesses. When a U.S. affiliate is sold or liquidated, the foreign direct investment equity position in the United States decreases by the amount of the foreign parent’s share of the U.S. affiliate’s book value. In cases where the sales price (included in financial transactions as a gross decrease in equity) exceeds the book value of the U.S. business, BEA incorporates positive adjustments to volume and valuation to reconcile the financial transactions and the direct investment position. The currency translation adjustments of −$2.7 billion were smaller in magnitude than those for outward investment because most U.S. affiliates maintain their accounting records in U.S. dollars and because most of their assets and liabilities are denominated in U.S. dollars.

Changes by area and by country of the foreign parent group

In 2018, the inward direct investment position increased for all major geographic areas, except for Africa, where it remained unchanged (tables 2.1 and 2.2). The position increased the most for investors from Europe, followed by Canada and Asia and Pacific.

Europe. European direct investment in the United States increased $226.1 billion to $3.0 trillion in 2018. Almost 90 percent of the increase was from the Netherlands and Ireland.

Canada. Canadian direct investment in the United States increased $58.0 billion to $511.2 billion in 2018.

Asia and Pacific. Asian and Pacific direct investment in the United States increased $26.0 billion to $710.6 billion in 2018. More than half of the increase was from Japan.

Changes by area and by country of ultimate beneficial owner

The statistics on inward direct investment positions presented in this article thus far reflect investment by the country of the foreign parent or by the member of the foreign parent group, classified by the country of the first entity outside of the United States with an equity or debt claim on the U.S. affiliate.6 In addition to the data collected by the country of foreign parent, BEA collects data on the country of the ultimate beneficial owner (UBO) of the U.S. affiliate and presents the inward position classified by area and by country of UBO.7 By area of UBO, the position increased the most for investors from Europe, followed by Canada and Latin America and Other Western Hemisphere (table F). The position decreased the most for investments from Asia and Pacific.

Europe. European direct investment in the United States on a UBO basis increased $225.2 billion to $3.0 trillion in 2018. About four-fifths of the increase was from Germany, the Netherlands, and Ireland.

Latin America and Other Western Hemisphere. Latin American and Other Western Hemisphere direct investment in the United States on a UBO basis increased $34.2 billion to $206.9 billion in 2018. Nearly three-fourths of the increase was from Bermuda.

Canada. Canadian direct investment in the United States on a UBO basis increased $64.6 billion to $588.4 billion in 2018.

 

 

The statistics on direct investment positions for 2018 presented in this article are preliminary. The update to direct investment statistics for 2016 and 2017, which was scheduled to be released in June and in July 2019, has been delayed until 2020 because of the impact of the partial federal government shutdown that started in late December 2018 and lasted through late January 2019.

 

 


  1. For more information about how the TCJA affected direct investment asset and income transactions, see “U.S. International Transactions: First Quarter 2019,” Survey of Current Business 99 (July 2019),” and two BEA FAQs, “How are the International Transactions Accounts affected by an increase in direct investment dividend receipts?” and “How does the 2017 Tax Cuts and Jobs Act affect BEA’s business income statistics?
  2. A divestment is the sale or liquidation of the U.S. parent’s direct investment equity position in an affiliate.
  3. Dealogic. M&A Highlights: Full Year 2018. January 2, 2019. https://www.dealogic.com/insight/ma-highlights-full-year-2018/.
  4. Bureau Van Dijk. Global M&A Review 2018.
  5. A divestment is the sale or liquidation of the foreign parent’s direct investment equity position in an affiliate.
  6. This convention follows guidelines in the International Monetary Fund’s Balance of Payments and International Investment Position Manual.
  7. The UBO is defined as the entity that ultimately owns or controls an affiliate and thus ultimately derives the benefits and assumes the risks from owning or controlling an affiliate.