Working Paper: NBER ID: w4124
Authors: Robert E. Lipsey
Abstract: U.S. direct investment inflows in the 1980s were almost half the world's total. Even this large inflow leaves foreign firms employing less than 5 per cent of the U.S. labor force, but twice that share in manufacturing. That increase is related to the internationalization of production by foreign firms more than to competitive weakness of U.S. firms. Foreign affiliates import more relative to their exports than U.S. firms but are moving closer to the behavior of U.S. firms. The trade balances of both are sensitive to exchange rates. The financing of foreign direct investment from retained earnings dropped almost to zero in the 1980s. One reason is the rapid growth of this investment and another is its low profitability.
Keywords: Foreign Direct Investment; International Trade; U.S. Economy
JEL Codes: F21; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign firms' internationalization of production (F23) | increase in FDI inflows (F21) |
| increase in FDI inflows (F21) | U.S. labor force participation (J49) |
| nature of foreign investment (F23) | import behavior of foreign affiliates (F23) |
| profitability of investments (G11) | financing structure of FDI (F21) |