Foreign Investment Hits Record High

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June 27, 2005--American investment in foreign economies skyrocketed in 2004, as U.S. companies looked to opportunities in developing countries.

In a report released Thursday, the Paris-based Organization for Economic Co-Operation and Development (OECD), a consortium of the 30 wealthiest democracies, said that foreign direct investment from the U.S. hit a record high of $252 billion last year, up from $141 billion in 2003. While the OECD reported that the spike was a partly the result of a weakened dollar -- as multinational corporations took advantage of the dollar's plunge last year to pay back inter-company loans -- researchers added that it was also caused by mergers and acquisitions in the financial and real estate sectors.

Investments in U.S. companies made by foreigners also went up significantly, from $67 billion in 2003, to $107 billion in 2004. The report said that this jump "testifies to the continued attraction of the US economy to investors world wide," but cautioned that the high levels of investment are partly the result of a worldwide boom in mergers and acquisitions and the need to finance America's growing trade deficit.

While the U.S. economy seemed to fare well in the eyes the world's investors, OECD countries on the whole saw inflows of investment fall from $459 billion to $407 billion, while investment to developing countries like China grew from $47 billion to $50 billion. The report also noted increased interest in South America, India, and Russia. Researchers said that in addition to the attractions of cheap labor and resources, companies are beginning to tap the intellectual capital of developing economies. While this has happened most dramatically in the smaller Western European countries which rely increasingly on foreign subsidiaries for research and development, nearly 20% of U.S. patent applications relate to inventions made abroad, according to the group.

Max Chafkin

Senior writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York.