Direct Investor Description
Direct Investor Description
Country ot Origin One way of describing investors is to look at the origin
of investment by area. More than 95 percent of the value of direct investment
ownership is estimated to be in industrial countries.9 Table 1.2 summarizes
the information from industrial countries and illustrates that nearly all recent
investment has emanated from just seven countries. The proportion of global
value originating in the United States has been falling, whereas the proportion originating in the United Kingdom and Japan has been increasing.
There has been some recent growth in direct investment from the developing countries. There are now several hundred LDC direct investors that own several thousand foreign investments. Most of this movement has been from the developing countries that have experienced recent industrialization, such as Hong Kong, Singapore, Mexico, Brazil, and Argentina.10
At the end of 1989 foreign direct investment in the United States was valued at $401 billion. About 30 percent of it originated in the United Kingdom, 17 percent in Japan, and 15 percent in the Netherlands. LDC direct investments make up a substantially higher (10 percent) portion of the direct investment within the United States than the LDC ownership in total world direct investment." Foreign direct investment within the United States has been growing more rapidly in the past few years than the flow of direct investment from the United States to foreign countries; thus at the end of 1989 the value of direct investment within the United States was about 7 percent more than the value of direct investment by U.S. interests in foreign countries. These foreign direct investment figures are based on book values (the costs when the investments were made) rather than market values (what the investments would be worth if sold). Since the growth of U.S.-owned direct
investment took place earlier, its current market value is estimated to be much greater than the market value of foreign direct investment in the United States.
Economic Sector of Investment Between 1929 and 1973 U.S.-owned di-rect investment shifted toward manufacturing and away from mining and
services (see Fig. 1.5a). Although the same type of historical data are not
readily available for non-U.S. direct investment, estimates indicate that U.S.
an(j non-U.S. investment composition are very similar. Since the early 1970s
composition has not changed appreciably for manufacturing. The petroleum
sector has decreased in importance, due largely to a growing reluctance on
the part of many countries to allow foreign ownership of mineral rights. The
category "other" has recently grown most rapidly, due largely to the growth
of such service industries as finance and insurance.
The composition of U.S. direct investment abroad varies between devel-
oped countries and LDCs. The book value at the beginning of 1990 showed that manufacturing comprised 45 percent of the investment in developed countries but only 32 percent in LDCs. Petroleum and insurance investments comprised a higher portion of the investment in LDCs than in developed countries.12 This divergence is due partially to circumstance, since oil investments have to be made where the oil is found. The insurance investments are located primarily in Bermuda, where there are regulatory and tax advantages. Economic conditions are also a major factor, since the developed countries are the main markets for manufactured goods and are large enough to allow for efficient production. The divergence is lessening, since manufacturing investments have been growing more rapidly than petroleum investments in LDCs.
At the beginning of 1990 the value of foreign direct investment in the United States was distributed in the following sectors: manufacturing, 40 percent; wholesale trade, 14 percent; petroleum, 9 percent; real estate, 9 percent; and other, 28 percent.
Location of Investment The major recipients of direct investment are in-
dustrial countries, accounting for about three quarters of the world value.13
Tms pattern parallels the outward flow of direct investments owned by U.S.
enterprises. At the beginning of 1990 U.S. ownership abroad was about $373
billion, of which a little less than a quarter was located in LDCs. Figure 1.5b
shows that Europe has a growing share of U.S. direct investment, whereas
Canada and Latin America have declining shares. The portion in Latin America has been declining for a longer period; in the 1920s, nearly half was located there.
There are two primary reasons for the U.S. interest in developed countries. First, more investments have been market seeking (that is, producing in
a country in order to sell the output there), and the developed countries have more income to spend. Second, political turmoil in many LDCs has discouraged investors.
When direct investment originates in developing countries, most of it has gone to countries within the region where the parent firm is located—for example, Malaysian investments in Thailand. There is some evidence, however, that these investors are beginning to develop footholds in more distant industrial countries, such as South Korea's Pohang Iron & Steel, which makes metal sheets in the United States.
Country ot Origin One way of describing investors is to look at the origin
of investment by area. More than 95 percent of the value of direct investment
ownership is estimated to be in industrial countries.9 Table 1.2 summarizes
the information from industrial countries and illustrates that nearly all recent
investment has emanated from just seven countries. The proportion of global
value originating in the United States has been falling, whereas the proportion originating in the United Kingdom and Japan has been increasing.
There has been some recent growth in direct investment from the developing countries. There are now several hundred LDC direct investors that own several thousand foreign investments. Most of this movement has been from the developing countries that have experienced recent industrialization, such as Hong Kong, Singapore, Mexico, Brazil, and Argentina.10
At the end of 1989 foreign direct investment in the United States was valued at $401 billion. About 30 percent of it originated in the United Kingdom, 17 percent in Japan, and 15 percent in the Netherlands. LDC direct investments make up a substantially higher (10 percent) portion of the direct investment within the United States than the LDC ownership in total world direct investment." Foreign direct investment within the United States has been growing more rapidly in the past few years than the flow of direct investment from the United States to foreign countries; thus at the end of 1989 the value of direct investment within the United States was about 7 percent more than the value of direct investment by U.S. interests in foreign countries. These foreign direct investment figures are based on book values (the costs when the investments were made) rather than market values (what the investments would be worth if sold). Since the growth of U.S.-owned direct
investment took place earlier, its current market value is estimated to be much greater than the market value of foreign direct investment in the United States.
Economic Sector of Investment Between 1929 and 1973 U.S.-owned di-rect investment shifted toward manufacturing and away from mining and
services (see Fig. 1.5a). Although the same type of historical data are not
readily available for non-U.S. direct investment, estimates indicate that U.S.
an(j non-U.S. investment composition are very similar. Since the early 1970s
composition has not changed appreciably for manufacturing. The petroleum
sector has decreased in importance, due largely to a growing reluctance on
the part of many countries to allow foreign ownership of mineral rights. The
category "other" has recently grown most rapidly, due largely to the growth
of such service industries as finance and insurance.
The composition of U.S. direct investment abroad varies between devel-
oped countries and LDCs. The book value at the beginning of 1990 showed that manufacturing comprised 45 percent of the investment in developed countries but only 32 percent in LDCs. Petroleum and insurance investments comprised a higher portion of the investment in LDCs than in developed countries.12 This divergence is due partially to circumstance, since oil investments have to be made where the oil is found. The insurance investments are located primarily in Bermuda, where there are regulatory and tax advantages. Economic conditions are also a major factor, since the developed countries are the main markets for manufactured goods and are large enough to allow for efficient production. The divergence is lessening, since manufacturing investments have been growing more rapidly than petroleum investments in LDCs.
At the beginning of 1990 the value of foreign direct investment in the United States was distributed in the following sectors: manufacturing, 40 percent; wholesale trade, 14 percent; petroleum, 9 percent; real estate, 9 percent; and other, 28 percent.
Location of Investment The major recipients of direct investment are in-
dustrial countries, accounting for about three quarters of the world value.13
Tms pattern parallels the outward flow of direct investments owned by U.S.
enterprises. At the beginning of 1990 U.S. ownership abroad was about $373
billion, of which a little less than a quarter was located in LDCs. Figure 1.5b
shows that Europe has a growing share of U.S. direct investment, whereas
Canada and Latin America have declining shares. The portion in Latin America has been declining for a longer period; in the 1920s, nearly half was located there.
There are two primary reasons for the U.S. interest in developed countries. First, more investments have been market seeking (that is, producing in
a country in order to sell the output there), and the developed countries have more income to spend. Second, political turmoil in many LDCs has discouraged investors.
When direct investment originates in developing countries, most of it has gone to countries within the region where the parent firm is located—for example, Malaysian investments in Thailand. There is some evidence, however, that these investors are beginning to develop footholds in more distant industrial countries, such as South Korea's Pohang Iron & Steel, which makes metal sheets in the United States.
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