fedgazette

Direct foreign investment in the Ninth District increases, but share still low

David S. Dahl - Regional Economist

Published March 1, 1990  |  March 1990 issue

In the nationwide Journal/NBC poll, 58 percent of the voters surveyed approve of laws that would limit foreign ownership of American companies and real estate. ...

The Wall Street Journal, Jan. 19, 1990

Foreign ownership of U.S. companies has risen dramatically, jumping from $67 billion in 1977 to $346 billion in 1987. Americans' discomfort with this increase is reflected in the above result from The Wall Street Journal/NBC News poll.

Many economists, however, view this increase as a benefit rather than a threat. "Rising foreign ownership of U.S. assets has caused widespread concern, but it is clear that foreign investment is beneficial," wrote economist Mack Ott on The Wall Street Journal's editorial page the same day the above-cited poll was published. "It raises labor productivity by increasing the amount of plant and equipment over the level that would otherwise be available."

Does foreign investment threaten the Ninth District and U.S. economies? Or will it benefit them? Time will render the definitive answer to those questions. Although foreign ownership of U.S. companies has increased rapidly, to date it still accounts for a relatively small portion of the Ninth District and U.S. economies. The characteristics of foreign investment are changing, however, and foreign investment in Ninth District states differs from foreign investment in the nation.

The U.S. Department of Commerce, which gathers data on direct foreign investment, defines it as direct or indirect foreign ownership of 10 percent or more of the voting stock of a non-bank corporation or an equivalent interest in an unincorporated business. Businesses under such control are labeled affiliates.

Changes in the employment by U.S. affiliates of foreign companies between 1977 and 1987 show how direct foreign investment has affected the Ninth District and the nation.

Direct foreign investment has increased rapidly ...

Ninth District states, as well as the United States, have experienced a rapid increase in the number of employees working for U.S. affiliates of foreign companies. (Because the latest data are for 1987, Grand Metropolitan PLC's acquisition of Pillsbury is not reflected in these numbers.)

Employment and Growth, 1977-87
U.S. Non-bank Affiliates of Foreign Companies

  1977 1987 Annual Percent
Change
Minnesota
17,553
41,000
8.9
Montana
1,394
3,500
9.6
North Dakota
1,378
2,700
7.0
South Dakota
730
1,900
10.0
Wisconsin
30,578
53,400
5.7
United States
1,218,711
3,159,700
10.0

Source: U.S. Department of Commerce

.. But its share remains small

Although U.S. affiliates' share of employment essentially doubled in Ninth District states and the United States, these businesses still control just a small percentage of total employment. Also, Ninth District states' shares are less than the share of employment controlled by foreign companies in the nation.

Because manufacturing accounts for about half of direct foreign investment in the United States, foreign investors' share of manufacturing employment is much higher than their share of total non-agricultural employment, in both the region and the United States. The manufacturing employment numbers for affiliates used to compute these shares include both manufacturing and non-manufacturing employment of those U.S. affiliates of foreign companies whose principal activity is manufacturing.

Employment and Growth, 1977-87
U.S. Non-bank Affiliates of Foreign Companies

  Total Non-agricultural Employment
1977
Total Non-agricultural Employment
1987
Manufacturing Employment
1977
Manufacturing Employment
1987
Minnesota
1.1%
2.1%
2.2%
5.7%
Montana
0.5%
1.3%
2.0%
8.7%
North Dakota
0.6%
1.1%
1.3%
8.9%
South Dakota
0.3%
0.7%
3.0%
3.4%
Wisconsin
1.7%
2.6%
3.1%
6.1%
United States
1.5%
3.1%
3.5%
8.0%

Source: U.S. Department of Commerce

Direct foreign investment share of manufacturing employment varies considerably among the 50 states. Within the Ninth District Montana and North Dakota have the highest share, but they also have the smallest manufacturing sectors.

Manufacturing share of direct foreign investment is increasing in some district states but decreasing nationally

Between 1977 and 1987, the nation's manufacturing and mining shares declined, while the shares for trade and other industries rose. South Dakota's manufacturing share also shrank, but in Minnesota, Montana, North Dakota and Wisconsin, it increased.

Europe's share of direct foreign investment is decreasing in the nation but increasing in some Ninth District states

When U.S. affiliates of foreign companies are broken down by country, Europe's relative share declined in the United States and Japan and Canada's share increased between 1977 and 1987. Changes in Montana are similar to those in the United States.

In Minnesota, North Dakota and South Dakota, the opposite occurred: Europe's share of direct foreign investment increased and Canada's share decreased. Japan's share also increased in Minnesota, while North Dakota and South Dakota have essentially no employment attributed to Japanese direct foreign investment.

In Wisconsin there was little change in shares between 1977 and 1987.

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