Japanese Direct Investment in the United States

Abstract

conomic conomic theory and history demonstrate that free international trade increases economic welfare. Similarly, the free movement of capital across national borders leads to the most efficient use of resources. Foreign investment in the United States creates jobs, raises productivity, and increases competition. The inflow of foreign technology and management techniques benefits consumers and many businesses as well. Although domestic firms may not welcome the increased competition from foreign companies, the economic benefits to the nation are clear. Foreign investment in the United States, however, became a major public policy issue during the 1980s as the role of foreign firms expanded rapidly. The foreign presence, though, remains small in relation to the size of the U.S. economy. In manufacturing, where foreign direct investment has been concentrated, companies with 10 percent or more foreign ownership account for under 14 percent of assets and employ only 7 percent of all workers. In comparison to other countries, the magnitude of foreign direct investment in the United States is small.' Moreover, the market value of U.S. direct investment abroad is estimated to be at least double the market value of foreign direct investment in the United States.2 The concern over the foreign presence in the United States resembles the European reaction in the 1950s and 1960s to the influx of U.S. finnrms. Experience shows, however, that American investment benefited the European countries. Still, according to a recent poll, 78 percent of Americans favor restrictions on foreign investment. Much of the concern centers on the activities of Japanese investors. Another survey, for example, reported that 58 percent of Americans were uncomfortable with the level of Japanese investment, but