From the year 2006, the United States has continued ranking as the global leader as far as obtaining of foreign direct investment (FDI) is concerned. This is according to the report that was compiled in 2013 by the president’s economic advisory council and the department of commerce (Department of Commerce, 2013). Almost on a daily basis, foreign companies from various parts of the world continue to invest in the United States, or if not, the majority of them support the already established businesses by providing additional capital. This paper takes an interest in the foreign direct investment in the U.S. It will examine the factors that make the United States a preferred destination for foreign investors. It will, also, examine the manner in which the U.S. economy benefits due to being the greatest beneficiary of the foreign direct investment.
According to Pasha (2013), one of the key sources of capital, cross-border trade and job creation is foreign direct investment. The reason the United States continues to flourish is because of its positive image to many global companies, which view it as a stable and innovative market, which makes it the largest economy in the world. The unmatched opportunity for success in the U.S. is seen in its predictable regulatory climate, proximity to global markets, first class centers of research and development, and renowned educational institutions. Also, it is essential to note the United States is one of the few nations in the world that uphold open investment policy; a policy that supports the cross-border movement of capital, which is an integral requirement in the contemporary global economy.
There are various factors that make the United States the most preferred destination for foreign direct investment as highlighted by Moran and Oldenski (2013):
- An investment regime that is open,
- A highly skilled labor force,
- A large economy that has varied consumer markets,
- Community colleges that are on the fore-front of adopting skill-development missions,
- Modern sources of energy,
- Sufficiently equipped infrastructure,
- Stable and predictable regulatory regime that include suitable protections of intellectual property, and
- Top class research universities and colleges in the whole world.
These factors have, collectively, made the United States to remain an increasingly fascinating destination for major business investments that include foreign direct investment. Confirming the effectiveness of these factors, the Department of Commerce confirmed at the 2013 FDI Confidence Index reported that the United States heaved beyond nations like India, Brazil, and China to become the nation with the greatest global FDI prospects (Pasha, 2013). Therefore, it is only through collective consideration of all these factors that one can understand the reasons that make the United States the most preferred investment destination.
It should, also, be clear that as the foreign direct investment in the U.S. continues to increase, the U.S. economy, also, continues to benefit in the following ways: first, foreign direct investment is essential for funding various physical assets such as service centers, warehouses, sales offices, research and development facilities, and production plants (Department of Commerce, 2013). It is essential to note that most of the foreign companies have their affiliates in the United States whose operations statistics are captured by the Bureau of Economic Statistics. Second, in 2011, the affiliates’ value-added production rose to $736 billion, which represented 4.1 percent of the entire U.S. private sector output (Department of Commerce, 2013). This means that more than 5.6 million Americans were able to find employment in these firms. During the 2009 recession and even recovery period after that, provision of employment by the U.S. affiliates appeared to be stable as compared to the entire private-sector employment. Whereas total U.S. private-sector employment dropped to 5.3 percent, there was an increase of 0.9 percent in employment at the U.S. affiliates in the period between 2007 and 2011 (Department of Commerce, 2013). Third, the U.S. affiliate companies make considerable investments in research and development, and capital equipment, pay excellent wages, and employee highly skilled workers.
Foreign direct investment continues being substantial in the United States. Regarding the report presented by the Department of Commerce, the 2012 net assets of foreign affiliates operating in the U.S. totaled $3.9 trillion (Pasha, 2013). This, also, confirms the consistent ranking of the U.S. as the most preferred destination for foreign direct investment; in fact, in 2012, the inflows from FDI totaled $166 billion (Pasha, 2013). The investments that flow into the U.S. come from a few industrialized countries. These countries include the seven European nations, Korea, Australia, Canada, and Japan, which from 2010, have been the source of up to 80 percent of new FDI. The manufacturing sector in the U.S. receives a substantial portion of dollars from FDI, led by petroleum and coal, and pharmaceutical products. Apart from manufacturing, banking, finance and insurance, non-bank holdings, mining, and wholesale trade, also, benefit substantially from foreign investment.
In conclusion, the future continues looking great for the United States as it will continue upholding the status of the most attractive investment destination, which will, in many ways boost its economy. Nonetheless, there is the need for continued nurturing of the strengths that underlay the economy of the United States, which, also, make many countries prefer it for investments. A few of the underlying strengths that require continued nurturing are new energy sources, adequate infrastructure, world-class research facilities, stable and predictable regulatory regime, community colleges, a labor force that is skilled, a large economy and open investment regime.
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