United States Is World's Top Destination for Foreign Direct Investment

IMF Blog, December 7, 2022

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The United States recorded the largest increase of inward foreign direct investment of all economies in 2021: an increase of $506 billion, or 11.3 percent.
For the 112 economies that reported data, inward FDI positions rose by an average of 7.1 percent in national currencies.
In dollar terms, global inward FDI positions grew by 2.3 percent, reflecting the recent strengthening of the greenback.
China has moved up to the third position among FDI destinations.
Several smaller economies appear among the global top 10 FDI destinations despite not being top 10 by GDP: the Netherlands, Luxembourg, Hong Kong SAR, Singapore, Ireland, and Switzerland.

FDI statistics measure cross-border financial flows and positions between entities with at least 10 percent ownership links; they can reflect:
- Investments into productive activities (e.g., new factories and machinery), or
- Purely financial investments with little to no link to the real economy.
Special purpose entities (SPEs) in offshore financial centers often serve as intermediate steps where funds flow through an economy primarily to obtain tax or regulatory benefits, potentially inflating FDI data while having relatively little tangible impact on host economies.

Research cited shows offshore financial centers play an outsized role in global FDI statistics, a role that increased after the 2008 global financial crisis.
The CDIS data indicate offshore financial centers still account for a disproportionately high share of global FDI, but their share has gradually declined since 2017.
At the same time, the share of the largest economies, such as the United States and China, has increased.

Policy initiatives likely contributed to the decline in offshore financial centers’ share of global FDI:
- The US Tax Cuts and Jobs Act took effect in 2018 and reduced incentives to keep profits in low-tax jurisdictions, leading to a substantial US repatriation of funds from foreign subsidiaries.
- Sustained international efforts to reduce tax avoidance, including the OECD/G20 Base Erosion and Profit Shifting initiative, may have halted some flows to offshore financial centers.

The CDIS is the only worldwide survey of FDI positions, conducted annually by the IMF, providing detailed bilateral FDI relations among economies and aiming to:
- Provide a geographic distribution of inward and outward FDI worldwide,
- Contribute to understanding the extent of globalization, and
- Support analysis of cross-border linkages and spillovers.
The IMF has launched an initiative to collect data on special purpose entities (SPEs) and released the first set of SPE statistics earlier this year.
Country reporting of comprehensive FDI statistics was part of phase two of the G20 Data Gaps Initiative, with 19 out of 20 member economies now reporting data.
The IMF is updating the balance of payments manual to strengthen its relevance for surveillance and policy analysis, and more policy-relevant data are in the pipeline.

United States Is World's Top Destination for Foreign Direct Investment — Jannick Damgaard, Carlos Sánchez-Muñoz, December 7, 2022.