Foreign Direct Investment Takes Center Stage at Commerce Conference

October 31, 2013

Foreign direct investment (FDI) has long been an engine for U.S. economic prosperity and a critical source of productive capital, R&D, exports, and high-paying jobs. However, there’s a problem: America’s ability to secure FDI appears to be faltering—a fact that has set off alarm bells in Washington.

No longer can the U.S. take its longstanding attractiveness to the world’s investors for granted.  

Slow growth in the developed world, coupled with the emergence of many competing markets as attractive destinations for FDI, now challenge U.S. dominance in the global competition for foreign capital. As a result, the U.S. received 45 percent less FDI in 2012 than it did in 2008, when inflows peaked before the recession. Perhaps even more troubling, the nation’s share of world FDI flows fell from 22 percent to 12 percent from 2000 to 2012. Increasingly, it appears, the “rise of the rest” is giving the United States a run for its money when it comes to the attraction of important foreign investments in new factories, businesses, and other productive assets.

The federal government has taken notice and is at last responding. In September the House passed H.R.2052, the Global Investment in American Jobs Act of 2013, to study the long-term competitiveness of the United States as an investment destination and deliver recommendations for increasing its appeal to global investors.  

In the executive branch, SelectUSA, the new investment promotion arm of the Department of Commerce, will hold its inaugural Investment Summit today and tomorrow. This first-of-its-kind national level engagement will connect businesses and investors from around the globe to economic development organizations at the state, regional, and local levels. With remarks by President Obama and keynote addresses by the secretaries of Commerce, State, and Treasury, as well as the U.S. Trade Representative, the Obama administration intends to clearly signal that the United States is open for business and that investment promotion is a national priority.

We’ll be listening for two things in particular: An explicit recognition that FDI should be strategically positioned as an integral element of a more comprehensive economic agenda to advance U.S. competitiveness globally, and, second, that the products and assets that attract FDI to the United States are found in its states and metropolitan areas. 

The location factors important to potential investors searching the globe for competitive advantage—skilled workers, robust supply chains, dense technology clusters, and quality multi-modal infrastructure—are regional in scale. The federal government may set certain pre-conditions for investment with macroeconomic trade and tax policies, but FDI is won region by region, and in a globalized economy U.S. states and metropolitan areas—whether they realize it or not—are engaged in a far more intense competition with foreign regions than they are with each other.

Now, as the nation and its regions emerge from the recession and rebuild their economies, smart FDI attraction strategies that integrate foreign capital with export promotion, workforce development, and cluster building are more important than ever. Vertically, the federal government, states, and metropolitan areas must align themselves with coordinated and coherent global trade and investment strategies. Only such an integrated and embedded approach will maximize the many benefits of FDI—including new jobs, new tax revenues, knowledge spillovers, and global connectivity—for regions while laying the groundwork for future U.S. competitiveness. 

In this vein, understanding both sub-national trends in FDI and the role that FDI plays in the economic development of nation’s states and metropolitan areas is crucial to ensuring that the competitive proposition offered by a U.S. location remains world-beating. 

It is this understanding that a new Global Cities Initiative report, “FDI Nation: A Metro and State Analysis of Foreign Direct Investment in the United States,” will further in early 2014. “FDI Nation” will provide for the first time a complete analysis of the magnitude and nature of FDI across U.S. metro areas at the detailed industry level and over time. This novel dataset, built from the individual establishment-level on up, will document the importance of FDI to regional economies and enable policymakers at all levels to better understand not only the impact that FDI has on local, state, and national economic development, but also what drives it.

In the meantime, SelectUSA’s investment summit is a helpful reminder that at a time of slumping growth the U.S. and its regions must now redouble their efforts to remain the world’s leading FDI destination.