Foreign Investments in US Drop Sharply

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FOREIGN investment in the United States plunged decidedly this year. That is not good.

Edward Graham, a senior fellow at the Institute for International Economics in Washington, says he has "a gut feeling" that the foreign investment boom of the 1980s may not revive in the 1990s. Foreign investors may be somewhat disenchanted with the US because of its basic economic problems. Japanese investors have been telling him that they have met their investment goals in the US and are now looking to Western Europe.

If that is actually a general sentiment abroad, it is "one more cause for concern about US competitiveness," he says.

"It doesn't help recovery from the recession," adds Robert Salomon, an economist at Brookings Institution.

Foreign direct investment in the US came to $13.3 billion in the first three quarters of 1991, reports the Commerce Department. That's down from $32.7 billion in the same nine months of 1990. For all of 1990, foreign direct investment reached $37.2 billion, compared to $71 billion in 1989.

The major factor in this decline was the recession here in the US and the economic slowdown abroad. "We have a world investment bust," notes David Rolley, an economist with DRI/McGraw-Hill, a consulting firm in Lexington, Mass. Foreign companies with subsidiaries in the US had just as little reason as domestic companies to expand in 1991. "There is no capacity shortage," says Mr. Rolley.

Further, the pressures on corporate earnings in Japan and Western Europe meant that foreign companies had less free cash to go shopping for acquisitions in the US. Indeed, the numbers show an outflow of money from subsidiaries to their parents overseas.

Some Americans worried that Japan was taking over the country lock, stock, and barrel during the 1980s foreign investment boom. That wasn't really so, says Graham. And Rolley notes that the Japanese made many investments at top-dollar prices.

"It is not such a tragedy that the Japanese came in and bought a lot of buildings," he says. "They should have bought more. The banks {now stuck with many bad real estate loans} would have been thrilled."

The statistics for foreign direct investment include net inter-firm borrowing, reinvestment of earnings by foreign subsidiaries, and net equity inflow. …