U.S. can expect further drop in capital from overseas
By Barbara Hagenbaugh
USA Today
WASHINGTON — Foreign companies cut investments in the United States in half in 2001 and are likely to be reducing their stake further this year, the United Nations said last week.
The foreign direct investment — which includes foreign purchases of U.S. companies and expansion of the U.S. divisions of foreign-based companies — fell to $124 billion last year, down from $301 billion in 2000, according to the annual U.N. report on investment.
Worldwide, foreign direct investment fell in 2001 to $735 billion, half the amount seen in 2000 and the first decline in a decade. That happened as a slow economy and stock market declines around the world dampened investors' appetites to pour money abroad, including into the United States.
Less capital flowing to the United States can affect the economy several ways. It can cut the value of the dollar, which helps exporters but hurts importers. It can lead to higher interest rates. And a reduction in foreign investment can slow business spending on new technology and improvements that help boost productivity and, in turn, corporate profits.
But the impact of less investment on the $10 trillion U.S. economy is likely to be minimal, specialists in international economics say, because money from abroad accounts for a small proportion — less than one-fifth, by U.N. estimates — of total U.S. business investment.
"It's not going to be a dramatic impact but, nevertheless, in (an economic) situation which is very touchy, the fact that foreign direct investment ... goes down is not helpful in terms of rekindling economic growth," says Karl Sauvant, director of the United Nations' investment division in Switzerland.
Sauvant says foreign investment in the United States is continuing to fall.
Wachovia global economist Jay Bryson says it might be a while before foreign direct investment in the United States picks up significantly.
Although 2001 foreign investment in the United States was the lowest since 1998, the nation still received the most foreign money, followed by the United Kingdom, where the total was less than half that of the United States'.
Investment fell in Asia and in Latin America last year but rose in Africa and Central and Eastern Europe.
