America's Foreign Investment Boom

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Global foreign direct investment — so-called FDI — grew to an estimated $1.5 trillion in 2007, according to the United Nations Conference on Trade and Development.1 The European Union has been the target of most cross-borders mergers and acquisitions for several years now, as reported by States News Service, garnering 40 percent of the total flow of FDI funds in 2007. However, the United States has been the largest national recipient of funds.

This trend toward increasing cross-border investment is global, with nations in every part of the world participating as investors, as sellers, or both. It has become a fact of life in a global economy. And yet, many Americans are still fearful of other nations owning assets in our country.

A recent report from Reuters2, for example, quoted Ohio Democratic Representative Marcy Kaptur as she sounded the alarm about foreign investment in major Wall Street banks. In the wake of the subprime mortgage debacle, Citigroup and Merrill Lynch announced raising $20 billion in capital from investors in Asia and the Middle East. Citigroup had already sold a large position in its company to the Abu Dhabi Investment Authority, while Morgan Stanley sold a $5 billion stake in its company to the China Investment Corporation.

"They are selling out America," said Congresswoman Kaptur, as she raised national security fears. There was also a public outcry in 1989 when investors from Japan bought Rockefeller Center in New York. And there was also a lot of resistance to the purchase of U.S. ports by Dubai, and in fact, that deal was rescinded because of opposition

So, do these fears make sense? For the most part; probably not.

To begin with, the amount of foreign investment is small when put into perspective. Each year, the U.S. economy generates $14 trillion. The amount of money handled by insurance companies, pension funds, and mutual funds totals a combined $56 trillion. By comparison, the total assets of sovereign wealth funds invested by other countries around the world are a mere $2.5 trillion.3

It has always been U.S. policy to endorse the free flow of capital around the world, and foreign investment in the U.S. should be welcome. The CEO of the Blackstone Group, a large private equity firm, says that there's no difference between taking foreign investment money and taking money from domestic state pension funds, both of which are now seeking to get higher returns on their holdings...

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