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FDI Strong: The U.S. Tops the World in Foreign Direct Investment

FDI Strong: The U.S. Tops the World in Foreign Direct Investment
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For the seventh consecutive year the United States has been the top destination for foreign direct investment [FDI].

The ranking, determined by the AT Kearney FDI Confidence Index, is the result of a number of positive business factors in the U.S., including tax and regulatory reforms. The data is derived from global CEOs who are making investment decisions as part of their jobs.  

“Developed markets dominate the 2019 rankings, even as investors worry about rising political and economic risks within these markets,” AT Kearney writes in its report. “In frontier and emerging markets, average scores increased, yet not enough for more than a few to rank in the top 25. Cities play an increasingly important role in FDI decisions, even in an era of rising nationalist sentiments.” 

The continued attractiveness of the U.S. as an FDI destination is largely due to its sustained and robust economic expansion in recent years as well and overall stable business climate.

Open for Business

“The pro-growth agenda in the U.S. —fewer regulations, lower corporate tax rate and focus on infrastructure redevelopment—keeps the U.S. ahead of the rest of the world as a business destination,” says Chris Higginbotham, deputy director of outreach for SelectUSA, a U.S. Department of Commerce program that promotes business investment in the U.S. Factors that attract FDI include: 

Tax reform

In 2018, the Tax Cuts and Jobs Act reduced the corporate tax rate from 35% to 21%, freeing up capital to invest in expansions, capital expenditures, workforce or new business opportunities.

Ease of doing business

The U.S. is consistently ranked among the best countries for its overall positive business climate that allows foreign companies to invest in a secure and stable environment. 

Regulatory reform 

White House directives such as Executive Order 13771, which reduces regulatory burdens and costs, make it easier for companies to save money and speed up investments in their businesses—this is especially true for entrepreneurs and start-ups.

Workforce

The U.S. workforce is one of the most diverse, skilled and productive workforces in the world. Government, industry and academia collaborate to provide workers will the skills to excel in an increasingly technical global economy.

Innovation

More international patents are filed in the U.S. than any other country, according to SelectUSA. U.S. intellectual property laws protect ownership and help combat counterfeiting and cybertheft. 

Proximity of consumers

The U.S. has the largest consumer market in the world, with a GDP of $20 trillion and 325 million people. Free-trade agreements with 20 other countries provide access to hundreds of millions of additional consumers.

A strong and robust consumer market is a key reason the U.S. ranks top in the world for FDI.

Access to capital

The U.S. hosts the most developed, flexible and efficient financial markets in the world. A wide range of funding sources enable innovation and expansion, giving companies in the U.S. a competitive advantage.  

The U.S. has adapted its position toward foreign investment to match the 21st century economy and remains open for international business investments.

Moving Forward

Some experts feel that significant reductions in FDI may be an early indicator of recession. For example, according to Carl Weinberg, chief economist at High Frequency Economics, FDI has risen as a percent of GDP ahead of each of the recessions since the 1980s. Sharp declines from record peaks in FDI spending correlate well with the last four major recessions in the U.S. 

Regardless of these fluctuations, confidence in the U.S. as a place to invest remains high.  The White House continues to improve the business investment climate by reducing regulatory burdens and investing in U.S. infrastructure, making it easier for businesses to ship products, receive goods, and strengthen their supply chains. For example, the White House has asked Congress to pass legislation that generates at least $1 trillion in infrastructure investment, including upgrades to the Interstate Highway System and other nationally strategic freight networks.

“These initiatives seek to increase transparency, expand effective oversight and, most importantly, mitigate overregulation and encourage manufacturing investment,” says Stephen Gray, CEO for Gray. “This activity, coupled with growing awareness of manufacturers’ needs, sets the United States apart as an even more enticing destination for business.” 

Some opinions expressed in this article may be those of a contributing author and not necessarily Gray.