From the June 1998 SURVEY OF CURRENT
BUSINESSOutlays by foreign direct investors to acquire or establish businesses in the United States decreased to $70.8 billion in 1997 from a record $79.9 billion in 1996. Despite the decrease, the first since 1992, outlays in 1997 were among the highest recorded since the new-investment series began in 1980 (chart 1). The 11-percent decrease in outlays in 1997 followed increases of 40 percent in 1996 and 25 percent in 1995 (table 1)./1/
The high level of outlays in 1997 reflected a continuation of favorable U.S. economic conditions and coincided with record-high overall merger and acquisition activity in the United States. In addition, business conditions remained favorable in major investor countries—particularly in Canada, the Netherlands, and the United Kingdom, which together accounted for almost half of the 1997 spending for new investments. The decrease in total outlays from the peak of 1996 reflected a reduction in the number of very large investments and a sharp decline in new investment from Japan, where economic conditions were less favorable.
Additional highlights on new investment in 1997 follow:
Most measures of the overall operations of nonbank U.S. affiliates of foreign companies—which include the operations of existing as well as new affiliates—increased in 1996, the latest year for which such measures are available./2/ The gross product (or value added) of affiliates increased 5 percent to $339.5 billion (current dollars) in 1996 after increasing 3 percent in 1995./3/ The share of total gross product originating in private U.S. businesses that was accounted for by affiliates held steady at 5.9 percent (chart 2).
Additional highlights of the operations of U.S. affiliates in 1996 follow:
Outlays to acquire and establish U.S. businesses were $70.8 billion in 1997 (table 2)./5/ Outlays decreased $9.1 billion, or 11 percent, after increasing 40 percent in 1996. As in the past, outlays to acquire existing U.S. companies rather than to establish new U.S. companies accounted for most—91 percent—of total outlays in 1997.
Although down somewhat from 1996, the level of outlays in 1997 was still relatively high, reflecting the continued importance of many of the factors that have helped to generate a resurgence in new foreign direct investment beginning in 1993. In 1997, the U.S. economy expanded for the sixth consecutive year, overall merger and acquisition activity in the United States was at record levels, and business conditions remained strong in most major investor countries./6/ Both existing U.S. affiliates and their foreign parents had strong earnings, which provided them with the funds needed to make new investments. In addition, borrowing conditions in the United States remained favorable in 1997, as long-term interest rates remained low.
In addition, factors specific to particular industries appear to have motivated a number of new investments. Several U.S. insurance companies were acquired as a result of foreign companies' desire to diversify risk and to consolidate into larger, more efficient units. Several U.S. depository institutions were acquired as a result of foreign financial firms' desire to broaden their range of services, to spread the cost of new technology across a broader base, and to gain more direct access to the large U.S. capital market.
The decrease in outlays in 1997 resulted from several factors. The number of very large investments—that is, investments of $2 billion or more—decreased from 8 in 1996 to 3 in 1997 (table 3). Outlays by Japanese investors declined sharply in 1997—from $8.8 billion to $1.8 billion—after 3 years of increases. Economic growth in Japan slowed significantly in 1997, and prospects for future growth were uncertain because of internal problems—particularly in the banking sector—and the financial difficulties in several of the Asian countries that are major trading partners of, and borrowers from, Japan. Depressed real estate values and a decline in the stock market may also have reduced wealth and made it more difficult for Japanese investors to obtain funds for new overseas investments. The slowdown in new investments may also be due to the appreciation of the U.S. dollar on foreign exchange markets./7/
By industry, outlays in manufacturing and in services decreased (table 4). Within manufacturing, the largest decreases were in "other manufacturing," particularly in printing and publishing and in transportation equipment. Within services, decreases were largest in business services, particularly computer and data processing services, and in health services. These decreases were partly offset by substantial increases in outlays in insurance, "other industries," and depository institutions. The increase in "other industries" was mainly accounted for by increases in communication and public utilities.
By country, declines in outlays from Japan, Germany, and France partly offset increases in outlays from Australia and the Netherlands (table 4). Outlays by Japanese investors, at $1.8 billion, were only about a tenth as large as those in the peak year of 1990 (chart 3). As noted, stalled economic growth, weakened financial institutions, and the effects of financial difficulties in several other Asian countries limited the ability of Japanese investors to invest in the United States. Outlays from Germany and France declined because a number of exceptionally large investments from these countries in 1996 were not matched in 1997. The increase in outlays from Australia reflected sharp increases in outlays in "other industries," particularly in communication and public utilities, and in services. The increase in outlays from the Netherlands reflected substantially higher outlays in insurance and in depository institutions.
The portion of outlays financed with funds from foreign parents dropped from 68 percent to 55 percent. The share for 1996 was unusually high and may have reflected a larger-than-usual share of outlays accounted for by foreign investors who were making direct investment in the United States for the first time; first-time investors tend to rely more on their own funds than do investors with existing U.S. affiliates that could provide needed funds or assist in obtaining funds from other U.S. sources.
In dollar terms, outlays financed with funds from the foreign parents dropped from $54.7 billion in 1996 to $39.1 billion. The decline was in contrast to the increase in net capital inflows for foreign direct investment in the United States (FDIUS) that are recorded in the U.S. balance of payments accounts for 1997./8/ Outlays financed with funds from other foreign sources or from U.S. sources increased $6.5 billion, to $31.7 billion.
The total assets of newly acquired or established affiliates were $179.5 billion in 1997, down from $241.0 billion in 1996 (table 5); the assets of the businesses that were acquired were $165.0 billion.
U.S. businesses that were newly acquired or established employed 298,000 persons in 1997, down from 437,000 in 1996. The largest shares of employment were accounted for by services (34 percent) and manufacturing (32 percent).
In 1996, the gross product of nonbank U.S. affiliates of foreign companies increased 5 percent, a rate of increase higher than the 3-percent increase in 1995 but substantially lower than the rates of increase in most years since the mid–1980's (table 6). The relatively slow growth in 1995 reflected the effect of selloffs of foreign-ownership interests in large U.S. companies. In 1996, the downward effect of selloffs continued, but it was more than offset by the upward effect of new foreign investments.
Partly as a result of new investments, the total assets of affiliates increased 9 percent. The gross property, plant, and equipment of affiliates increased 4 percent; commercial property holdings decreased 1 percent, following a 3-percent decrease in 1995.
Reflecting the continued expansion of the U.S. economy, expenditures on new plant and equipment by affiliates increased 13 percent, the highest rate of increase since 1990. The net income of affiliates increased 36 percent, continuing a sharp uptrend. However, the total amount of compensation of employees paid by affiliates increased only 2 percent, the lowest rate of increase since 1978 (the earliest year for which an annual rate of change can be computed for the data on U.S. affiliate operations).
The modest increase in compensation of employees largely reflected slow growth in affiliate employment: Despite the record level of outlays for new investment in 1996 (chart 1), employment by affiliates increased less than 1 percent, following a 2-percent increase in 1995 (chart 4). (In comparison, total U.S. employment in private industries increased 2 percent in 1996 and 3 percent in 1995.) New investments increased affiliate employment by 334,600—the largest gain since 1990—but sales and liquidations reduced employment by 271,900 (table 7)./9/ In addition, the increase in employment from expansions of existing operations was only 62,700, whereas the reduction in employment from cutbacks in existing operations was 78,100. (In 1995, the increase in employment from expansions was 102,900—33,000 more than the decrease in employment from cutbacks.)
U.S. exports and imports of goods by affiliates each increased only 1 percent in 1996, following increases of 13 percent and 10 percent, respectively, in 1995. The slow growth in affiliate exports reflected a falloff in exports by wholesale trade affiliates, and the slow growth in affiliate imports reflected reduced imports by manufacturing affiliates (particularly, by those in the motor vehicle industry). The share of total U.S. exports of goods accounted for by affiliates decreased from 23 percent in 1995 to 22 percent in 1996; the share accounted for by affiliate exports to their foreign parent groups decreased from 10 percent to 9 percent. The share of total U.S. imports of goods accounted for by affiliates decreased from 34 percent to 32 percent; the share accounted for by affiliate imports from their foreign parent groups decreased from 26 percent to 24 percent.
In 1996, gross product originating in U.S. affiliates increased 5 percent to $339 billion, following an increase of 3 percent in 1995. The growth in 1996 was about the same as the growth in total U.S. gross domestic product (GDP) originating in private industries. Estimates of real affiliate gross product are not available, but the current-dollar increases in affiliate gross product were well above the increases in prices recorded for U.S. businesses./10/ In both years, the U.S.-affiliate share of total U.S. GDP originating in private industries was 5.9 percent (table 1).
By industry.—Among the major industries, the gross product of affiliates more than doubled in finance, except depository institutions and increased by more than 40 percent in insurance and in communication and public utilities (table 8). The jump in the finance industry was due both to new foreign acquisitions and to expansions in the operations of existing affiliates. Most of the increase in the insurance industry was accounted for by expansions. In communication and public utilities, the increase was mainly due to acquisitions.
The gross product of affiliates decreased substantially in the real estate, transportation, and mining industries. The decrease in real estate was mainly due to selloffs of affiliates, particularly by Canadian investors. The decrease in transportation was also due to selloffs. The decrease in mining reflected both selloffs and slowdowns in the operations of existing affiliates.
In manufacturing, the gross product of affiliates increased slightly in 1996, following a decrease in 1995. Manufacturing's share of total affiliate gross product declined for the second consecutive year, to 46 percent, a share that was still much larger than manufacturing's 20-percent share of total U.S. private-industry GDP./11/ Direct investment may be more concentrated in manufacturing than in services or in other industries because of a generally greater presence in manufacturing of scale economies and of production processes that can be standardized across national boundaries. In addition, direct investment in some service industries may be constrained because a high degree of knowledge of the local language, culture, and business environment is typically required to compete effectively with domestically owned businesses.
Within manufacturing, the gross product of affiliates decreased substantially in primary metals and in motor vehicles and equipment. The decrease in primary metals was due to selloffs. The decrease in motor vehicles partly reflected large reductions in value added for a few affiliates in motor vehicles parts and in truck manufacturing. It also reflected reductions associated with the wholesale trade activities of some affiliates in automobile manufacturing./12/
In services, the share of total affiliate gross product accounted for by affiliates declined for the third consecutive year, to 6 percent./13/ (In contrast, services accounted for 23 percent of total U.S. private-industry GDP.) Within services, the gross product of affiliates in the motion picture industry dropped by more than a third as a result of selloffs and of changes in the industry classification of affiliates with operations in more than one industry.
As in previous years, majority-owned affiliates accounted for a dominant share of affiliate economic activity: These affiliates accounted for 80 percent of the gross product of all nonbank affiliates combined and for more than two-thirds of affiliate gross product in most industries (table 9). However, the shares were less than 30 percent in transportation and in communication and public utilities, partly reflecting restrictions on foreign ownership in the domestic air transport, telecommunications, and broadcasting industries.
By country.—In 1996, the seven largest investing countries in terms of affiliate gross product were the United Kingdom, Japan, Germany, France, Canada, the Netherlands, and Switzerland (table 10 and chart 5). As in previous years, affiliates with ultimate beneficial owners (UBO's) in these seven countries accounted for more than 80 percent of the gross product of all U.S. affiliates. British-owned affiliates continued to account for the largest share (22 percent) of total affiliate gross product.
The gross product of French-owned affiliates increased by more than a third. The share of affiliate gross product accounted for by these affiliates increased to 10 percent, so that France moved from the sixth-largest to the fourth-largest UBO country. The large increase in gross product was mainly due to acquisitions of minority-ownership shares in a few large U.S. companies; as a result of these acquisitions, the share of French-owned affiliates' gross product accounted for by majority-owned affiliates decreased from 91 percent to 68 percent (table 11).
The gross product of Japanese- and German-owned affiliates also increased substantially—8 percent and 9 percent, respectively—mainly because of expansions in existing operations. Japanese-owned affiliates continued to account for the second-largest share of total affiliate gross product (16 percent), and German-owned affiliates continued to account for the third-largest share (12 percent).
The share of affiliate gross product accounted for by Canadian-owned affiliates decreased from 11 percent to 9 percent as a result of a $5 billion drop in gross product. The drop was more than accounted for by selloffs and reductions in minority-ownership shares in large U.S. companies to below the 10-percent threshold that defines direct investment./14/ Canada's ranking among UBO countries slipped for the second consecutive year, from the fourth-largest country in 1995 to the fifth-largest country in 1996. As recently as 1990, Canada had ranked as the second-largest UBO country.
Among the affiliates of other investing countries, the gross product of Australian-owned affiliates increased substantially, partly as a result of acquisitions by existing affiliates. The gross product of affiliates with UBO's in Taiwan decreased, partly as a result of selloffs and liquidations.
In 1996, the share of total U.S. private-industry employment accounted for by U.S. affiliates of foreign companies was 4.8 percent, down slightly from 1995 (table 12). The affiliate share of employment has trended down in recent years after it increased steadily from 1.8 percent in 1977 to 5.3 percent in 1991. The recent decreases partly reflect the concentration of affiliate activity in manufacturing, an industry whose share of total U.S. employment in private industries has declined./15/
By industry.—In 1996, as in most years, the shares of total U.S. private-industry employment accounted for by affiliates were largest in mining (23.8 percent) and manufacturing (11.4 percent)./16/ Within manufacturing, the affiliate shares were largest in chemicals and in stone, clay, and glass products.
By major industry, the affiliate share in communication and public utilities increased the most, from 4.5 percent to 6.0 percent, continuing an upward trend; the increase in 1996 was more than accounted for by foreign acquisitions of large U.S. companies. The share in transportation decreased the most, from 6.5 percent to 5.4 percent, mainly as a result of sales and liquidations of affiliates.
The affiliate share in manufacturing held steady in 1996 after dipping slightly in 1995. Within manufacturing, the affiliate share increased the most in motor vehicles and equipment, continuing an upward trend (chart 6). The increase was partly due to acquisitions by existing affiliates. It also reflected increases in the domestic manufacturing operations of affiliates that in earlier years had functioned mainly as marketers of finished vehicles produced by their foreign parent companies./17/
The affiliate shares decreased substantially in food and kindred products and in primary metal industries. The decrease in food and kindred products was partly due to selloffs. The decrease in primary metal industries was more than accounted for by selloffs in primary ferrous metals.
The affiliate share in services dipped slightly to 2.0 percent. Within services, the affiliate shares decreased substantially in the hotel and motion picture industries. The decrease in hotels was partly due to selloffs of a number of affiliates with UBO's in Hong Kong and Japan. The decrease in motion pictures, from 7.8 percent to 3.6 percent, was partly due to reductions in foreign-ownership shares in U.S. media companies to below 10 percent.
By State.—In 1996, the shares of private-industry employment accounted for by affiliates were highest in Hawaii (11.0 percent), South Carolina (8.1 percent), and North Carolina (7.3 percent) (table 13). These States also had the highest shares in 1995. In both years, Japanese-owned affiliates accounted for 70 percent of affiliate employment in Hawaii, and affiliates with UBO's in Europe accounted for about 75 percent of affiliate employment in South Carolina and in North Carolina.
In manufacturing, the affiliate shares of employment in 1996 were highest in Kentucky (19.3 percent), South Carolina (17.8 percent), and New Jersey (17.6 percent) (table 14). Japanese- and European-owned affiliates each accounted for about 40 percent of affiliate manufacturing employment in Kentucky. In South Carolina and in New Jersey, more than 70 percent of affiliate manufacturing employment was accounted for by affiliates with UBO's in Europe.
The net income of affiliates—after-tax profits on a financial-accounting basis—increased $5.6 billion, to $21.1 billion, in 1996 after increases of $7.4 billion in 1995 and $12.5 billion in 1994./18/ (The increase in 1994 represented a shift from losses to profits; in 1990–93, affiliates had incurred net losses.) The increase in 1996 reflected increased operating profits, as "profit-type return"—before-tax profits generated from current production on an economic-accounting basis—increased $11.7 billion, or 42 percent, to $39.6 billion (table 15)./19/ (U.S. income taxes paid by affiliates increased $5.2 billion, to $23.3 billion.) In 1995, net income increased more than profit-type return; much of the difference was accounted for by a large decrease in affiliates' capital losses, which had a large effect on net income but no effect on profit-type return.
The increase in profit-type return in 1996 continues a pattern of strong growth that began in 1992. Some of this growth reflected the entry of affiliates into the direct investment universe, but most of it appears to be attributable to the improved profitability of existing affiliates. The profitability of existing affiliates in manufacturing, an industry sharply affected by cyclical economic conditions, increased substantially in 1991–94 and again in 1996.
By major industry, affiliates' net income and profit-type return both increased substantially in petroleum, insurance, and "other industries." Affiliates' net income and profit-type return both decreased substantially in services, reflecting large operating losses in business services.
In wholesale trade, the net income of affiliates increased much more than their profit-type return because of large increases in capital gains. Because of capital losses, the net income of affiliates in manufacturing and in finance decreased despite increased operating profits. Within manufacturing, capital losses were particularly large in chemicals.
Return on assets.—The rate of return on assets for nonfinancial U.S. affiliates has been considerably lower than that for all U.S. nonfinancial corporations over the last decade (chart 7, table 16)./20/ For U.S. affiliates, the rate during 1987–96 ranged from 2.9 percent in 1992 to 5.3 percent in 1996. For all U.S. nonfinancial corporations, the rates were uniformly higher, ranging from 6.4 percent in 1992 to 8.0 percent in 1996.
The rate of return on assets for nonfinancial affiliates increased to 5.3 percent in 1996 from 4.7 percent in 1995. For all U.S. nonfinancial corporations, the rate of return increased to 8.0 percent in 1996 from 7.6 percent in 1995./21/
Footnotes:
1. The estimates of outlays for 1997 are preliminary. The 1996 estimate of total outlays has been revised down 1 percent from the preliminary estimate published last year.
2. All data on the overall operations of nonbank U.S. affiliates are on a fiscal year basis. Thus, for 1996, an individual affiliate's fiscal year is its financial reporting year that ended in calender year 1996.
A U.S. affiliate is a U.S. business enterprise in which there is foreign direct investment—that is, in which a single foreign person owns or controls, directly or indirectly, 10 percent or more of the voting securities of an incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise. The term "U.S. affiliate" denotes that the affiliate is located in the United States; in this article, "affiliate" and "U.S. affiliate" are used interchangeably.
A "person" is any individual, corporation, branch, partnership, associated group, association, estate, trust, or other organization and any government (including any corporation, institution, or other entity or instrumentality of a government). A "foreign" person is a person who resides outside the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, and all U.S. territories and possessions.
The financial and operating data of U.S. affiliates cover the entire operations of the U.S. affiliate, irrespective of the percentage of foreign ownership.
3. The estimates of gross product and the other data items on affiliate operations for 1996 are preliminary. The estimates for 1995 are revised; for most of the key data items, the revisions from the preliminary estimates were small, resulting in changes to the totals of -1.5 percent to 0.5 percent.
4. The UBO is that person, proceeding up a U.S. affiliate's ownership chain, beginning with and including the foreign parent, that is not owned more than 50 percent by another person. The foreign parent is the first foreign person in the affiliate's ownership chain. Unlike the foreign parent, the UBO of an affiliate may be located in the United States. The UBO of each U.S. affiliate is identified to ascertain the person that ultimately owns or controls the U.S. affiliate and that therefore ultimately derives the benefits from ownership or control.
5. The new investment data cover U.S. business enterprises (including banks) that have total assets of over $1 million or that own at least 200 acres of U.S. land in the year they are acquired or established. U.S. enterprises that do not meet these criteria are required to file partial reports, primarily for identification purposes; the data from these reports are not included in the accompanying tables. For 1997, the total assets of the U.S. enterprises that filed partial reports were only $88.3 million, about 0.1 percent of the total assets of $179.5 billion of the U.S. enterprises that filed complete reports.
A U.S. business enterprise is categorized as "established" if the foreign parent or its existing U.S. affiliate (a) creates a new legal entity that is organized and begins operating as a new U.S. business enterprise or (b) directly purchases U.S. real estate. A U.S. business enterprise is categorized as "acquired" if the foreign parent or its existing U.S. affiliate (a) obtains a voting equity interest in an existing U.S. business enterprise and continues to operate it as a separate legal entity, (b) purchases a business segment or an operating unit of an existing U.S. business enterprise that it organizes as a new separate legal entity, or (c) purchases through the existing U.S. affiliate a U.S. business enterprise or a business segment or an operating unit of a U.S. business enterprise and merges it into the affiliate's own operations.
The data on new investments do not cover a foreign parent's acquisition of additional equity in its U.S. affiliate or its acquisition of an existing U.S. affiliate from another foreign investor. They also do not cover expansions in the operations of existing U.S. affiliates, and selloffs or other disinvestment are not netted against the new investments.
6. Data on overall merger and acquisition activity in the United States in 1997 were reported by the Securities Data Company in a news release on January 5, 1998.
7. The effects of changes in currency values on direct investment are sometimes ambiguous and may depend on the reasons underlying the change, but economic literature suggests that dollar appreciation has tended to retard foreign direct investment in the United States, and dollar depreciation has tended to stimulate it. See Edward M. Graham and Paul R. Krugman, Foreign Direct Investment in the United States, 3rd edition (Washington, DC: Institute for International Economics, 1995): 45–47.
8. In addition to outlays from foreign parents to acquire or establish U.S. affiliates, net capital inflows for FDIUS include foreign parents' financing of their existing U.S. affiliates. In 1997, these inflows increased $30.9 billion, to $107.9 billion. Of the components of total capital inflows—equity capital, reinvested earnings, and intercompany debt—changes in equity capital tend to reflect most closely changes in new foreign investment, and in 1997, these inflows declined $5.2 billion, to $47.8 billion. These preliminary estimates of inflows were published in tables 1 and 5 of Christopher L. Bach, "U.S. International Transactions, Fourth Quarter and Year 1997," SURVEY OF CURRENT BUSINESS 78 (April 1998): 79 and 86. Revised estimates will be published in the July issue of the SURVEY.
9. The increase in employment from new investments is smaller than the number of employees of newly acquired or established U.S. businesses in 1996 that is shown in table 1. The difference is partly attributable to the exclusion of depository institutions from the data on affiliate operations, but it may also reflect such factors as differences in timing and the post-acquisition restructuring of affiliates. For more information, see the note to table 7, and see the appendix "Sources of Data" in Mahnaz Fahim-Nader and William J. Zeile, "Foreign Direct Investment in the United States: New Investment in 1994 and Affiliate Operations in 1993," SURVEY 75 (May 1995): 68–70.
10. The data used to estimate affiliate gross product are reported to BEA in current dollars. BEA's chain-type price index for the gross domestic product originating in private industries increased 2.0 percent in 1995 and 2.4 percent in 1996. See table 1 in Robert E. Yuskavage, "Gross Product by Industry Price Measures, 1977–96," SURVEY 78 (March 1998): 20.
11. See table 7 in Sherlene K.S. Lum and Robert E. Yuskavage, "Gross Product by Industry, 1947–96," SURVEY 77 (November 1997): 28.
12. Some of the largest affiliates in motor vehicles and equipment have substantial secondary operations in motor vehicle wholesale trade. In addition, the gross product data for motor vehicles and equipment exclude data for a number of large affiliates that are classified in motor vehicle wholesale trade but that have substantial secondary operations in automobile manufacturing.
13. Here, "services" refers to the industries that comprise the services division of the Standard Industrial Classification, rather than to the broad range of industries whose outputs are services rather than goods.
14. Investment by a foreign person of less than 10 percent in a U.S. business enterprise is considered to be portfolio investment rather than direct investment.
15. Manufacturing's share of U.S. private-industry employment decreased in 1991–96, from 20.7 percent in 1991 to 18.5 percent in 1996.
16. Employment data by industry of sales are used to estimate shares; this basis approximates the establishment-based disaggregation of the corresponding data for all U.S. businesses. See the box "Using Employment Data to Estimate Affiliate Shares of the U.S. Economy" on page 52.
17. Some of these affiliates are classified in motor vehicle wholesale trade (where their sales are largest) rather than in motor vehicle manufacturing.
18. Net income of affiliates is as shown in the affiliates' income statements; it includes capital gains and losses, income from investments, and other nonoperating income.
19. Affiliates' profit-type return is before the deduction of income taxes or depletion charges, and it excludes capital gains and losses, income from investments, and other nonoperating income. In table 15, it includes an inventory valuation adjustment (IVA). (Conceptually, it should also include a capital consumption adjustment (CCAdj), but estimates of CCAdj by industry are not available; estimates of profit-type return with both IVA and CCAdj are presented for all industries combined in table 16.) For a more detailed description of this measure and for a comparison of this measure and the corresponding measure used in the U.S. national income and product accounts, see Jeffrey H. Lowe, "Gross Product of U.S. Affiliates of Foreign Companies, 1977–87," SURVEY 70 (June 1990): 53.
20. For both groups of firms, the rate of return is measured as profit-type return plus interest paid as a percentage of total assets. In the computation of these measures, both the return and the assets generating the return are valued in prices of the current period.
For U.S. domestic nonfinancial corporations, data on property income are from tables 1.16 and 8.18 in the national income and product accounts. Data on total assets are from the Federal Reserve Statistical Release, Flow of Funds Accounts of the United States: Flows and Outstandings, Fourth Quarter 1997 (Washington, DC: Board of Governors of the Federal Reserve System, March 1998); these data incorporate significant revisions from those used in constructing similar rates of return estimates for last year's article. In general, the revisions lower the estimated rates of return on assets for U.S. domestic nonfinancial corporations from the rates published last year.
21. For a discussion of possible reasons for the relatively low rates of return for U.S. affiliates, see Mahnaz Fahim-Nader and William J. Zeile, "Foreign Direct Investment in the United States: New Investment in 1996 and Affiliate Operations in 1995," SURVEY 77 (June 1997): 58.
