Foreign Direct Investment | The Perryman Group

Foreign Direct Investment

By: Dr. M. Ray Perryman
Published in syndication June 26, 2024

Investments in the United States by companies from other countries is a significant, though often overlooked, source of economic activity and expansion. Foreign direct investment (FDI) enhances US productivity growth, increases export volumes, and creates high-paying jobs for American workers. Foreign-owned business operations in the United States account for about 7.9 million direct jobs (many more when spillover effects are included) in a wide variety of industries, as well as substantial research and development expenditures. These companies also account for about 23% of US exports.

The motivations for foreign investment in the US economy are many and varied. The American economy and consumer market is by far the largest, with gross domestic product of $25 trillion and a population of 335 million. Although only about 4% of the world's population resides here, US households account for nearly one third of global household consumption. Even beyond this massive domestic market, there are 20 other countries interacting with the US through free trade agreements, thus opening additional opportunities.

A business-friendly regulatory environment, a stable democracy with strong political and economic institutions, the dominant world currency, and a transparent and predictable legal environment are further US advantages. We have a large and diverse workforce, and American workers are among the most productive (higher interest rates have provided an added boost). The list go on.

It's little surprise that the United States has been ranked as the top destination for foreign direct investment for 12 consecutive years. The level has surged to almost one-third of the global total in recent times, as compared to about 18% before the pandemic. Over the same period, China's share has fallen from 7% to 3%.

For two decades, Texas has been the leading US destination for FDI expenditures. About 660,500 jobs in the state are directly supported by majority foreign-owned affiliates, and more than 1,900 foreign corporations have ongoing operations. The top investing country is the United Kingdom with 19% of projects, followed by Germany (8%), Canada (8%), Japan (7%), and France (5%). More recently, Taiwan, Hong Kong, Egypt, and Mexico have also begun to invest in earnest.

Top industry sectors by projects in Texas include software & IT services, business services, industrial equipment, renewable energy, and transportation & warehousing. Much of this activity is naturally concentrated in the largest metropolitan areas, but notable investment is also occurring elsewhere.

FDI is a win-win, offering foreign companies access to US markets, workforce, and resources. Simultaneously, these investments enhance domestic economic growth and prosperity. Texas is a clear winner, with projects ranging from energy to technology to aviation and everything in between adding significantly to the state's dynamic economy, enhancing opportunities for Texans, and increasing future growth potential. Stay safe!