Foreign Direct Investment and
American policy toward international investment is undergoing a dramatic shift. Long the world's most ardent advocate of unrestricted investment, the United States has traditionally opposed attempts by other nations to place conditions on investment, arguing that politics should not intrude on business decisions and undermine competition. There is, however, a growing movement in Congress to impose new restrictions and conditions on international investment, and technology policy is the preferred vehicle for this sort of investment protectionism.
Attempts by Congress to restrict international investment are out of touch with the demands of an increasingly global economy. Rapidly rising global investment by companies around the world has forever changed the nature of economic life. Investment is now more important than trade as a component of international business. Transnational corporations currently operate some 170,000 affiliates across the globe; this worldwide network of foreign affiliates generated more than $5.5 trillion in world sales in 1990, a figure that exceeded world exports of $4 trillion of goods and nonfactor services. 1
The evidence is clear: international investment stands ever more clearly as a key determinant of domestic productivity and of economic success in the global economy. The inflows bring jobs as well as new technologies and management practices to the host country. The outflows enable companies to open markets abroad, generating exports in the form of intrafirm trade. The issue at stake in the debate over international investment should be the ability of an economy to attract it.
This chapter examines the role of foreign investment in the U.S. economy and recent trends in U.S. policy toward this investment. It