Direct Investment, 2006-2008: detailed historical-cost positions and related capital and income flows.

Lowe, Jeffrey H.

THIS ARTICLE presents detailed statistics on direct investment positions at historical cost (book value) and related capital and income flows for U.S. direct investment abroad and foreign direct investment in the United States. Summary estimates of services transactions with foreign affiliates and foreign parent companies are also presented. (1) (For definitions, see the box "Key Terms.") The statistics for both U.S. direct investment abroad and for foreign direct investment in the United States cover 2006-2008. These statistics complement the statistics presented in two articles in the July 2009 SURVEY OF CURRENT BUSINESS by providing more detail by country, industry, and account. (2)

For both U.S. direct investment abroad--or "outward direct investment"--and foreign direct investment in the United States--or "inward direct investment"--the statistics for 2006 forward reflect the incorporation of new or revised data from BEA's quarterly surveys of transactions between parents (both U.S. and foreign) and their affiliates and annual surveys of financial and operating data of U.S. parent companies, their foreign affiliates and U.S. affiliates of foreign companies.

Tables

After this article, two sets of tables are presented--one for outward direct investment and one for inward direct investment. (3) In each set, tables 1-15 present similar data.

* Table 1 shows the direct investment positions and rates of return at historical cost, current cost, and market value.

* Table 2 presents the position and related flows for 1997-2008 at historical cost and as they are presented in the international investment position accounts and international transactions accounts.

* Tables 3-16 for outward direct investment and 3-17 for inward direct investment present the direct investment positions and international transactions by country of foreign affiliate or foreign parent, by industry of affiliate, and by account. For outward direct investment, table 16 presents estimates that are also classified by industry of U.S. parent. For inward direct investment, table 16 presents estimates that are classified not only by country of foreign parent but also by country of ultimate beneficial owner (UBO).

* Table 17 for inward direct investment provides a breakdown of the foreign direct investment position in the United States by the industry of the UBO of the U.S. affiliate. It shows the value of investments owned by private entities (businesses and individuals, estates, and trusts) as well as the value owned by foreign governments and government enterprises.

The statistics in this report differ from some of the counterpart statistics in the international investment position and international transactions accounts. (4)

* The statistics in this report are at historical cost, the only way detailed statistics by country and industry are available. In contrast, the statistics on the direct investment position in the international investment position accounts are presented at current cost and market value.

* The statistics in this report are presented without a current-cost adjustment. In contrast, the statistics on direct investment income (in the current account) and capital flows (in the financial account) in the U.S. international transactions accounts are presented with a current-cost adjustment.

Revisions

Outward direct investment

The revised statistics on the U.S. direct investment position abroad at yearend, capital flows, and income reflect the incorporation of revised data from quarterly surveys of transactions between U.S. parents and their foreign affiliates and annual surveys of financial and operating data of foreign affiliates.

As noted in the July 2009 SURVEY article on direct investment positions for all areas, the outward direct investment position at historical cost was revised up $22.6 billion for 2006 and $125.7 billion for 2007 (table A). The upward revision for 2006 mostly resulted from a large revision to valuation adjustments from negative to positive and a small upward revision to capital outflows without current-cost adjustment. (Capital outflows without current-cost adjustment, which increase the U.S. direct investment position abroad, consist of reinvested earnings without current-cost adjustment and equity capital and intercompany debt transactions. Capital inflows reduce the position.) The upward revision for 2007 was the result of the upward revision to the position for 2006, an upward revision to 2007 capital outflows, and an upward revision to 2007 valuation adjustments.

Capital outflows without current-cost adjustment were revised up $2.6 billion for 2006, $64.6 billion for 2007, and $13.2 billion for 2008. In all 3 years, the revisions mainly resulted from upward revisions to equity capital investment; for 2008, an upward revision to reinvested earnings also contributed. For 2006 and 2007, downward revisions to reinvested earnings were partly offsetting.

Income without current-cost adjustment was revised down for all 3 years--S4.8 billion for 2006, $5.8 billion for 2007, and $1.5 billion for 2008. In all 3 years, the revisions resulted from downward revisions to earnings; for 2007 and 2008, upward revisions to net interest receipts were partly offsetting.

Inward direct investment

The revised statistics of the foreign direct investment position at yearend, capital flows, and income reflect the incorporation of revised data from quarterly surveys of transactions between U.S. affiliates and their foreign parents and annual surveys of financial and operating data of U.S. affiliates.

As noted in the July 2009 SURVEY article on direct investment positions, for all areas, the inward direct investment position at historical cost was revised down $3.4 billion for 2006 and up $16.8 billion for 2007 (table B). The downward revision for 2006 was attributable to a downward revision to valuation adjustments. The upward revision for 2007 was the result of the upward revision to capital inflows, which was partly offset by a downward revision to valuation adjustments and the downward revision to the 2006 position. (Capital inflows without current-cost adjustment, which increase the foreign direct investment position in the United States, consist of reinvested earnings without current-cost adjustment and equity capital and intercompany debt transactions. Capital outflows reduce the position.)

Capital inflows without current-cost adjustment were revised up $0.4 billion for 2006, up $38.3 billion for 2007, and were revised down $4.8 billion for 2008. The upward revision for 2006 was accounted for by an upward revision to intercompany debt investment that was partly offset by downward revisions to equity capital investment and reinvested earnings. The upward revision for 2007 resulted from an upward revision to intercompany debt investment; an upward revision to equity capital investment also contributed. A downward revision to reinvested earnings was partly offsetting. The downward revision for 2008 was the result of a sizable downward revision to intercompany debt investment that was partly offset by upward revisions to equity capital investment and reinvested earnings.

Income without current-cost adjustment was revised up $5.6 billion for 2006, down $7.8 billion for 2007, and up $18.2 billion for 2008. The revisions for all years were almost entirely attributable to revisions to affiliates' earnings. For 2008, a downward revision to interest payments was partly offsetting.

Data availability

Detailed statistics of the direct investment positions and of transactions between parents and their affiliates that enter the U.S. international transactions (balance of payments) accounts are available on BEA's Web site. To access the series featured in this report, go to www.bea.gov and under "International," click on "Operations of Multinational Companies." Under either "U.S. direct investment abroad" or Foreign direct investment in the United States," click on the link to either "Selected Tables" or Interactive Tables," which appears next to the "Balance of payments and direct investment position data." The interactive tables allow users to access detailed balance of payments and direct investment position data as well as data on the operations of multinational companies.

Acknowledgments

The survey used to collect the data from which the statistics related to outward direct investment were derived was conducted under the supervision of Mark W. New, who was assisted by Iris Branscome, Laura A. Downey, David L. Grayton, Marie K. Laddomada, Sherry Lee, Louis C. Luu, Leila C. Morrison, and Dwayne Torney. Computer programming for data estimation and tabulation was provided by Marie Colosimo.

The survey used to collect the data from which the statistics related to inward direct investment were derived was conducted under the supervision of Gregory G. Fouch, who was assisted by Peter J. Fox, Barbara C. Huang, Susan M. LaPorte, Robert L. Rosholt, and Helen P. Yiu. Computer programming for data estimation and tabulation was provided by Karen E. Poffel and Paula D. Brown.

Key Terms

For a more detailed discussion of the terms in this box, see Foreign Direct Investment in the United States: Final Results From the 2002 Benchmark Survey and U.S. Direct Investment Abroad: Final Results From the 2004 Benchmark Survey. These methodologies are available on BEA's Web site at www.bea.gov.

Direct investment

This is investment in which a resident (in the broad legal sense, including a company) of one country obtains a lasting interest in, and a degree of influence over a business enterprise in another country. In the United States (and in international statistical guidelines), the criterion used to define direct investment is ownership of at least 10 percent of the voting securities of an incorporated business enterprise or the equivalent interest in an unincorporated business enterprise.

U.S. direct investment abroad (outward direct investment) represents the ownership or control, directly or indirectly, by one U.S. resident (U.S. parent) of at least 10 percent of a foreign business enterprise, which is called a foreign affiliate.

Foreign direct investment in the United States (inward direct investment) represents the ownership or control, directly or indirectly, by one foreign resident (foreign parent) of at least 10 percent of a U.S. business enterprise, which is called a U.S. affiliate. Foreign direct investment includes equity and net debt investments by the foreign parent, as well as net debt investments by any other members of the foreign parent group. The foreign parent group consists of (1) the foreign parent, (2) any foreign person (including a company), proceeding up the foreign parent's ownership chain, that owns more than 50 percent of the person below it, up to and including the ultimate beneficial owner (UBO), and (3) any foreign person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it.

The UBO of a U.S. affiliate is the first person that is not more than 50 percent-owned by another person in the affiliate's ownership chain beginning with the foreign parent. The UBO ultimately owns or controls the affiliate and derives the benefits and assumes the risks associated with ownership or control. Unlike the foreign parent, the UBO of a U.S. affiliate may be located in the United States.

Direct investment position

This is the value of direct investors' equity in, and net outstanding loans to, their affiliates. The direct investment position may be viewed as the direct investors' net financial claims on their affiliates. BEA prepares estimates of the positions for U.S. direct investment abroad and foreign direct investment in the United States at historical cost, current cost, and market value. In this report, the historical-cost measure is featured. This valuation is principally derived from the books of affiliates and generally reflect the acquisition cost of the investments, cumulative reinvested earnings, and cumulative depreciation of fixed assets. Historical-cost statistics are consistent with U.S. generally accepted accounting principles (GAAP) in most areas. GAAP, however, values the holdings of most financial instruments at current-period prices rather than at historical cost. See the box "Alternative Measures of the Direct Investment Positions" in Ibarra and Koncz, 23.

Direct investment capital flows arise from transactions that change financial claims (assets) and liabilities between U.S. parents and their foreign affiliates or between U.S. affiliates and their foreign parents. Capital outflows arise from transactions that increase U.S. assets or decrease U.S. liabilities, Capital inflows arise from transactions that decrease U.S. assets or increase U.S. liabilities. Direct investment capital flows consist of equity capital investment, intercompany debt investment, and reinvested earnings. Equity capital investment is the difference between equity capital increases and decreases. Equity capital increases arise from (1) parents' establishments of new affiliates, (2) payments by parents to unaffiliated parties for the purchase of capital stock or other equity interests when they acquire an existing business, (3) payments made to acquire additional ownership interests in their affiliates, and (4) capital contributions to their affiliates. Equity capital decreases are the funds parents receive when they reduce their equity interest in their affiliates.

Intercompany debt investment results from changes in net outstanding loans between parents (or other foreign parent group members) and their affiliates, including loans by parents to affiliates and loans by affiliates to parents.

Reinvested earnings (without current-cost adjustment) are the parents' share of the current-period operating earnings of their affiliates, less distributions of earnings that affiliates make to their parents. A related measure of reinvested earnings is featured in the international transactions accounts; this measure includes a current-cost adjustment that reflects current-period prices. This adjustment converts depreciation charges to a current-cost, or replacement-cost, basis; it adds charges for depletion of natural resources back to income and reinvested earnings because these charges are not treated as production costs in the national income and product accounts; it reallocates expenses for mineral exploration and development across periods, so that they are written off over their economic lives rather than all at once.

Various valuation adjustments to the historical-cost position are made to account for the differences between changes in the historical-cost positions, which are measured at book value, and direct investment capital flows, which are measured at transaction value. (Unlike the positions on current-cost and market-value bases, the historical-cost position is not usually adjusted to account for changes in the replacement cost of the tangible assets of affiliates or in the market value of parent companies' equity in affiliates.)

Valuation adjustments to the historical-cost position consist of currency-translation adjustments and "other" adjustments. Currency-translation adjustments account for changes in the exchange rates that are used to translate affiliates' foreign-currency-denominated assets and liabilities into U.S. dollars. "Other" valuation adjustments are made to account for (1) differences between the proceeds from the Sale or liquidation of foreign affiliates and their book values, (2) differences between the purchase prices of affiliates and their book values, (3) writeoffs resulting from uncompensated expropriations of affiliates, (4) the reclassification of investment positions between direct investment and other investment, and (5) capital gains and losses (excluding currency-translation adjustments) on transactions, such as the sale of assets (excluding inventories) or capital gains and losses that represent the revaluation of the assets of ongoing foreign affiliates for reasons other than exchange-rate changes, such as the writedown of assets. In addition, for individual industries, offsetting valuation adjustments may be made to effect changes in the industry classification of an affiliate. For individual countries, offsetting adjustments are made when the political boundaries of countries change. In addition, for foreign direct investment in the United States, offsetting adjustments are made when transactions between foreign residents result in a change in the country of foreign parent.

Direct investment income (without current-cost adjustment)

This is the return on the direct investment position. It consists of (1) earnings, that is, the parents' shares in the net income from the operations of their affiliates and (2) net interest received by parents (or parent group) from affiliates from outstanding loans and trade accounts. As in the case of reinvested earnings (see above), a related measure including a current-cost adjustment is featured in the international transactions accounts.

Services transactions

Receipts and payments between parents and their affiliates for services provided by one to the other. They consist of royalties and license fees for the use or sale of intangible property or rights (including patents, trademarks, and copyrights) and other private services (consisting of service charges, including management fees and allocated expenses, rentals for tangible property, and film and television tape rentals).

(1.) Global totals (all countries and all industries) for royalties and license fees and other private services are shown in table 2 (page 216). Breakdowns by country and by industry are not included in this presentation. Country detail and detail by type of service or intangible asset will be available in the October SURVEY OF CURRENT BUSINESS article on U.S. international services.

(2.) See Marilyn Ibarra and Jennifer Koncz, "Direct Investment Positions for 2008: Country and Industry Detail," SURVEY 89 (July 2009): 20-34 and Anne Flatness, Erin M. Whitaker, and Robert E. Yuskavage, "Annual Revision of the U.S. International Accounts," SURVEY 89 (July 2009): 35-47.

(3.) Because of the deletion of a table from previous articles, table numbers have changed. For details, see the headnotes to "U.S. Direct Investment Abroad Tables" and "Foreign Direct Investment in the United States Tables" following this article.

(4.) See Elena L. Nguyen, "The International Investment Position of the United States at Yearend 2008," SURVEY 89 (July 2009): 10-19 and Douglas B. Weinberg and Gregory A. Tenentes, "U.S. International Transactions: First Quarter of 2009," SURVEY 89 (July 2009): 56-105.

Table A. U.S. Direct Investment Abroad: Comparison of Previously
Published and Revised Estimates by Area, 2006-2008
[Millions of dollars]

 Direct investment position
 on a historical-cost basis

 Previously
 By area published Revised Revision

 2006

 All areas 2,454,674 2,477,268 22,594
Canada 230,045 205,134 -24,911
Europe 1,341,116 1,397,704 56,587
 Of which:
 United Kingdom 375,348 406,358 31,010
Latin America and Other
 Western Hemisphere 427,397 418,429 -8,968
Africa 25,074 28,158 3,084
Middle East 25,540 24,206 -1,334
Asia and Pacific 405,502 403,637 -1,864

 2007

 All areas 2,791,269 2,916,930 125,661
Canada 257,058 233,971 -23,087
Europe 1,551,165 1,659,499 108,334
 Of which:
 United Kingdom 398,836 424,612 25,776
Latin America and Other
 Western Hemisphere 471,953 508,711 36,758
Africa 27,764 32,496 4,732
Middle East 29,370 28,256 -1,115
Asia and Pacific 453,959 453,997 39

 2008 (1)

 All areas ... ... ...
Canada ... ... ...
Europe ... ... ...
 Of which:
 United Kingdom ... ... ...
Latin America and Other
 Western Hemisphere ... ... ...
Africa ... ... ...
Middle East ... ... ...
Asia and Pacific ... ... ...

 Capital outflows without
 current-cost adjustment (inflows (-))

 Previously
 By area published Revised Revision

 2006

 All areas 221,664 224,220 2,556
Canada 8,135 -1,551 -9,686
Europe 131,430 147,687 16,257
 Of which:
 United Kingdom 15,252 30,535 15,283
Latin America and Other
 Western Hemisphere 40,638 35,672 -4,966
Africa 2,873 5,157 2,284
Middle East 6,184 5,699 -485
Asia and Pacific 32,405 31,556 -849

 2007

 All areas 313,787 378,362 64,575
Canada 22,772 22,659 -113
Europe 197,254 234,577 37,324
 Of which:
 United Kingdom 31,181 24,239 -6,941
Latin America and Other
 Western Hemisphere 33,718 48,099 14,381
Africa 2,003 4,421 2,417
Middle East 3,683 3,857 175
Asia and Pacific 54,357 64,748 10,391

 2008 (1)

 All areas 298,597 311,796 13,199
Canada 20,892 13,034 -7,859
Europe 174,798 180,172 5,374
 Of which:
 United Kingdom 21,556 21,791 235
Latin America and Other
 Western Hemisphere 53,172 64,492 11,320
Africa 2,837 3,348 511
Middle East 4,474 4,058 -416
Asia and Pacific 42,423 46,693 4,269

 Income without
 current-cost adjustment

 Previously
 By area published Revised Revision

 2006

 All areas 308,963 304,114 -4,849
Canada 23,226 23,542 316
Europe 156,299 153,702 -2,596
 Of which:
 United Kingdom 27,176 26,772 -403
Latin America and Other
 Western Hemisphere 57,752 53,532 -4,221
Africa 6,040 7,208 1,169
Middle East 6,213 6,043 -170
Asia and Pacific 59,433 60,086 653

 2007

 All areas 348,791 343,012 -5,779
Canada 21,685 19,936 -1,748
Europe 176,881 176,794 -86
 Of which:
 United Kingdom 29,635 26,308 -3,327
Latin America and Other
 Western Hemisphere 66,689 65,063 -1,626
Africa 6,030 6,716 686
Middle East 7,437 7,699 262
Asia and Pacific 70,071 66,804 -3,267

 2008 (1)

 All areas 352,030 350,531 -1,499
Canada 25,117 25,433 317
Europe 171,983 172,490 507
 Of which:
 United Kingdom 23,270 23,872 603
Latin America and Other
 Western Hemisphere 71,722 71,508 -214
Africa 6,585 6,895 310
Middle East 8,985 9,041 57
Asia and Pacific 67,639 65,163 -2,475

(1.) The only accounts for which 2008 statistics were previously
available by country were capital outflows without current-cost
adjustment and income without current-cost adjustment. The
estimates of the direct investment positions for 2008 are
preliminary and were first published in the July 2009 SURVEY of
CURRENT BUSINESS.

NOTE. The statistics in the "revised" columns were presented in the
July 2009 SURVEY.

Table B. Foreign Direct Investment in the United States: Comparison
of Previously Published and Revised Estimates by Area for 2006-2008
[Million of dollars]

 Direct investment position
 on a historical-cost basis

 By area Previously
 published Revised Revision

 2006

 All areas 1,843,885 1,840,463 -3,422
Canada 175,198 165,281 -9,917
Europe 1,324,355 1,326,738 2,383
 Of which:
 United Kingdom 406,337 414,629 8,292
Latin America and Other
 Western Hemisphere 62,685 66,583 3,898
Africa 1,814 1,976 162
Middle East 9,342 10,112 770
Asia and Pacific 270,490 269,772 -717

 2007

 All areas 2,093,049 2,109,876 16,827
Canada 213,224 207,925 -5,299
Europe 1,482,978 1,507,594 24,616
 Of which:
 United Kingdom 410,787 426,545 15,759
Latin America and Other
 Western Hemisphere 62,955 55,816 -7,139
Africa 1,124 1,396 272
Middle East 12,937 15,058 2,121
Asia and Pacific 319,832 322,087 2,255

 2008 (1)

All areas ... ... ...
Canada ... ... ...
Europe ... ... ...
Of which:
United Kingdom ... ... ...
Latin America and Other
 Western Hemisphere ... ... ...
Africa ... ... ...
Middle East ... ... ...
Asia and Pacific ... ... ...

 Capital inflows without
 current-cost adjustment (outflows (-))

 By area Previously
 published Revised Revision

 2006

 All areas 236,701 237,136 435
Canada 18,079 14,770 -3,309
Europe 181,384 182,575 1,191
 Of which:
 United Kingdom 33,194 38,547 5,354
Latin America and Other
 Western Hemisphere 9,844 11,808 1,964
Africa 250 255 5
Middle East 2,308 2,504 196
Asia and Pacific 24,837 25,225 388

 2007

 All areas 232,839 271,176 38,337
Canada 36,927 43,962 7,035
Europe 144,853 172,361 27,508
 Of which:
 United Kingdom 13,034 18,388 5,353
Latin America and Other
 Western Hemisphere -575 -5,577 -5,002
Africa -675 -358 317
Middle East 3,149 4,809 1,661
Asia and Pacific 49,161 55,979 6,818

 2008 (1)

All areas 320,948 316,112 -4,836
Canada 23,455 23,684 230
Europe 223,587 206,453 -17,134
Of which:
United Kingdom 57,420 54,711 -2,710
Latin America and Other
 Western Hemisphere 27,210 27,445 235
Africa 886 780 -106
Middle East 757 1,355 598
Asia and Pacific 45,054 56,395 11,342

 Income without
 current-cost adjustment

 By area Previously
 published Revised Revision

 2006

 All areas 139,137 144,755 5,618
Canada 15,211 14,555 -656
Europe 91,278 98,286 7,009
 Of which:
 United Kingdom 27,764 36,555 8,791
Latin America and Other
 Western Hemisphere 6,470 7,113 643
Africa 207 207 0
Middle East 1,232 1,243 10
Asia and Pacific 24,739 23,350 -1,388

 2007

 All areas 129,711 121,950 -7,761
Canada 13,506 11,691 -1,815
Europe 82,019 74,530 -7,489
 Of which:
 United Kingdom 18,848 22,021 3,173
Latin America and Other
 Western Hemisphere 6,672 6,276 -396
Africa 25 180 156
Middle East 563 581 18
Asia and Pacific 26,926 28,691 1,765

 2008 (1)

All areas 99,075 117,237 18,161
Canada 8,822 11,578 2,756
Europe 78,997 88,606 9,609
Of which:
United Kingdom 26,321 22,752 -3,570
Latin America and Other
 Western Hemisphere 1,923 2,936 1,013
Africa 34 72 38
Middle East -1,082 -714 367
Asia and Pacific 10,381 14,759 4,378

(1.) The only accounts for which 2008 statistics were previously
available by country were capital inflows without current-cost
adjustment and income without current-cost adjustment. The
estimates of the direct investment positions for 2008 are
preliminary and were first published in the July 2009 SURVEY
CURRENT BUSINESS.

NOTE. The statistics in the "revised" columns were presented in the
July 2009 SURVEY.