C 59.2: IN 8/6 INTERNATIONAL DIRECT INVESTMENT Studies by the Bureau of Economic Analysis r y \ \fim U.5. DEPARTMENT OF COMMERCE Economics and Statistics Administration / Bureau of Economic Analysis INTERNATIONAL DIRECT INVESTMENT Studies by the Bureau of Economic Analysis APR 1 9 ^399 MARCH 1999 U.S. DEPARTMENT OF COMMERCE William M. Daley, Secretary MM J £Jjk ECONOMICS AND STATISTICS ADMINISTRATION ^^5^5 Robert J. Shapiro, Under Secretary for Economic Affairs AND STATISTICS ADMP ii BUREAU OF ECONOMIC ANALYSIS J. Steven Landefeld, Director Rosemary D. Marcuss, Deputy Director Citation U.S. Department of Commerce. Bureau of Economic Analysis. International Direct Investment: Studies by the Bureau of Economic Analysis. Washington, DC: U.S. Government Printing Office, March 1999. Ill TABLE OF CONTENTS vii Preface Direct Investment and Its Relation to the U.S. International Investment Position and to the Balance of Payments Accounts The four articles in this section address the valuation of direct investment and how the standard current-account presentation in the balance of payments — which records intrafirm trade indistinguishably from trade with unrelated parties — can be supple- mented with frameworks that take greater account of the ownership relationships among transactors. 3 Valuation of the U.S. Net International Investment Position Reviews and evaluates issues surrounding the valuation of the U.S. international investment position and presents estimates of direct investment that have been revalued using two alternatives to the standard historical-cost-based estimates — one with direct investment positions at market value and one with direct investment positions valued at current cost (replacement cost). 17 Rates of Return on Direct Investment Compares rates of return computed from current-cost measures of the direct in- vestment position and income with those computed from historical-cost measures and discusses possible explanations for the relatively low rates of return on foreign direct investment in the United States. 26 Alternative Frameworks for U.S. International Transactions Describes and evaluates three frameworks that use information on ownership to supplement the residency-based information shown in the standard balance of payments accounts. Two of the frameworks, suggested by outside researchers, draw the distinction between what is domestic and what is foreign on the basis of ownership. The third framework, proposed by the Bureau of Economic Anal j (bea), also provides more information on ownership but retains the residency basis of the standard accounts. 38 An Ownership-Based Disaggregation of the U.S. Current Account, 1982-93 Extends and refines the BEA-proposed framework that was introduced in the article "Alternative Frameworks" by integrating it into the overall U.S. current account and by developing a time series for the account that is disaggregated on an ownership basis. IV BEA STUDIES OF DIRECT INVESTMENT 49 Multinational Companies: Production, Sourcing, Distribution, and Trading Patterns The six articles in this section examine the production patterns of U.S. affiliates of foreign multinational companies (mnc's) and of U.S. mnc's (U.S. parent companies and their foreign affiliates), the sources of inputs to production, and the trade in goods of U.S. affiliates and U.S. mnc's. 51 Gross Product of U.S. Affiliates of Foreign Companies, 1977-87 Examines the growth and distribution of U.S.-affiliate production by industry of affiliate and by country of owner, compares U.S.-affiliate production with that of all U.S. businesses, and analyzes the U.S. and foreign content of affiliates' output. 64 Gross Product of U.S. Multinational Companies, 1977-91 Examines trends in U.S.- mnc production, including changes in the distribution of production between U.S. and foreign locations and the extent to which foreign affiliates' output results from their own production, from purchases from U.S. parent companies, or from purchases from other sources. 86 Real Gross Product of U.S. Companies' Majority-Owned Foreign Affiliates in Manufacturing Introduces estimates of the real gross product of U.S. companies' majority-owned foreign affiliates that were created using purchasing-power-parity exchange rates and host-country inflation rates to remove the effects of changes in prices and exchange rates on affiliate gross product, examines trends in the production of manufacturing affiliates, and compares the trends based on the real gross product measures with those based on current- dollar measures. 97 The Domestic Orientation of Production and Sales by U.S. Manufacturing Affiliates of Foreign Companies Compares the domestic content of output of U.S. manufacturing affiliates of for- eign mnc's with that of other U.S. manufacturing companies and examines the extent to which U.S. manufacturing affiliates rely on foreign sources for their inputs and the extent to which they produce for foreign markets. 120 Merchandise Trade of U.S. Affiliates of Foreign Companies Examines in detail the patterns of trade in goods by U.S. affiliates, including how these patterns vary by country of owner in 1977-91. 135 U.S. Intrafirm Trade in Goods Analyzes trade in goods between U.S. parent companies and their foreign affiliates and between U.S. affiliates and their foreign parents and examines the share of total U.S. trade that such trade accounts for in 1977-94. TABLE OF CONTENTS 151 Establishment-Level Data The two articles in this section use highly detailed establishment-, or plant-, level data to examine the characteristics of foreign-owned U.S. establishments. (These data were obtained by linking bea company data on U.S. affiliates of foreign companies and Census Bureau establishment data on all U.S. businesses.) 152 Characteristics of Foreign-Owned U.S. Manufacturing Establishments Compares the operations of foreign-owned manufacturing establishments with those of U.S. -owned establishments by examining such characteristics as wage rates, plant size, capital intensity, and productivity. 179 Differences in Foreign-Owned U.S. Manufacturing Establishments by Country of Owner Examines differences by country of owner in foreign-owned establishments' oper- ating characteristics, such as wage rates and productivity, and how the differences appear to be influenced by variations in industry distribution, plant size, capital intensity, and other factors. 197 Guides to the Statistics The two articles in this section provide an introduction to the direct investment data series produced by the Bureau of Economic Analysis (bea). 198 A Guide to bea Statistics on U.S. Multinational Companies Describes each bea data series on U.S. direct investment abroad and discusses the uses of each series. 217 A Guide to bea Statistics on Foreign Direct Investment in the United States Describes each bea data series on foreign direct investment in the United States and discusses differences among the series. 229 Methodologies This section contains reprints of beas detailed methodologies of U.S. direct investment abroad and foreign direct investment in the United States. These methodologies are from bea's most recent benchmark survey publications on direct investment — covering 1994 f° r U.S. direct investment abroad and 1992 for foreign direct investment in the United States — and they explain, among other things, the basic concepts and definitions, the industry and country classification procedures, and the coverage and scope of the bea direct investment data series. 231 For U.S. Direct Investment Abroad 259 For Foreign Direct Investment in the United States PREFACE 17/ Preface this publication brings together a number of key studies by the Bureau of Economic Analy- sis (bea) on U.S. direct investment abroad and foreign direct investment in the United States. Publishing this information in one volume pro- vides a basic resource that can be used by Government officials and by researchers in assess- ing trends in direct investment and in analyzing the impact of direct investment on the U.S. and world economies. The studies cover such topics as the characteristics of multinational compa- nies, including their profitability, productivity, and sourcing patterns; measures of direct invest- ment that are valued in current-period prices; and supplemental balance of payments frame- works that incorporate information on owner- ship from bea's direct investment surveys. These studies were originally published in the Survey of Current Business, bea's monthly journal. This publication also includes users' guides to bea's statistics on direct investment and detailed methodologies from bea's benchmark survey publications on foreign direct investment in the United States and U.S. direct investment abroad. bea's official statistics on direct investment are essential to the compilation of U.S. eco- nomic accounts statistics and for the analysis of multinational companies. For example, data on positions and transactions between affiliates and their parents are needed for compiling the U.S. international transactions accounts, the in- ternational investment position of the United States, and the U.S. national income and product accounts. Data on the overall financing and op- erations of U.S. parent companies, their foreign affiliates, and U.S. affiliates of foreign compa- nies are needed in analyzing the performance and operating characteristics of multinational com- panies, bea updates these data regularly and publishes them in the Survey, usually as part of articles discussing current developments in direct investment. In addition to these regular articles, from time to time bea publishes articles, such as those reprinted here, that focus on specific issues pertaining to direct investment. In addition to the data presented in the stud- ies in this volume, additional data collected in bea's surveys of direct investment are available in the Survey, in separate publications, on bea's Web site, and on diskettes. For a comprehensive, up-to-date listing of bea information on direct investment, see the Product Guide of the Inter- national Investment Division, which is available on bea's Web site at or by writing to International Investment Division, be- 50, Bureau of Economic Analysis, Washington, dc 20230. Acknowledgments Gerald A. Pollack, Associate Director for Interna- tional Economics, provided general guidance for the preparation of this volume. R. David Belli, Chief of the International Investment Division (nn), provided overall supervision. Ned G. Howenstine, Chief of the Research Branch of iid, wrote the introductory text. M. Gretchen Gibson of Publications Services in the Current Business Analysis Division coordinated the preparation of the publication for printing. Eric B. Manning edited the introductory text and typeset the text. Laura A. Oppel typeset the tables, and \V. Ronnie Foster designed the cover and prepared the charts. Direct Investment and Its Relation to the U.S. International Investment Position and to the Balance of Payments Accounts VALUATION OF U.S. INTERNATIONAL INVESTMENT POSITION Valuation of the U.S. Net International Investment Position By J. Steven Landefeld and Ann M. Lawson This article was first published in the May 1991 Survey of Current Business. This article reviews the issues surround- ing the valuation of the U.S. net interna- tional investment position and presents revalued estimates for direct investment, for U.S. gold reserves, and for the international investment position. The article describes two alternative methods for valuing direct investment in prices of the current period, presents estimates of the direct investment totals for 1982-89 that are pre- pared using these methods, and compares these estimates with bea's existing historical-cost es- timates and with current-value estimates from several earlier studies. (Estimates for 1990 and revised estimates for 1987-89 will be presented in the regular article on the international investment position next month; see the box on this page.) In the mid-to-late 1980's, concerns began to arise about the mix of valuation methods used by bea in deriving the net international investment position. Although many of the assets in the U.S. international investment position (such as port- folio investment and most reserve assets) were being valued at current-period prices, other assets (such as direct investment and U.S. gold reserves) were being valued at the historical costs at which they were purchased. In 1990, bea suspended publication of the net international investment position of the United States and announced that it was undertaking a review of alternative meth- ods of valuing international investment to reflect current-period prices. 1 The bea review focused on direct investment because the largest differences between historical and current costs in the international investment position were thought to have resulted from a significant misstatement of the relative positions for U.S. direct investment abroad (usdia) and foreign direct investment in the United States (fdius). Because most usdia in the 1989 stock occurred in the 1960s and 1970 's, it seemed likely that these assets would require a significantly larger adjustment for the cumulative effects of in- flation than would those for fdius, most of which occurred in the late 1970 's and 1980's. 2 Revaluation of direct investment. — As a result of its review, bea has developed two measures — current-cost and market-value — to revalue its estimates of the usdia and fdius positions in prices of the current period. The current-cost method revalues the U.S. and foreign parents' share of their affiliates' investment in plant and equipment using a perpetual inventory model to estimate the net stock of direct investment cap- ital at current costs, revalues direct investment in land using general price indexes, and revalues direct investment in inventories using estimates of their current replacement cost. The market- value method revalues the owners' equity portion of the direct investment position for usdia and fdius using indexes of stock market prices. Thus, the two methods can be viewed as revaluing, re- spectively, the asset side of a balance sheet and the liabilities and owners' equity side of a bal- ance sheet (see the box "Revaluation of Direct Investment in a Hypothetical Balance Sht\ The market value differs from the current-cost 1. Inflation drives a wedge between values expressed in historical . and those in current prices. During the last to vears. the International Mone- tary Fund's world price index has risen more than 4 percent a vear. amounting to more than a threefold increase over the period. Such an inflation rate may hinder meaningful comparisons of dollar values at different points in time. As a result, measures of flows, which are in current prices, are often restated to constant prices, and measures of stocks, which are valued in ac- quisition (or historical) prices, are often restated to curt, istinO prices. Consistent comparisons of business income and assets ovtr time and of rates of return, capital productivity, and capilablabor ratios require tucri valuations. 1. See "International Investment Position: Component Detail for 1989." Survey of Current Business 70 (lune 1990): S4-85. Before its suspension in 1990, an annual estimate of the net international investment position oi the United States was published each year. Current-cost, market-value, and historical-cost esti- mates of direct investment for 1000 and revised esti- mates for 1987-89 will appear in the annual article on the U.S. international investment position in the lune 1991 Survey of CUMtBNT BUSINESS, The n timates will reflect the incorporation c^i information from the 1987 benchmark survey of US. affiliates oi foreign parents and the most recent annual sur- . U.S. parents of foreign affiliates. Detailed estimates bv country and industry arc available only in historical costs. BEA STUDIES OF DIRECT INVESTMENT value in that it is an estimate of firms' aggre- gate net worth, including not only the current value of tangible assets, but also the market value of intangible assets — such as patents, trademarks, management, and name recognition. The market value may also reflect changes in the general eco- nomic outlook or in the outlook for a particular industry — changes that may not be related to the prices of tangible assets. bea's revaluation of direct investment assets from historical cost to current cost raises the value of the usdia position at yearend 1989 by $162.4 billion, to $535.9 billion, and raises the fdius position by $56.7 billion, to $457.6 billion (chart 4 and table 1). Revaluation of owners' eq- uity from historical cost to market value raises the value of the usdia position at yearend 1989 by $431.1 billion, to $804.5 billion, and raises the fdius position by $142.9 billion, to $543.7 bil- lion. On a historical-cost basis, the U.S. net direct investment position at yearend 1989 was $27.4 bil- lion. Revaluation to current cost raises the net position to $78.3 billion; revaluation to market value raises the net position to $260.8 billion. The difference between the current-cost and market- value estimates reflects significantly different rates of change in recent years in stock prices and in replacement costs of tangible assets. Revaluation of U.S. gold reserves. — bea has reval- ued U.S. gold reserves from the 1973 par value of $42.22 per fine troy ounce previously used in the international investment position to the yearend market price, as reported for gold on the London fixing. The revaluation puts gold reserves on the same current- cost valuation basis as other reserve assets and values gold reserves on the same basis Table 1.— U.S. Direct Investment Positions Using Alternative BEA Methods of Valuation, Amounts Outstanding at Yearend, 1982-89 [Millions of dollars] Valuation method 1982 1983 1984 1985 1986 1987 1988 1989 U.S. direct investment abroad Historical-cost Current-cost ' Market-value 2 207,752 374,003 228,304 207,203 357,900 273,313 211,480 350,007 267,636 230,250 379,556 380,478 259,800 414,091 519,413 314,307 485,178 577,603 333,501 499,500 675,984 373,436 535,870 804,525 Foreign direct investment in the United States Historical-cost Current-cost ' Market-value 2 124,677 173,223 133,044 137,061 181,289 157,548 164,583 207,159 177,726 184,615 227,223 227,949 220,414 266,541 283,153 271,788 322,725 322,579 328,851 384,009 397,535 400,817 457,566 543,703 Direct investment, net Historical-cost Current-cost ' 83,075 200,780 95,260 70,142 176,611 115,765 46,897 142,848 89,910 45,635 152,333 152,529 39,386 147,550 236,260 42,519 162,453 255,024 4,650 115,491 278,449 -27,381 78,304 Market-value 2 260,822 1. Only tangible assets on the asset side of the balance sheet are revalued at their current cost See 'Technical Notes" for methodological details. 2. Only owners' equity on the liabilities and owners' equity side of the balance sheet is revalued to market value. See "Technical Notes" for methodological details. as gold held in private portfolios. The following tabulation provides the historical values for U.S. gold reserves based on the 1973 par value and the current values based on market prices. [Millions of dollars] Year 1982, 1983 1984 1985 1986 1987 1988 1989 Current 120,653 100,484 81,202 85.834 102,428 127,648 107,434 105,164 CHART 4 Alternative Valuation of Direct Investment, 1982-89 Billion $ 900 800 700 600 500 400 300 200 100 U.S. DIRECT INVESTMENT ABROAD 300 200 100 300 250 200 150 100 50 -50 NET DIRECT INVESTMENT POSfTION 1982 8384 85 86 87 888990 U.S. Department of Commerce, Bureau of Economic Analysis VALUATION OF U.S. INTERNATIONAL INVESTMENT POSITION Revaluing U.S. gold reserves to the yearend 1989 market price of $401.50 per fine troy ounce raises the 1989 value of these reserves in the investment position by $94.1 billion, from $11.1 billion to $105.2 billion. U.S. international investment position. — After the revaluations of direct investment and U.S. gold reserves, the major components of the inter- national investment position may be viewed as valued at or near current-period prices (table 2). The following list summarizes the valuations used for the major investment position components: • Direct investment has been revalued to current-period prices using both stock market prices for equity investment and current-cost values for tangible assets. • Portfolio investments in foreign and U.S. secu- rities are valued at current-period prices; for these frequently traded assets held in private and public portfolios, the position estimates are based on changes in stock market prices and, in the case of bonds, on changes in bond prices. • Short-term loans and other short-term liabil- ities to banks and nonbanks are recorded at historical cost because the face, or claim, value recorded on a firm's books is normally roughly equal to the current-period value. • Official reserve assets are valued at current- period private market prices; U.S. gold re- serves have been revalued to current-period private market prices. • Long-term loans and other long-term liabilities are valued at historical cost. For loans held to maturity, the maximum claim a lender can collect is the book value of the principal on the loan, so loans and other long-term liabil- ities generally need not be revalued to reflect inflation. In recent years, the Third World debt prob- lem and the U.S. savings and loan problem have indicated that there may be sizable dif- ferences, reflecting increased risk of default, Table 2.— Valuation of Components of the U.S. International Investment Position Type of investment Type ol valuation U.S. assets abroad: U.S. official reserve assets: Gold Special drawing rights Reserve position in the International Monetary Fund Foreign currencies U.S. Government assets, other than official reserve assets: U.S. loans and other long-term assets Repayable in dollars Other U.S. foreign currency holdings and U.S. short-term assets U.S. private assets: Direct investment abroad Foreign securities Bonds Corporate stocks U.S. claims on unaffiliated foreigners reported by U.S. nonbanking concerns U.S. claims reported by U.S. banks, not included elsewhere Foreign assets In the United States: Foreign official assets in the United States: U.S. Government securities U.S. Treasury securities Other Other U.S. Government liabilities U.S. liabilities reported by U.S. banks, not included elsewhere Other foreign official assets Other foreign assets in the United States: Direct investment in the United Slates U.S. Treasury securities U.S. securities other than U.S. Treasury secunties Corporate and other bonds Corporate stocks U.S. liabilities to unaffiliated foreigners reported by US. nonbanking concerns U.S. liabilities reported by U.S. banks, not included elsewhere Current Current Current Current Current: Approximated by histoncal claim value with no adjustment made for default nsk. Current: Approximated by historical claim value with no adjustment made for default nsk. Current: Approximated by histoncal claim value with no adjustment made lor default risk. Current For U S. foreign currency holdings, based on the end-olpenod exchange rates for U.S. short-term assets, approximated by nston- cal claim value with no adjustment made for default nsk Current Current Current Current Current: Approximated by histoncal claim value with no adjustment made for default nsk. Current Approximated by histoncal claim value with no adjustment made for default nsk. Current Current Current Current Approximated by historical claim value with no adjustment made for default nsk Current: Approximated by histoncal claim value with no adjustment made for default nsk Current Current Current Current Current Current Current: Approximated by histoncal dam value with no adjustment made for default nsk. Current Approximated by histoncal dam value with no a djus tm ent made for default nsk BEA STUDIES OF DIRECT INVESTMENT between market values and book values. Un- fortunately, the available estimates of market value — from secondary markets, appraisals, or indirect methods — are of limited value. bea's revaluation of the U.S. direct investment position and the U.S. reserve gold position from historical cost to current cost reduces the deficit in the U.S. net international investment position at yearend 1989 by $199.8 billion, to $464.0 bil- lion. The revaluation to market value reduces the deficit by $382.3 billion, to $281.4 billion (table 3). It should be noted that unrecorded capital in- flows could have a significant impact on bea's position estimates. During the 1980's, there was a large and persistent statistical discrepancy be- tween the current and the capital accounts in the U.S. balance of payments. The cumulative statistical discrepancy, which amounted to $178 billion, indicated either an overstatement of the current-account deficit or an understatement of net capital inflows into the United States. To the extent that this statistical discrepancy was due to unrecorded capital inflows, particularly of port- folio capital, the foreign investment position in the United States is understated. The Economic Statistics Initiative in the Administration's fis- cal 1992 budget calls for improving the estimates of U.S. capital flows. Under this initiative, the measures of international flows of portfolio cap- ital would be strengthened to take into account new channels of financing and new types of fi- nancial instruments, and the measures of direct investment would be strengthened by including estimates for small reporters and nonreporters. 3 Position estimates and measures of wealth. — The current-cost estimates presented in this article put the U.S. international investment position es- timates on a basis comparable with bea's current- cost estimates of total U.S. fixed reproducible tangible wealth and with the Federal Reserve Board's estimates of U.S. domestic net worth — that is, the sum of tangible assets located in the United States, including plant and equipment, inventories, and land. 4 With consistent current- 3. See "Improving the Quality of Economic Statistics: The 1992 Economic Statistics Initiative" in the March 1991 Survey. 4. bea has produced estimates of the gross and net stocks of domestic fixed reproducible assets on consistent current- and constant-cost bases since Table 3.— U.S. International Investment Positions Using Alternative BEA Methods of Valuation, Amounts Outstanding at Yearend, 1982-89 [Millions of dollars] Valuation method 1982 1983 1984 1985 1986 1987 1988 1989 U.S. assets abroad Historical-cost 824,755 1,100,493 954,794 873,457 1,113,517 1,028,930 895,912 1,104,545 1,022,174 949,723 1,173,773 1,174,695 1,073,399 1,319,054 1,424,376 1,175,932 1,463,373 1,555,798 1,265,620 1,527,996 1,704,480 1,412,515 Current-cost 1,669,054 Market-value 1,937,709 Foreign assets in the United States Historical-cost 688,052 736,598 696,419 784,453 828,681 804,940 898,074 940,650 911,217 1,066,937 1,109,545 1,110,271 1,347,085 1,393,212 1,409,824 1,553,998 1,604,935 1,604,789 1,796,704 1,851,862 1,865,388 2,076,262 Current-cost 2,133,011 Market-value 2,219,148 International investment, net Historical-cost 136,703 363,895 258,375 89,004 284,836 223,990 -2,162 163,895 110,957 -117,214 64,228 64,424 -273,686 -74,158 14,552 -378,066 -141,562 -48,991 -531,084 -323,866 -160,908 -663,747 Current-cost -463,957 Market-value -281,439 Acknowledgments bea's direct investment revaluation initiative was con- ducted under the general direction of J. Steven Landefeld, Associate Director for International Economics, with the assistance of Christopher L. Bach, Chief of the Balance of Payments Division, and Betty L. Barker, Chief of the International Investment Division. Ann M. Law- son, Chief of the Special Studies Branch, Balance of Payments Division, Ralph Kozlow, Chief of the Special Surveys Branch, International Investment Division, and John C. Musgrave, National Income and Wealth Divi- sion, coordinated efforts within bea to produce the final estimates. Henry Townsend, Michael A. Mann, Dou- glas B. Weinberg, and Eric J. Troyer of the Balance of Payments Division provided assistance with methodolog- ical research and preparation of the estimates. Special tabulations of historical foreign direct investment data were provided by Smith W. Allnutt m, Arnold Gilbert, and Jane Fry of the International Investment Division. The estimates and methods benefited significantly by comments from bea staff and from William G. Dewald, Robert Eisner, John A. German, Craig S. Hakkio, Walther Lederer, and Paul J. Pieper. VALUATION OF U.S. INTERNATIONAL INVESTMENT POSITION cost estimates of the value of foreign assets in the United States and of U.S. assets here and abroad, it is possible to evaluate changes in the size of national net worth, the distribution of net worth between foreign and domestic saving and invest- ment, and changes in the rate of return to such investments over time. 1972. The Federal Reserve Board uses bea's current-cost estimates, along with an estimate of the market value of land, to estimate total tangible assets located in the United States, or domestic net worth, in its balance sheets for the U.S. economy. At yearend 1989, domestic net worth in the United States was $16,017.2 billion. 5 After bea's revaluations, the current-cost value of domestic assets owned by foreigners was $1,579.3 billion, and the current-cost value of U.S. assets abroad was $1,025.1 billion, and the value of U.S. mone- tary gold and of special drawing rights was $115.1 billion. Subtracting the current-cost value of do- mestic assets owned by foreigners from domestic 5. Board of Governors of the Federal Reserve System, balance Sheet I for the U.S. Economy, 1945-90, Board of Governors of the Federal Reserve System, Publication C (Washington, dc: March 1991). Revaluation of Direct Investment in a Hypothetical Balance Sheet The balance sheet in table A is for a hypothetical wholly owned foreign affiliate of a U.S. firm; in this balance sheet, all of the figures are recorded at historical cost. Table B shows the balance sheet after revaluation using the current-cost method, and table C shows the balance sheet after revaluation using the market-value method. In table B, using the current-cost method revalues only tangible assets — inventories and property, plant, and equipment (pp&e) — on the left side of the balance sheet. Net pp&e is revalued from $233,571 at historical cost to $359,092 at current cost, and inventories are revalued from $103,803 to $117,318. Thus, the value of the firm's tan- gible assets is $139,036 greater at current cost than at historical cost. Financial assets (current and noncurrent) do not need to be reval- ued, because the historical costs of these assets are assumed to equal or approximate their current-period prices. On the right side of the balance sheet, owners' equity is revalued from $387,102 to $526,139 to reflect the adjustment in the value of the tangible assets on the left side. In table C, using the market- value method revalues owners' eq- uity, on the right side of the balance sheet, to reflect yearend stock market prices. Owners' equity is revalued from $387,102 at historical cost to $793,559 at market value. Liabilities, which are also on the right side of the balance sheet, do not need to be revalued, because they are assumed to be approximately at current-period prices. The counterentry on the left side of the balance sheet is assumed to be in Table A.— Balance Sheet at Historical Cost Assets Liabilities and owners' equity Current: Inventories Other $103,803 407,341 Liabilities: Current liabilities and long- term debt. Other liabilities $504,956 107.942 Total 511,144 Total 612,898 Noncurrent: Properly, plant, and equipment (PP&E). Less: Accumulated depreciation. Net PP&E Other 420,720 Owners' equity: Owners' equity 387.102 -187.149 233.571 255.286 Total 387.102 Total 488.856 Addenda: Net tangible assets 337.374 Total assets 1.000.000 Total liabilities and owners' equity. 1.000.000 goodwill, which is included under "other" noncurrent assets. Good- will is the balancing item often used to reflect the difference between the acquisition price of a firm and the net value of the firm's assets less its liabilities. Table B.— Balance Sheet Using Current-Cost Method Assets Liabilities and owners' equity Current: Inventories Other $117,318 407,341 Liabilities Current liabilities and long- S ! : - H 1 term debt Other liabilities 107.942 Total 524.659 Total 612.898 Noncurrent: Property, plant, and equipment (PP&E). Less: Accumulated 646.816 -287.723 Owners' equity Owners' equity ... 526.139 Total 526.139 depreciation. Net PP&E Other 359.092 255.286 Total 614,378 Addenda: Net tangible assets 476.410 Total assets 1.139.037 Total habhDes and owners 1.139.037 equty Table C— Balance Sheet Using Market-Value Method Assets Uabtoes and owners' equty Current: Inventones Other $103,803 407.341 Liabilities Current kabtoes and long- term debt Other kaMMs __ 107.942 Total 511.144 Total 612896 Noncurrent: Property, plant and equipment (PP&E). Less Accumulated 420.720 -187.149 Owners' equty Total mm deprecation. Net PP&E Other 233.571 661.742 Total 895.314 Addenda Net tangible assets 337.374 Total assets 1.406.457 Total labtoes and owners' ■qu I) 1.406.457 8 BEA STUDIES OF DIRECT INVESTMENT net worth and adding the current-cost value of U.S. assets abroad and the value of U.S. mone- tary gold and of special drawing rights produces a national net worth of $15,578.1 billion at yearend 1989. Valuation of Direct Investment The question of undervaluation of the U.S. direct investment position abroad relative to the foreign direct investment position in the United States was first explored in a series of papers beginning in the late 1980's; the most comprehensive were by Ulan and Dewald, Eisner and Pieper, and Led- erer. 6 These authors used a variety of techniques to estimate the current- cost value of direct in- vestment: Revaluation of the cumulative direct investment flows by using a replacement cost in- dex for capital goods or by using various stock market indexes; capitalization of the annual earn- ings flows from fdius and usdia by a common discount rate to derive an implicit current value of the positions; and use of the ratio of current- cost value to historical-cost value for the U.S. stock of property, plant, and equipment (pp&e) and inventories to estimate the current replace- ment cost value of tangible assets related to usdia and fdius. In producing the current-value esti- mates of the direct investment position, bea has built upon and refined the methods used in these exploratory studies. The remainder of this sec- tion describes bea's methodology and estimates and then compares them with these studies. bea's current-cost estimates Method. — The current-cost method revalues tan- gible assets using a perpetual inventory model for plant and equipment, general price indexes for land, and special adjustment factors for in- ventories. The model used for revaluing the direct investors' shares of investment in plant and equipment by affiliates is the same one used to derive bea's estimates of total U.S. fixed repro- ducible capital. The parents' share of equity in fdius and usdia affiliates has averaged about 80 percent in recent years. The perpetual inventory model first revalues each year's plant and equipment investment from 6. Michael Ulan and William G. Dewald, "The U.S. Net International Investment Position: Misstated and Misunderstood," in James A. Dorn and William A. Niskanen, ed., Dollars, Deficits, and Trade (Norwel, ma: Kluwer Academic Publishers for the Cato Institute, 1989). Robert Eisner and Paul J. Pieper, "The World's Greatest Debtor Nation?," in The North American Review of Economics and Finance, vol. i, no. 1 (Greenwich, ct: iai Press, 1990). Walther Lederer, "The Valuation of U.S. Direct Investment Abroad," Unpublished (Washington, dc: Board of Governors of the Federal Reserve System, May 8, 1990). historical cost to constant cost using U.S. capi- tal goods price indexes for fdius and a weighted average of country-by-industry price indexes for usdia. The constant-cost gross capital stock of plant and equipment for a given year is then ob- tained by cumulating past investment in plant and equipment and deducting the cumulated value of plant and equipment investment that has been discarded, using estimated average service lives and retirement patterns. The constant-cost net capital stock of plant and equipment is ob- tained in a similar manner, using a depreciation formula to write off the value of the assets over their service lives. The constant-cost net capital stock is then revalued to current cost using the appropriate capital goods price indexes. The current- cost values for the net capital stock of plant and equipment derived by this method are added to current- cost estimates of the par- ents' share of their affiliates' land and inventories. Land is revalued using U.S. and foreign gross national (domestic) product price indexes. In- ventories are revalued using ratios of current- cost to historical-cost values for U.S. inventory stocks. The sum of the revalued plant and equipment, land, and inventories produces a current-cost replacement value for all tangible assets. One of the major advantages of the perpetual inventory model is that it explicitly takes into ac- count current-cost depreciation, as well as the timing pattern of investments and differences in prices across industries and countries. Neverthe- less, uncertainties about the appropriate choice of service lives and pattern of depreciation can have a large impact on the resulting estimates of capital stocks of plant and equipment. The sensitivity of the estimates to changes in underlying assump- tions, as well as a more detailed discussion of the methodology, is presented in the "Technical Notes." Estimates. — Although revaluation to current costs significantly changes the relative levels of the usdia and fdius positions, the trend in the current- cost estimates is similar to that in the historical-cost estimates — both show a smaller increase in the usdia position than in the fdius position during the 1980 's. From 1982 to 1989, the usdia position in current costs grew $161.9 billion, from $374.0 billion to $535.9 billion. Over the same period, the fdius position in current costs grew $284.3 billion, from $173.2 billion to $457.6 billion. As a result, the net direct invest- ment position dropped from $200.8 billion in 1982 to $78.3 billion in 1989. VALUATION OF U.S. INTERNATIONAL INVESTMENT POSITION The sources of change in the year-to-year usdia and fdius positions in current costs are presen- ted in table 4. In the table, changes attributable to capital inflows and outflows are distinguished from changes attributable to valuation adjust- ments for price changes, exchange rate changes, and "other changes." The price change adjustment reflects changes in capital goods prices (either from movements in the price of, or from shifts in the mix of, cap- ital goods) that cause changes in the average age and price of the stock. This price change ad- justment is generally negative when ppaur> i Novem- ber 1991; Edward M. Graham and Paul R. Krugman. Foreign Direct ln\i in the United Stateu 2d edition (Washington. DC: Institute for International Economics, 1991); and "Review of Internal Revenue Service Statistics on For- eign Controlled Domestic Corporations 1983 through 1988." prepared t- Peat Marwick for the Organization for International Investment, lulv 1991. Table 1.— Alternative Measures of the Rate of Return for U.S. Direct Investment Abroad, Foreign Direct Investment in the United States, and All U.S. Businesses [Percani) Returns based Returns based Returns based on on historical ::s: on current cost market value Al USDIA FDIUS USDIA FDIUS IJSOM FC US bus. -■ess as' 1982 n i 129 27 39 60 12 23 na 11 4 no 1983 99 1964 144 63 83 44 116 U 11 1 1985 126 43 33 91 1986 122 28 1967 134 36 83 26 77 LS 81 1968 155 44 100 84 39 90 1989 is: 22 10.2 16 1990 138 4 94 : u 1991 it : 135 3 1 "■ 85 -8 :: 69 87 -2 26 60 Average. 1963-91 8* nj Not avtiab* 1 This neuu't « I wvoMM awag* 0> T* atMr-OB wra or «*»• » st» br Standard and Poor s Compost* 500 comperaas and r* averag* r*e on oerxnet bone toe rigs rated AAA by Moody's Investors Same* T*a raoams on debt and equty an «xr/*ad by th* rare of d*bt *> «qu**s a mark*) vat* ky nor*waat corpora* bwanesm wtaanad by th* Board o' Govtmors o< r-t Fedar* Rasarv* Syst*" Batanc* Snaaet tar aw US Economy (980-$!. (Wasfwigayi. DC Mar* 199?) USOiA US ortet nvastmant abroad FDIUS For*gn d**ct •wvstment n P* Un)*d Stales 18 BEA STUDIES OF DIRECT INVESTMENT Returns on FDIUS In examining rates of return on fdius, it is im- portant to note that a multinational company tries to maximize its total profits around the world in deciding where to invest, where to pro- duce, and where to realize its income. As a result, a multinational company structures its opera- tions, costs, and product pricing across countries to maximize its global profits rather than to max- imize profits on an individual investment or even on all of its investments in a single country. It may accept a below-average profit to gain ac- cess to the large U.S. market or to scarce raw materials. Alternatively, it may accept low re- turns on some parts of its operations to take advantage of economies of scale and technolog- ical efficiencies in other parts of its operations. In addition to these types of operational — or industrial organization — factors, multinationals also take into account a number of other factors, such as differences across countries in the cost and availability of capital, in expected returns on investment, in the tax treatment of income, and in tariffs and nontariff barriers. 4 The low rates of return on fdius appear to re- flect certain long-term factors associated with the operations of multinational companies and the effects of a number of transitional factors that led to a surge in fdius in the 1980's. In the i98o's, current-account surpluses in Japan and several other countries generated excess funds available for investment. Funds were attracted to the United States by average yields on U.S. investments that were higher than those on home-country investments; this spread allowed foreign investors to accept yields that were below the average yield on U.S. investments. Further, depreciation of the dollar against most foreign currencies in the latter half of the i98o's increased potential long-term yields for those investors who believed that the U.S. dollar was undervalued. The combination of these factors meant that in- vestments that had looked attractive from an operations perspective now also looked attractive from an investment perspective. The resulting surge in fdius in the i98o's meant that much of the investment on which the rates of return are calculated was relatively new, and new invest- ments typically have lower rates of return than more mature investments. Moreover, a consid- erable portion of this new fdius consisted of acquisitions of financially distressed U.S. compa- nies that foreign companies presumably hoped to restructure and restore to financial health. Long-term factors associated with the goal of maximizing profits on a global basis rather than on an individual- country basis also may have held down the rates of return on fdius. These factors included the following: Economies of scale and the advantages of vertical integration, differences between countries in the treatment of taxes, and avoidance of tariffs and nontariff barriers. The analysis that follows covers the rates of re- turn on fdius for 10 of the 11 countries that were the largest direct investors in the United States during the last decade. 5 In 1991, these 10 coun- tries accounted for over 90 percent of cumulative fdius, and the top 5 accounted for over 75 per- cent (table 2). It should be noted that underlying economic conditions and motivations for direct investment vary markedly among these countries, and it is difficult to generalize about the fac- tors leading to low rates of return on their direct investments. 5. Although the Netherlands Antilles' fdius position ranks eighth among all countries, it is excluded from the analysis because of the unique nature of its inward investment, which resulted from its activity as an offshore financial center (offshore financial centers were created to avoid certain interest-rate controls, bank lending restrictions and reserve requirements, and other regu- latory constraints). Additionally, it had a favorable tax treaty with the United States that offered an exemption from the withholding tax on certain interest payments from U.S. affiliates to their Antillean parents. Consequently, for- eign corporations made large investments in the United States through their Antillean affiliates rather than investing directly in the United States. However, over the past decade, the Netherlands Antilles' share of total fdius has declined substantially. Its current-dollar position has remained fairly constant since 1984, while its real share of total fdius has declined from 7 percent in 1982 to 2 percent in 1991. This downtrend can be partly explained by the elimination of U.S. withholding taxes on interest payments to foreigners in 1984, which largely nullified the Netherlands Antilles' unique tax advantage. Table 2.— Top 10 Countries with Largest Foreign Direct Investments in the United States, 1991 4. There has been much discussion about the relative importance of cost- of-capital and macroeconomic explanations versus industrial-organization explanations for direct investment. Most analysts concede that both have a role in direct investment but that industrial-organization explanations tend to have a larger role than the other explanations. See, for example, Graham and Krugman in Foreign Direct Investment, 35-38. All countries Top 10 countries United Kingdom Japan Netherlands Canada Germany France Switzerland Australia Sweden Belgium/Luxembourg Netherlands Antilles ' 1. See footnote 5 in the text. Millions of dollars 407,577 371,927 106,064 86,658 63,848 30,002 28,171 22,740 17,594 6,626 5,597 4,627 7,948 Percent of total 100 26 21 16 7 7 6 4 2 1 1 RATES OF RETURN ON DIRECT INVESTMENT 19 Transitional factors Differences in average yields. — During much of the last decade, average yields on investments in the top 10 investor countries were below those in the United States (table 3). Between 1982 and 1989, the average real rate of return on total in- vested capital — debt and equity combined — was 6.6 percent in these countries, compared with 7.3 percent in the United States. The average yield on debt in these countries was 4.8 percent, compared with 6.3 percent; the average yield on equities was 7.6 percent, compared with 7.8 percent. Table 3.— Rates of Return in the United States and in the Top 10 Investor Countries [Percent] Average in the United States Average in the lop 10 investor countries 1982- 91 1982- 89 1990- 91 1982- 91 1982- 89 1990- 91 Real long-term interest rate ' 5.9 7.3 6.8 63 7.8 7.3 4.3 5.4 5.0 4.8 7.4 6.5 4.8 7.6 6.6 5.0 Earnings/price ratio 2 Average total return 3 6.7 6.1 1. Data lor individual countries were obtained Irom Internationa) Monetary Fund publications; these data have been weighted by their share ol the FDIUS intercompany debt payable posi- tion lor the lop 10 countnes. 2. Data lor loreign countries were obtained Irom Morgan Stanley Capital Inter- national.Perspec/ive (various issues), and lor the United States Irom Standard and Poor's Cor- prationjfte Analysis Handbook (various issues), the loreign country data have been weighted by their share ol the FDIUS equity position lor the lop 10 countnes. 3. For the United States and the lop 10 investor countnes. average total returns are a weighted average ol the real long-term interest rate and the eamings/pnce ratio, with the real long-term interest rate receiving a 35-percent weight and the eamings/pnce ratio receiving a 65-percent weight. These weights represent the typical financial structure ol countries that value their debt/equity ratios at market value. FDIUS Foreign direct investment in the United States For several of these major investor countries, the difference between returns on direct eq- uity investments was substantial. For example, Japanese investors received an average yield of 6.5 percent on their equity fdius between 1983 and 1989, compared with a yield of 2.8 percent on Japanese equities. Thus, returns on Japanese investments in the United States raised Japanese investors' aggregate yields, eveh though they were lower than the all-U.S. -business average. Depreciation of the dollar. — A second and more important factor increasing fdius in the 1980's was the decline in the value of the U.S. dollar. In the latter half of the i98o's, the real value of the dollar declined 35 percent, and foreign firms more than doubled their direct investment posi- tion. This surge in fdius was similar to one that occurred between 1975 and 1980, when the dol- lar depreciated about 15 percent and fdius more than tripled. In the latter half of the i98o's, overseas in- vestors presumably believed that the dollar was undervalued and that future returns to dollar- denominated direct investments would be well above their current values. U.S. firms' assets looked undervalued to those who believed that the dollar was below its long-run equilibrium and purchasing-power-parity value. Although it is difficult to determine the long-run equilib- rium value for the dollar, a number of indicators CHART 1 Real U.S. Dollar Rate and Foreign Direct Investment Inflows Index, March 1973=100 Million $ (Ratio scale) tan nan 150 130 Foreign Direct Investment Inflows / — (right scale) ^^^\ / 110 — / /^^ \ 10.000 90 ~~7k-^^ A \ / \ / ^\. / Real U.S. DoHax Rate V^^^ . / \S ^v / (left scale) ^^"~^^ 70 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 000 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 20 BEA STUDIES OF DIRECT INVESTMENT supported the view of investors who believed the dollar was undervalued. For example, observed differences in real asset prices — such as those be- tween Japanese and U.S. real estate and stock market investments — as well as estimates of the purchasing power of the dollar and of relative U.S. unit labor costs, suggested the dollar was undervalued. 6 As chart 1 shows, the surges in 6. According to Organisation for Economic Co-operation and Devel- opment estimates of purchasing-power parity, the dollar was undervalued by roughly 19 percent against the currencies of the major industrialized economies in 1990. Estimates by the Federal Reserve Board indicated that U.S. unit labor costs were roughly 15 percent below those of the other major industrialized countries. For a different perspective on the effect of the dollar fdius in both the late 1970 's and the late i98o's occurred when the dollar was below its 1973 value, which may be regarded as a rough indicator of the dollar's equilibrium value. Rates of return on new direct investments. — The combined effects of higher relative rates of re- turn on investments in the United States and the depreciation of the dollar made U.S. returns look particularly attractive to overseas compa- nies that had increased profits from sales to U.S. on fdius, see Graham and Krugman, Foreign Direct Investment, 44-47 and 80-82. Table 4.— Rate of Return on Assets of U.S. Companies in Year Prior to Foreign Acquisition Compared With All U.S. Nonfinancial Corporations [Percent] 1982 1983 1984 1985 1986 1987 1988 1989 1990 Foreign direct investment in the United States: Total Manufacturing All U.S. nonfinancial corporations ' 1.6 1.6 3.6 0.9 -1.6 4.6 0.7 .8 5.2 1.8 2.8 4.8 0.8 .4 4.0 2.4 1.7 4.9 0.3 .8 5.5 0.3 3.0 4.6 .4 3.8 1. Income is measured as total receipts less total deductions after total net tax liability, as published by the Internal Revenue Service. Total receipts less total deductions, after taxes, have been adjusted to remove foreign source income and to add the pan of the capital consumption adjustment in the national income and product accounts that adjusts for consistent accounting at historical cost Total assets is that published by the Federal Reserve Board in Balance Sheets lor the U.S. Economy, 1960-91; the published totals have been adjusted to exclude claims on foreign affiliates. In this measure of total assets, tangible assets are valued at historical cost, and claims on other nonfinancial corporations are excluded. Note.— flate of return is measured as net income to total assets. Rate of Return on Assets of U.S. Companies in Year Prior to Foreign Acquisition Compared With All U.S. Nonfinancial Corporations Ftercent AH U.S. Nonfinancial Corporations 1982 1983 1984 1985 1986 1987 1988 1989 1990 FDIUS - Foreign direct investment in the United States 1 .This measure is the ratio of total receipts less total deductions after total net tax liability as published by the Internal Revenue Service to total assets for all U.S. nonfinancial corporations. Total receipts less total deductions after taxes have been adjusted to remove foreign source income and to add the part of the capital consumption adjustment in the national income and product accounts that adjusts for consistent accounting at historical cost The measure of total assets used in this ratio is that published by the Federal Reserve Board In Balance Sheets for the U.S. Economy, 1960-91: the published totals have been adjusted to exclude claims on foreign affiliates. In this measure of total assets, tangible assets are valued at historical cost and claims on other nonfinancial corporations are excluded. U.S. Department of Commerce. Bureau of Economic Analysis RATES OF RETURN ON DIRECT INVESTMENT 21 markets and had thereby accumulated substan- tial cash reserves. For these firms, increasing their U.S. presence through direct investment was attractive from an investment as well as an op- erations perspective. The combination of these factors may even have encouraged companies abroad to buy financially distressed U.S. com- panies as long-term investments. Presumably, foreign companies either believed that they could turn their U.S. investments around over time by using their expertise in product development, process technology, and management, or they be- lieved that they could achieve higher returns from an appreciation of the dollar. During the i98o's, about three-fourths of all fdius was for acquiring existing companies, and about one-fourth was for establishing new com- panies. For the companies established, rates of return were low or negative because of the startup costs that all new firms experience. For the com- panies acquired, rates of return were already low or negative: Between 1982 and 1990, the rate of return on assets for U.S. companies in the year before their acquisition by foreigners was 1.0 percent, compared with 4.6 percent for all U.S. nonfinancial companies (table 4, chart 2)/ In addition, the foreign owners' newly acquired companies not only began with below-average re- turns, but presumably these returns were lowered further as owners restructured these companies by investing in new plant and equipment and in modernization of older plants, by writing-off and closing obsolete units, by increasing marketing efforts, and by aggressively pricing their products to regain market share. Recent developments. — By 1990, many of the tran- sitional factors that had encouraged direct invest- ment in the United States were no longer present. Other countries' current-account surpluses with the United States were reduced. Multinational companies needed to reduce debt and rebuild their balance sheets, and their bankers needed to limit credit and meet higher capital standards. At the same time, the relative real rates of re- turn on investments were reversed, as U.S. real interest rates and returns to equities decreased in relation to those abroad (table 3). In late 1990 and early 1991, the slide in the value of the dollar stopped, and its value began to increase, which raised the cost to foreign investors of new direct investments in the United States. These devel- opments combined to produce a sharp drop in fdius from S67.8 billion in 1989 to $11.5 billion in 1991. With the slowdown in new fdius, the rates of return on existing fdius should rise as these in- vestments mature. Rates of return on usdia have shown this pattern, and there is some evidence that rates of return on fdius have tended to rise over time as well. 8 However, long-term factors may continue to hold down fdius rates of return. Long-term factors Vertical integration. — One fundamental reason for foreign companies to make direct invest- ments in other countries is to achieve vertical integration. 9 Owning both "upstream" raw ma- terial and production facilities and "downstream" distribution outlets may make it easier to further penetrate foreign markets. Through U.S. affili- ates, foreign parent companies can better design, manufacture, distribute, and service products for the special requirements of the U.S. market. Either through resale of the foreign parent's prod- ucts by their U.S. affiliates or through sales of the parent's products as inputs to the affiliates, in- creased sales of the parent's products can achieve economies of scale in home-country production, resulting in lower unit production costs for their products. Besides company affiliation, U.S. affiliates of foreign multinational companies cite other rea- sons for relying on imports from the parent com- pany, including product quality, assured sources of supply, and specialized product needs. Pre- sumably, vertical integration and maximizing total company profits also play a role. Whatever the reasons, foreign-owned affiliates do have a higher propensity to import than do U.S. multi- national companies in the United States. Imports by U.S. affiliates of foreign multinationals ac- counted for 24 percent of their total purchases of inputs in 1987, compared with 8 percent for U.S. multinational companies (table 5). Part of the higher propensity to import is explained by the practice of using U.S. affiliates mainly as distribu- tion outlets. Overall, U.S. affiliates' imports for 7. For the most recently published data on U.S. companies in the year before their acquisition by foreign parents, see "U.S. Business Enterprise! Acquired or Established by Foreign Direct Investors in 1991." Survey 72 (May 1992): 69-79. 8. For a discussion of the increase in returns with age on i sou in man- ufacturing affiliates, see LA. Lupo, Arnold Gilbert, and Michael Liliestedt. "The Relationship Between Age and Rate of Return of foreign Manufactur- ing Affiliates of US Manufacturing Parent Companies." Si »\ ir sS (August 1978): 5o-66. For a general rtitniMiftn of the effect of age on profitability. see F.M. Schcrcr. I't,iud Mohammad F. Al-Eryani, Pervaiz Alam, and Syed H. Akhter, "Transfer Pricing Determinants of U.S. Multinationals," Journal of International Business Studies, 3rd quarter, 1990: 409-425. For more information on how effective tax rates affect the flow of in- vestment to domestic or foreign locations, see Joel Slemrod, "Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross- Table 5.— Operating Characteristics of Foreign Direct Investment in the United States Operating characteristic Vertical integration (ratio of gross product to sales): Parents of U.S. multinationals U.S. affiliates of foreign multinationals Propensity to import for inputs (ratio of imports to total purchases of inputs): Parents of U.S. multinationals U.S. affiliates of foreign multinationals Local content (ratio of local inputs to sales): Parents of U.S. multinationals U.S. affiliates of foreign multinationals 1977 1987 37 21 24 95 81 Source: U.S. Department of Commerce, Bureau of Economic Analysis; Council ot Economic Advisers. Table 6.— U.S. Affiliate Imports for Resale as a Share of Total Sales, 1987 [Percent] All countries ... Top 10 countries: Japan Sweden Germany Switzerland Belgium/Luxembourg Canada France United Kingdom Netherlands Australia 14.7 33.9 21.6 18.9 11.1 8.7 5.3 4.7 3.6 3.1 2.3 income of the foreign parent is lower than that on the income earned by the U.S. affiliate, the com- pany can raise its total return by shifting income from the affiliate to the parent. This is achieved through use of transfer prices for transactions be- tween the affiliate and its parent, whereby the company raises the price of exports to the affiliate and lowers the price of imports from the affiliate. In table 7, effective tax rates on income from investments in U.S. affiliates are compared with those on income from domestic investments for the top 10 foreign investor countries (as before, excluding the Netherlands Antilles). Computa- tions of effective tax rates are subject to con- siderable uncertainty and are sensitive to the assumptions made regarding such variables as in- flation and the financing mix. However, the rates in table 7, which are derived from a recent study on effective tax rates by the Organisation of Eco- nomic Co-operation and Development (oecd), show that foreign parents in all but one of the 10 major investor countries may have an incen- tive to transfer income from their U.S. affiliates to themselves. 11 Avoidance of tariffs and nontariff barriers. — Tariffs and nontariff barriers raise the cost of exports and provide an incentive for for- Country Comparison," in Taxation in the Global Economy, Assaf Razin and Joel Slemrod, eds., (Chicago: The University of Chicago Press, 1990): 79-122; and Kan H. Young, "The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States," National Tax Journal (March 1988): 109-121. 11. See oecd, Taxing Profits in a Global Economy: Domestic and International Issues (Paris: oecd, 1991). Table 7.— Effective Tax Rates on Income from Investments in U.S. Affiliates Compared With Domestic Investments, January 1991 Australia Belgium Canada France Germany Japan Luxembourg Netherlands Sweden Switzerland United Kingdom United States .... Effective tax rate for in- come from: Investment in U.S. af- filiate 44 43 53 46 46 56 40 40 48 38 38 44 Domestic investment 43 24 49 38 23 49 40 30 30 25 37 44 Ratio of effective tax rate for in- vestment in U.S. affiliate to effec- tive tax rate for domestic invest- ment 1.03 1.78 1.08 1.22 2.00 1.14 .98 1.34 1.62 1.51 1.04 1.00 Note.— Imports and sales are identified by country of loreign parent. Note.— The effective tax rate is calculated as the difference between the return before cor- porate taxes that is required to generate a 5-percent return before personal taxes, and the re- turn after both corporate and personal taxes divided by the return before corporate taxes. The results are based on the following assumptions: Investment financing includes one-third each from intercompany debt, new ecjuiry, and reinvested earnings: the source of funds for financing is from the parent's home country; inflation is at a 4.5-percent annual rate; and the top tax rate is used for personal income. Source: Organisation for Economic Co-operation and Development, Taxing Profits in a Global Economy: Domestic and International Issues. Paris, 1991, tables 5.4, 5.8, and 5.11. RATES OF RETURN ON DIRECT INVESTMEN1 23 eigners to invest abroad. 12 In recent years, direct investments in the U.S. auto industry were presumably related to actual and poten- tial restrictions on vehicle exports to the United States. In addition, direct investment in several industries — televisions, typewriters, semiconduc- tors, and automobiles — may have been related to antidumping suits and antidumping duties against foreign producers of these products. In these cases, the motive for direct investment may be to avoid tariffs and nontariff barriers in or- der to maximize total company returns, rather than to maximize returns on the direct invest- ment. For example, a foreign manufacturer can avoid antidumping duties by exporting parts and components, on which there is no duty, for final assembly by the U.S. affiliate, rather than export- ing the finished product, on which antidumping duties would be levied. Importance of country-specific factors The complex interrelationship among the factors that have caused rates of return to be lower for fdius than for all U.S. businesses is perhaps best demonstrated by an examination of the direct in- vestment activities of companies from different countries. This section contrasts the activities of the two largest investor countries — Japan and the United Kingdom (table 8). Together, these two countries accounted for nearly one-half of the fdius position on a historical-cost basis in 1991. In 1982, the United Kingdom had the largest po- sition, and it maintained that standing during the i98o's; Japan had the fifth largest position in 1982 12. For a discussion of how foreign direct investment is motivated by the desire to avoid tariffs and nontariff barriers, see "Strengthening gatt An- tidumping Rules," Economic Report of the Presiiient (Washington, dc: U.S. Government Printing Office, 1992): 219; and U.S. Congress, U.S. Trade Re- straints: Effects on Foreign Investment, report prepared by James K. Jackson (Washington, dc: Library of Congress, 1989). Table 8.— financial and Tax Factors Affecting Japanese and British Direct Investment in the United States [Percent] Real long-term interest rale: Average lor 1982-91 Average lor 1986-91 Earnings/price ratio: : Average for 1982-91 Average for 1986-91 Effective tax rates, January 1991: ■' Investment in U.S. affiliates Domestic investments Top 10 coun- tries Japan United King- dom All U.S. busi- nesses 59 4.8 7.3 65 44 44 and the second largest position at the end of the i98o's. In terms of Japan's rates of return and the factors that have driven these returns, Japanese fdius was typical of fdius as a whole during the last decade. Large current-account surpluses in the 1980's in combination with relatively low rates of return in Japan led to large flows of di- rect investment capital from Japanese companies that were seeking higher returns in the United States. Low rates of return for U.S. companies in the year prior to their acquisition, along with high restructuring costs after acquisition, led to low earnings by affiliates of Japanese parents. Vertical integration, indicated by U.S. affiliates' heavy reliance on imports for immediate resale, and practices related to vertical integration, such as transfer pricing, further depressed returns on direct investment. 13 Effective tax rates on the do- mestic income of Japanese parents were lower than those on the income of their U.S. affiliates, which created an incentive to shift profits from the United States to Japan. Finally, tariffs and nontariff barriers, such as Voluntary Restraint Agreements (vra's) and antidumping suits and duties, may have induced Japanese companies to substitute assembly and production plants in the United States for final goods exports from Japan. By contrast, for British fdius, rates of return and the factors that have driven these returns are largely dissimilar to those for all fdius. Through- out the 1980's, the United Kingdom maintained only small current-account surpluses and had higher-than-average expected rates of return at home. Although the flow of direct investment from the United Kingdom during this period was the largest in absolute terms, from 1983 to 1991 new flows accounted for a much smaller percentage of the direct investment position of the United Kingdom than that for Japan. Thus, while British investors probably also bought some low-return U.S. companies and encountered sim- ilarly high restructuring costs, these low returns would have been more than offset by higher re- turns on the United Kingdom's larger stock oi more mature investments. A primary example of a mature investment is the British investment in petroleum, which has .1 diversified structure within the United States that includes both up- stream and downstream activities. Investment in this industry has boosted the overall British 1 . See footnote 1 to table 3. 2. See footnote 2 to table 3 3. Source is same as that for table 7. Effective tax rates lor individual countries have been weighted by their share of the FDIUS total position lor the top 10 countries iv Heavy reliance on Importl for immediate revile b» t'S affiliates \.i( lapanese pucnti ind nunc general!*, .ill U S affiliate*' lubmnrtal de- pendence on import] lot use In production, probabf) tbo contributed to reductions in rata of return from 198J of the Keep depredation of the dollar. 24 BEA STUDIES OF DIRECT INVESTMENT rate of return; in contrast, Japanese investment ing little incentive for profit shifting. Finally, in wholesale trade — typically a more downstream imports from the United Kingdom have not gen- activity — has held down the overall Japanese rate erally been in industries subjected to vra's or of return. In addition, effective tax rates in the other nontariff barriers, thus creating no incen- United Kingdom are comparable with those on tive for earning less than the profit-maximizing British investments in the United States, produc- return on direct investment. £| 26 BEA STUDIES OF DIRECT INVESTMENT Alternative Frameworks for U.S. International Transactions By J. Steven Landefeld, Obie G. Whichard, and Jeffrey H. Lowe This article was first published in the December 1993 Survey of Current Business. This article presents alternative measures of U.S. international sales and purchases of goods and services that combine informa- tion on cross-border trade with information on sales and purchases abroad by U.S. -owned for- eign companies and on sales and purchases in the United States by foreign-owned U.S. com- panies. The article explains and evaluates two previously suggested measures based on owner- ship, introduces a new residency-based measure, relates these measures — each of which is derived from its own distinct framework — to standard balance of payments measures, and illustrates them with experimental estimates derived from the most recent Bureau of Economic Analysis (bea) data. The new residency-based measure introduced in this article combines the standard balance on trade in goods and services between residents and nonresidents of the United States (cross-border trade) with a measure of the net effect on the U.S. economy of the operations of U.S. -owned companies abroad and of foreign- owned compa- nies in the United States. Like the balance on cross-border trade, the new measure identifies international transactions on the basis of resi- dence, but it presents a different picture of the U.S. position in world markets: • Under this new measure, the net balance of the United States on its global sales and pur- chases of goods and services was a surplus of $24 billion in 1991, compared with a deficit of $28 billion on cross-border trade alone (table 1). • From 1981 to 1991, the surplus under this measure rose from $8 billion to $24 billion, whereas the deficit on cross-border trade alone rose from $16 billion to $28 billion. • In contrast to its effects on balances, this measure has little effect on U.S. shares of world export markets. From 1981 to 1991, the U.S. share of world exports under the new measure rose from 14 percent to 15 percent; in comparison, the U.S. share of cross-border exports of goods and services rose from 12 percent to 14 percent. During the same pe- riod, the U.S. share of world imports rose from 13 percent to 14 percent under both the new measure and the measure based on cross-border trade alone. This new residency-based measure builds upon previous efforts to integrate information on cross-border trade with information on interna- tional direct investment. Alternative frameworks suggested by a National Academy of Sciences (nas) study panel and by DeAnne Julius use ownership rather than residency as the basis for identifying international transactions. They, too, present a different picture of the U.S. position in world markets from that obtained from analysis of cross-border trade alone: • The nas proposal — which is perhaps more reflective than standard balance of payments measures of the way companies view their worldwide sales — indicates a net U.S. sales surplus of $164 billion. In deriving this meas- ure, affiliates' purchases of goods and services from foreigners are deducted from their sales, but their payments to foreign capital and la- bor are not. Consequently, the surplus under this proposal should be viewed more as an indicator of the globalization of the activities of multinational companies — the sales effec- tively controlled by U.S.- and foreign-owned firms — than as an indicator of the effects of these activities on the U.S. and foreign economies. • The Julius proposal indicates a net U.S. sales surplus of $24 billion, the same figure pro- duced by the new residency-based measure. Although based on ownership, the frame- work proposed by Julius results in the same balance as the residency-based alternative because in determining the balance, all pay- ments by affiliates to foreigners are netted out; however, they are included in the gross trade flows rather than being deducted from sales as in the residency measure. ALTERNATIVE FRAMEWORKS FOR U.S. INTERNATIONAL TRANSACTIONS 27 Table 1.— A Comparison of U.S. International Economic Performance Under Different Frameworks, 1991 [Billions ol dollars) Residency-based Irameworks Ownership-based frameworks Cross-border trade in goods and services Alternative residency- based approach, in- cluding both cross-bor- der trade and net sales through affiliates (table 4)' NationaJ Academy of Soences proposal (table 2)- Julius proposal (table 3) J U.S. sales to foreigners 581 609 •28 632 608 24 816 652 164 2.523 U.S. purchases Irom foreigners 2,499 Balance 24 1. Table 4 sources: Sales, line I; purchases, line 14; balance, line 27. 2. Table 2 sources: Sales, sum of lines 5 and 17; purchases, sum of lines 10 and. with sign reversed. 23; balance, line 24. 3. Table 3 sources: Sales, line I; purchases. Ime 15; balance, kne 29. Overview Although cross-border exports and imports re- main the variables of primary interest for con- ducting macroeconomic analysis of output and employment in a country, there is growing recog- nition that sales through foreign affiliates must be considered in conjunction with these tradi- tional balance of payments variables in order to obtain a complete picture of the global business activity of a country and of the role its multina- tional companies and their foreign affiliates play in delivering goods and services to international markets. For U.S. multinational companies, an overwhelming majority of sales to unaffiliated foreigners are effected through affiliates: In 1991, for example, about 85 percent of total sales to unaffiliated foreigners by U.S. parent companies and their majority-owned foreign affiliates took the form of sales by affiliates, and only about 15 percent were direct exports by the parents. Infor- mation on sales through affiliates is particularly important for such purposes as supporting nego- tiations on trade and investment, monitoring the resulting agreements, and analyzing the global business activities of multinational companies. In recognition of facts such as these, a study panel of the nas, chaired by Robert E. Bald- win, has recommended that bea develop an ownership-based supplement to the existing, residency-based balance of payments framework The authors would like to thank Robert E. Baldwin, DeAnne Julius, Walt her Lederer, Robert E. Lipsey, Lois E. Stekler, and Guy V.G. Stevens for providing helpful comments on earlier drafts. Participants in the eighth Voorburg Group Meeting on Services Statistics, held in September 1993 in Oslo, Norway, also made useful suggestions. for the United States. 1 As envisioned by the panel, this supplement would measure U.S.- owned companies' and U.S. individuals' "net sales" to foreign-owned companies and foreign individuals. The net sales measure would cover both cross-border sales as defined for balance of payments purposes and sales through lo- cally established direct investment enterprises (net of certain overseas expenses and exclud- ing sales between entities with the same country of ownership). As explained later, the bal- ances produced under this supplement differ from those under the standard, residency-based framework; they should be viewed as indica- tors of activities effectively controlled by U.S.- and foreign-owned firms, rather than, as in the standard balance of payments, as indicators of returns to domestic versus foreign factors of production from these activities. (The nas sup- plement, like the other frameworks discussed in this article, confines itself to current-account transactions in goods and services and to trans- actions involving direct investment. It does not include information on other current-account transactions (specifically, unilateral transfers and income on portfolio investment), nor does it at- tempt to construct ownership-based measures of capital-account transactions.) Prior to the nas proposal, a somewhat differ- ent ownership-based framework was proposed by DeAnne Julius. 2 Julius' proposal is similar to the nas proposal in that it explicitly identifies and separately tabulates sales and purchases of direct investment enterprises. However, it dit- 1. National Research Goandl, Pind on Foreign Trade Statistics ;*<■• lurul the Xumlfn: US T'iuU m the .1 Anne V kester (Wuhington, m National Hfntrmy Prcv. 199a), See especially chapter 1 ("Supplementing (he Balance of Payments Framework") and Appendix A I s.ilcs and Purchases of Goods Jnd Services Between Americans and Foreigners"). a. DeAnne lulius. Global Campania anil Public M '^"g Challenge tf Fortign f>inrv» Imrnmcnt (New York., m Council on Relations Prcs.s. logo) 28 BEA STUDIES OF DIRECT INVESTMENT fers in its method of recording transactions and in its definition of local expenses. Also unlike the nas proposal, Julius' proposal produces a net sales balance equal to the sum of the balances on goods, services, and direct investment income as conventionally measured. Considerable interest in alternative account- ing frameworks for trade in goods and services has also arisen outside the United States. A working party of the Industry Committee of the Organisation for Economic Co-operation and Development and professional staff at the Statistical Office of the European Communi- ties (eurostat) are studying the collection and preparation of ownership-based data. In both cases, information on sales through direct in- vestment enterprises, sometimes referred to as "establishment trade," is viewed in conjunction with information on cross-border trade flows. Although applicable to both goods and serv- ices, the concepts reflected in these proposals are particularly important for many types of services — such as advertising, engineering, le- gal, and other services — that are difficult, and sometimes virtually impossible, to deliver to for- eign markets through cross-border trade. 3 For most of these business, professional, and tech- nical services, delivery typically must take the form of face-to-face transactions adapted to lo- cal laws, customs, and needs. As a result, with a few exceptions (travel and transportation are the largest), services tend to be delivered internation- ally mainly through direct investment enterprises located in the country of the purchaser rather than through cross-border transactions between residents and nonresidents. After briefly explaining standard methods of accounting for direct- investment- related activity, this article reviews the nas and Julius propos- als for supplementing the balance of payments framework, illustrates them using the most re- cent bea data available, and then introduces and illustrates an alternative measure that pro- vides additional information on ownership while retaining the concept of residency as its funda- mental organizing principle. 4 By retaining the 3. For the last 4 years, bea has provided detailed information on both cross-border services transactions and on sales of services through affiliates in the September Survey of Current Business. The two types of information have not, however, been integrated into a formal framework along the lines discussed here. 4. An earlier proposal for compiling balance of payments transactions on an ownership basis should also be acknowledged: Evelyn Parrish Lederer, Walther Lederer, and Robert L. Sammons, International Services Transactions of the United States: Proposals for Improvement in Data Collection, a report prepared for the Departments of State and Commerce and the Office of the U.S. Trade Representative (Washington, dc, 1982). This proposal was narrower in purpose than the two that are discussed here, however, in that residency concept, this new measure also main- tains consistency with internationally recognized standards for measuring production and deter- mining its location, and it maintains the focus of attention on the effects of direct investment activ- ities on the U.S. economy rather than shifting the focus to measurement of the relative performance of U.S.- and foreign-owned firms. Although these frameworks are different methodologically, they each explicitly record sales totals for direct investment enterprises that, to- gether with the totals for cross-border trade, can be used to analyze the worldwide operations of multinational companies and the channels they use to deliver goods and services to interna- tional markets. Each of the proposals should be viewed as potentially supplementing, rather than supplanting, the existing balance of payments ac- counts, which are integrated with the national income accounts and are needed for macroe- conomic analysis of the effect of international transactions on the domestic economy. There may be some basis for viewing the new meas- ures, along with the conventional trade measures, as indicators of the ability of a country's com- panies to compete in world markets; however, it should be kept in mind that the performance of specific groups of firms, although important, may be overshadowed in the determination of these measures by broader macroeconomic fac- tors, such as exchange rates, differences in rates of economic growth, and differences between rates of saving and investment in the United States and abroad. Furthermore, a trade surplus or deficit, however defined, is not necessarily indicative of success or failure in world markets: For example, in a country with national saving that is insuffi- cient to finance its domestic investment, a deficit may merely reflect the transfer of resources into the country to finance the shortfall of saving (or the excess of spending over production). The proposals discussed in this article should be regarded as experimental rather than defini- tive, inasmuch as none of them is completely free of conceptual difficulties. The same can be said of the accompanying estimates shown in tables 1-4: Not all of the data that would be needed to construct ideal estimates are now available, and for the purposes of this article, it was not possible to make some adjustments that probably would be desirable in a formal, ongoing series. Because the regular production of high-quality estimates of international trans- it was designed to account for international business only in specific types of services rather than to provide a comprehensive framework. ALTERNATIVE FRAMEWORKS FOR U.S. INTERNATIONAL TRANSACTIONS 29 actions on an alternative basis would require substantial resources and the resolution of several significant data and conceptual problems, bea has no current plans to produce such estimates on an ongoing basis. Rather, it is hoped that this article will stimulate discussion of the issues in- volved and illustrate what can be accomplished with currently available information. Standard balance of payments accounts Traditionally, balance of payments accounts have included the cross-border trade of direct invest- ment enterprises with their country of ownership and with other foreign countries. They have not, however, recorded the sales or purchases by these enterprises, or "affiliates," in their country of location, although these sales and purchases do affect the balance of payments in the sense that they are among the determinants of direct investment income and may affect cross-border exports and imports indirectly. 5 The exclusion of local sales by affiliates follows from the purpose of the accounts — to record transactions between residents and nonresidents, with a view to pro- viding information needed to measure the level and geographic location of production and to gauge pressures on foreign-currency markets — and from the usual procedure of regarding an affiliate as a resident of its country of location, not of its country of ownership. Thus, a foreign investor's receipt of income from an affiliate — consisting of reinvested earnings plus interest and dividends — is considered an international trans- action, to be recorded by the investor country as a receipt of factor income from abroad and by the host country as a payment of factor income to foreigners; an affiliate's gross sales in its country of location, in contrast, are regarded as transac- tions occurring wholly within a single country and, thus, are not to be recorded in the balance of payments of either the investor country or the host country. With respect to measures of aggregate eco- nomic activity, none of the activity of an affiliate is recorded in the gross domestic product (gdp) of the investor country, inasmuch as that aggre- gate measures only production occurring within the country and excludes any production at- tributable to enterprises located abroad, even if domestically owned. However, the direct investor's share of an affiliate's profits (after de- duction of foreign income taxes) is included in the gross national product (gnp) of the investor country, inasmuch as that aggregate measures all production attributable to domestically supplied factors of production, irrespective of the location of production. By the same reasoning, an af- filiate's production is included in the gdp of its host country, but the direct investor's share of its profits is excluded from the host country's gnp. Goods and services produced for export are uni- formly included in both the gdp and gnp of the exporting country, irrespective of the destination of the exports, the exporting firm's country of ownership, and the affiliation, if any, between ex- porter and importer; similarly, imported goods and services are uniformly excluded from the gdp and gnp of the importing country. 6 National Academy of Sciences proposal As indicated earlier, the nas study panel proposed an ownership-based measure of net U.S. sales to foreigners. 7 This innovative proposal views international transactions from the perspective of the worldwide operations of multinational companies and provides comparable measures of international business activities of U.S.- and foreign-owned firms, whether conducted through cross-border trade or through local sales by af- filiates. Because the proposal focuses on the global sales of multinational companies, it is helpful in assessing U.S. -owned businesses' shares of foreign markets. In many respects, its view of trade is more reflective of the view held by companies and official trade representatives in developing international trade policy and assess- ing U.S. trade performance than one covering cross-border trade alone. The nas proposal also has been instrumental in stressing the need to develop additional information on owner- ship relationships and on the methods used by multinational companies to service international markets. In presenting its proposal, the nas panel de- fined the term "foreigners" to include U.S. affili- ates of foreign companies and to exclude foreign 5. The description given here is Consistent with current methodology for compiling the U.S. intern.uion.il transactions accounts, with the new. fifth edition of the lntern.1tion.1l Monetary Fund's BalaitCt ofPaymtnti Alumni/, and with the 1993 revision of the international Svstcm of National Accounts. The balance of payments Hems that would not he arretted hv the adoption of one of the frameworks discussed in this article — capital Hows, income on portfolio investments, and unilateral transfers — are not described here. t>. Exports niav embody imported gDOdl and srrsucv but in compul ing gdp and gnp, an adjustment \t made to RjbtrM them from exports or other gran product components (consumprJofv Investment! and government ■pending] In which they mi) be embodied, n th.it only the portion ofexportj representing domestic production remain* m the total - In Rchi'iil the Nwnbtrt, this measure 1* termed "net sales hv Americans to foreigners." In this article. KMDC measure* defined hv others ha\r been redesignated In order to reduce ambigintv and. insofar a* possible. to permit the use oi consistent nomenclature within the article and among it. other SUKVIY articles, and other nrs publications 30 BEA STUDIES OF DIRECT INVESTMENT affiliates of U.S. companies. This definition fol- lows from the nas measure's ownership-based perspective: U.S. affiliates are regarded as for- eigners because, although resident in the United States, they are foreign owned, and foreign af- filiates are not regarded as foreigners because, although resident abroad, they are U.S. owned. The net sales measure can be derived as the sum of three items: Net U.S. cross-border sales to foreigners by domestically owned companies, net sales to foreigners by foreign affiliates of U.S. companies, and net U.S. sales to U.S. affiliates of foreign companies. Net U.S. cross-border sales to foreigners by do- mestically owned U.S. companies is computed in three steps. First, U.S. exports to foreign affiliates of U.S. companies and exports by U.S. affiliates of foreign companies are subtracted from total U.S. exports of goods and services to obtain an estimate of cross-border exports by domestically owned U.S. companies to foreigners. 8 Second, imports from foreign affiliates of U.S. companies and imports by U.S. affiliates of foreign compa- nies are subtracted from total U.S. imports to obtain an estimate of cross-border imports by domestically owned U.S. companies from for- eigners. Third, the import measure is subtracted from the export measure to produce net cross- border sales to foreigners by domestically owned U.S. companies. Net sales to foreigners by foreign affiliates of U.S. companies is computed in two steps. First, sales by foreign affiliates to the United States and to other foreign affiliates of U.S. companies are subtracted from their total sales. 9 Second, lo- cal (non-U.S.) purchases of goods and nonfactor services by foreign affiliates of U.S. companies are subtracted from the result of step one to obtain net sales to foreigners by foreign affiliates of U.S. companies. Net U.S. sales to (or if negative, as is the case, purchases from) U.S. affiliates of foreign compa- nies is computed in two steps. First, sales by U.S. affiliates of foreign companies to other U.S. affil- iates and to other countries are subtracted from their total sales. 10 This total is then subtracted 8. Exports by the relatively small number of U.S. affiliates of foreign companies that have foreign affiliates of their own are subtracted twice in this computation, once as exports to foreign affiliates and once as exports by U.S. affiliates. The nas panel was aware of the need for an adjustment to add back these exports, so that they are, in effect, only subtracted once, but it lacked the data needed to incorporate such an adjustment in its estimates, bea has since identified the duplication and, in updating the nas estimates, adjusted for it (table 2, line 4). A similar adjustment is reflected in the derivation of the ownership-based import measure (line 9). 9. Available data for sales to other foreign affiliates cover only sales to other affiliates of the same U.S. parent company. 10. Data on U.S. affiliates' sales to other U.S. affiliates are not available. from U.S. affiliates' purchases of goods and non- factor services in the United States to obtain net U.S. sales to U.S. affiliates of foreign companies. These computations are detailed in table 2 and are summarized and compared with bal- ance of payments statistics in table 1. Using the standard balance of payments framework, the United States recorded a $28 billion deficit in trade on goods and services in 1991. Using the nas net sales measure, in contrast, the United States had a positive sales balance of $164 billion, as positive balances on cross-border transactions and on transactions by foreign affiliates of U.S. companies were only partly offset by a nega- tive balance on transactions by U.S. affiliates of foreign companies. 11 Conceptual issues. — As noted earlier, the nas proposal is helpful in assessing U.S. -owned busi- nesses' shares of foreign markets. In the late i98o's and early 1990's, Robert E. Lipsey and the late Irving B. Kravis, using bea data on multinational- company operations, conducted a series of studies showing that although the U.S. share of cross-border merchandise trade around the globe had declined, U.S. multinational com- panies' share — whether through companies lo- cated in the United States or located abroad — had changed little. 12 Like the Lipsey and Kravis ap- proach, the nas proposal focuses on the global sales of multinational companies; however, by considering local as well as cross-border sales by affiliates, it does so in a more comprehensive way. Although the net sales measure is useful for assessing companies' sales performance in global markets and can provide insights into the im- portant linkages between international trade and investment activities and the domestic economy, it may give misleading signals if used to gauge the effect of changes in foreign affiliates' sales on do- mestic income and employment. It is too gross a measure for most country-level macroeconomic analyses because it does not align a country's sales 11, The attribution of balances to different groups of transactors may be less precise than is suggested by this statement or by the organization of table 2. For cases in which a cross-border sale is followed by a resale by an affiliate, credit for the sale is, in effect, accorded to the affiliate; yet, in many, if not most, such cases, the affiliate is merely an intermediary that facilitates sales by the cross-border exporter. For a discussion of the role of U.S. affiliates in facilitating the distribution of goods produced by their foreign parent companies, see "Merchandise Trade of U.S. Affiliates of Foreign Companies," Survey 73 (October 1993): 52-65. 12. See the following articles by Robert E. Lipsey and Irving B. Kravis: "The Competitive Position of U.S. Manufacturing Firms," Banca Nazionale del Lavoro Quarterly Review 153 (June 1985): 127-54; "The Competitiveness and Comparative Advantage of U.S. Multinationals, 1957-84," Banca Nazionale del Lavoro Quarterly Review 161 (June 1987): 147-65; and "Sources of Com- petitiveness of the United States and Its Multinational Firms," Review of Economics and Statistics 64 (May 1992): 193-201. See also Mangus Bloom- strOm and Robert E. Lipsey, "The Export Performance of U.S. and Swedish Multinationals," Review of Income and Wealth 35 (September 1989): 245-64. ALTERNATIVE FRAMEWORKS FOR U.S. INTERNATIONAL I RANSAC1 (ONS 3' with the use of only those factors of produc- tion that are either entirely located in (as with gdp) or owned by (as with gnp) residents of the country. This result follows from the fact that in deriving net sales, purchases of goods and serv- ices from foreigners are deducted from sales, but payments to foreign capital and labor are not. By not excluding payments to these foreign factors of production, a country's net sales to foreign- ers may reflect substantial payments that do not accrue to its own workers or investors. Although some value added by an affiliate — specifically, its parent's share in its profits — is at- tributable to factors of production of the parent's country, most of it usually will be attributable to labor and other factors of production obtained in the affiliate's host country (or in some case-,, in other countries). In 1991, for example, the U.S. content of the output of U.S. affiliates of foreign companies (value added plus local pur- chases) was 84 percent, and the foreign content of the output of foreign affiliates of U.S. corn- Table 2.— National Academy of Sciences Proposal [Millions of dollars] Line 1991 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 U.S. cross-border sales to, and purchases from, foreigners: Exports to foreigners: U.S. cross-border exports of goods and services, residence basis Less: Exports to foreign affiliates of U.S. companies ■ Less: Exports by U.S. affiliates of foreign companies ' Plus: Exports by U.S. affiliates to their foreign affiliates (included in both lines 2 and 3) Equals: U.S. cross-border exports of goods and services, ownership basis Imports from foreigners: U.S. cross-border imports of goods and services, residence basis Less: Imports from foreign affiliates of U.S. companies ' Less: Imports by U.S. affiliates of foreign companies 1 Plus: Imports by U.S. affiliates from their foreign affiliates (included in both lines 7 and 8) Equals: U.S. cross-border imports of goods and services, ownership basis Net U.S. cross-border sales of goods and services to foreigners, ownership basis (lines 5-10) Sales and purchases by foreign affiliates of U.S. companies: Sales by foreign affiliates of U.S. companies Less: Sales by foreign affiliates to other foreign affiliates of U.S. companies Less: Sales to the United Slates by foreign affiliates of U.S. companies (line 7) Equals: Sales by foreign affiliates to unaffiliated foreigners Less: Local (non-U.S.) purchases of goods and nonfactor services by foreign affiliates of U.S. companies Net sales to foreigners by foreign affiliates of U.S. companies (lines 15 - 16) U.S. sales to, and purchases from, U.S. affiliates of foreign companies: Local purchases of goods and nonfactor services by U.S. affiliates of foreign companies (U.S. sales) Sales by U.S. affiliates of foreign companies Less: Sales by U.S. affiliates to other U.S. affiliates of foreign companies Less: U.S. exports by U.S. affiliates of foreign companies (line 3) Equals: Sales by U.S. affiliates to unaffiliated U.S. persons Net U.S. sales to U.S. affiliates of foreign companies (lines 18 - 22) Net sales by U.S. persons to foreigners (lines 11 + 17 ♦ 23) Addenda: Value added abroad by foreign affiliates of U.S. companies and local (foreign) content of output: Sales by foreign affiliates of U.S. companies (line 12) Less: Local (non-U.S.) purchases of goods and nonfactor services by foreign affiliates (line 16) Less: Exports from the United Slates (line 2) Less: Purchases from other foreign affiliates of U.S. companies (line 13) Plus: Inventory change Equals: Value added by foreign affiliates of U.S. companies Foreign content of foreign-affiliate output (lines 26 + 28 + 30) Value added in the United States by U.S. affiliates of foreign companies and local (U.S.) content of output: Sales by U.S. affiliates of foreign companies (line 19) Less: Local (U.S.) purchases of goods and nonlactor services by U.S. affiliates (line 18) Less: Imported goods and services (line 8) Less: Purchases from other U.S. affiliates of foreign companies Plus: Inventory change Equals: Value added by U.S. affiliates of foreign companies U.S. content of U.S.-affiliate output (lines 33 ♦ 35 + 37) 581.197 139.976 108.434 8.449 341.236 609.117 108.789 186.945 4.699 318.082 23,154 1.543.450 246.208 108.789 1.188.453 713,394 475,058 731.530 1.174.069 na 108.434 1.065.635 -334.105 164,107 1.543.450 713,394 139.976 246 206 -980 442.891 • (02,494 I 174.069 731.530 I8BJ94S na 2.776 258.370 989.900 n.a. Not available. I, Services transactions exclude, but conceptually should include, transactions with unaffiliated foreigners. Note— In this table, 'foreigners" is defined from an ownersftp perspectve. thus, it encompasses US. affiliates of foregn companies but does not encompass toragn affiliates of US companies 32 BEA STUDIES OF DIRECT INVESTMENT panies was 91 percent. In contrast to the nas measures, the standard measures of exports and imports of goods, services, and income do align a country's sales with factor location or owner- ship, as do supplemental measures, such as the one proposed by Julius, that treat affiliates' lo- cally obtained factor services as "purchases" by the investor country. Because it does not explicitly measure the effect on the domestic economy of differences in the location of production, the net sales measure can- not serve as an indicator of the effect on national income of increases in multinational companies' sales. For instance, the effect on the U.S. econ- omy of additional sales of Opel automobiles in Germany by General Motors' German subsidiary is already recorded in the standard balance of payments accounts as investment income earned by General Motors (gm) and as any additional exports by gm of parts and components to the subsidiary. Payments made by gm's affiliate to local suppliers and employees directly affect the German economy, not the U.S. economy. Any impact on the U.S. economy would be indirect, through the transmission of business cycles, and presumably much smaller than the direct impact on the host economy. As another example, given the high labor content in legal, engineering, and other professional services, the U.S. economy is affected by whether Fluor decides to "produce" engineering and design services for a construc- tion project in Stuttgart at its headquarters in Irvine, California, or through its affiliate located in Germany. Another reason the net sales measure can- not serve as an indicator of the effects of multinational-company activity on the domestic economy is that it does not take into account differences in ownership shares. Because U.S. companies' direct ownership shares of foreign af- filiates may range from 10 to 100 percent, only a portion of the total profits earned by foreign affiliates accrues to U.S. parent companies and thus adds to U.S. national income. 13 An ex- tra dollar of sales through a foreign affiliate that is wholly owned clearly adds more to U.S. na- tional income (and to the U.S. direct investor's profits) than an extra dollar of sales through an equally profitable affiliate that is only 50-percent owned; the net sales method, however, gives equal weight to increases in the sales of all foreign affiliates, irrespective of the percentage of foreign ownership. 14 Empirical issues. — Inclusion in an ownership- based framework of sales by affiliates that are not majority owned may cause double-counting in global totals and problems in identifying other foreign affiliates. For example, consider the case of 10 companies from 10 different coun- tries, participating equally in a joint venture. If each investor country were to record 100 percent of the "net sales" of the venture, the actual sales would be overstated by a factor of 10. The nas panel recognized this problem and considered two possible methods of addressing it: (1) Prorating transactions by ownership per- centages, and (2) restricting transactions to be recorded on an ownership basis to only those in- volving majority- owned affiliates. 15 Perhaps the second method is the better choice, because it allows the presentation of comparable measures (that is, sales) for both cross-border transac- tions and transactions through foreign affiliates. This method would be consonant with U.S. generally accepted accounting principles, which stipulate that only majority-owned affiliates are to be included in companies' consolidated finan- cial statements. In addition, from a practical standpoint, even though majority-owned foreign affiliates are probably able to identify sales to other majority-owned affiliates, they may find it difficult to identify sales to minority-owned affiliates. Another issue that ownership-based accounts must address concerns the determination of country of ownership. Some affiliates are part of an ownership chain extending across several countries; for such indirectly held affiliates, du- plication can occur if their sales are attributed both to the country of ultimate beneficial owner and to the countries of intervening parents in the 13. For example, in 1991, net income generated by foreign affiliates of U.S. companies was $77 billion; only about two-thirds, or $51 billion, of this total accrued to U.S. owners. 14. Even if only majority-owned affiliates are brought under the net sales approach (which, as discussed in the next section, might be considered as a means of avoiding duplication), this problem still exists because this ap- proach, unlike others discussed in this article, does not treat returns to locally supplied capital as a purchase or cost of the investor country. 15. Although the accompanying tables cover all nonbank affiliates rather than only those that are majority owned, restricting their coverage to majority-owned affiliates would have had only a limited effect, because most affiliates are majority owned. For U.S. direct investment abroad, majority- owned affiliates accounted for 79 percent of the sales by all nonbank affiliates and for 93 percent of the direct investment income receipts in 1989 (the only recent year for which direct investment income can readily be disaggregated on the basis of ownership percentages). For foreign direct investment in the United States, income payments cannot readily be broken down by owner- ship percentage, but the share of sales by U.S. affiliates in 1989 accounted for by majority-owned affiliates was, at 82 percent, about the same as the comparable share for foreign affiliates. If only data for majority-owned affili- ates were recorded on an ownership basis, income from other affiliates would still need to be recorded, but through standard recording methods for direct investment income rather than through a separate tabulation of sales and expenses. ALTERNATIVE FRAMEWORKS FOR U.S. INTERNATIONAL TRANSACTIONS 33 chain. It could be argued that to avoid such du- plication, country of ownership should be based on country of ultimate ownership rather than on country of foreign parent. 16 A final issue that may arise in connection with the ownership approach concerns the difficulty of identifying all transactions between affiliates that have the same country of ownership but different parent companies. Because many U.S. companies have followed their client companies overseas in order to service the clients' foreign operations, a certain proportion of what are described as net sales to foreigners by foreign affiliates of U.S. companies probably are, in reality, sales to foreign affiliates of other U.S. companies. Conceptually, these sales should be included in the deduction for sales to other foreign affiliates that is made in computing net sales to foreigners by foreign affil- iates of U.S. firms. Similarly, sales between U.S. affiliates of different foreign companies should be included in the deduction from total sales by U.S. affiliates in computing net U.S. sales to U.S. affil- iates of foreign companies. In reality, such sales usually cannot be identified or reported to bea because in most cases, reporters do not know the country of ownership of all the companies with which they do business. Julius proposal Another ownership-based approach is suggested by the work of DeAnne Julius (see footnote 2). Julius' method is similar to the nas ap- proach in that it is based on ownership, but because it deducts all payments to foreigners in deriving net sales, it — like the residency- based approach presented next — avoids most of the conceptual and empirical difficulties just de- scribed, at least insofar as the computation of balances is concerned. 17 Unlike the nas proposal, the Julius proposal defines local purchases by affiliates to include not only payments for goods and nonfactor services purchased from outside vendors, but also pay- 16. The accompanying tables define the country of ownership to be the country of the first foreign parent rather than th.u of the ultimate beneficial owner. However, the effect of making .111 adjustment for C8SC9 in which U.S. parent companies were. 111 turn, ultimately owned by foreigner] likel) would have been small: In 1991. sales by such parents accounted for 11 percent of the sales by all U.S. parents, and their foreign affiliates accounted fol only 4 percent Of the sales by all foreign affiliates of U.S. companies. If Sides by affiliates of such foreign owned U.S. parent! were removed from ownership-based measures oi "U.S. sales." these parents' direct investment income receipts would still need to be recorded, but in the standard manner rather than through a separate tabulation o( sales and expenses. 17. The major difficulty that the lulius proposal shares with the n\s pro posal is the empirical problem of Identifying the ultimate beneficial owner (ubo). bea collects informal ion on ultimate beneficial ownership and could conceivably produce adjusted estimates on .1 ubo basis, but. as noted) the benefits of such an adjustment likely would be small. ments for labor and other factors of production employed within the firm. Under this proposal, the foreign affiliate is treated not as a resident of the host country, as in the standard accounts, but rather as a part of the investor country's firm operating in the host country. The affiliate's transactions with the host country are recorded on a gross basis, reflecting the ownership bound- ary between the firm and the rest of the host economy. As has been noted elsewhere, this net- ting of all receipts from foreigners against all payments to foreigners results in a trade balance equal, conceptually, to the balance on goods and services plus the balance on direct investment income in the balance of payments. 18 The second respect in which the Julius ap- proach differs from that of the nas panel is in the recording methodology. Whereas the nas panel used what is sometimes referred to as a "directional" methodology, recording the net of sales and purchases separately for both inward and outward direct investment, Julius suggests recording transactions on what could be termed an "export/import" basis. On this basis, foreign affiliates' local purchases of goods and services are recorded as a component of sales by foreigners to the United States rather than as a deduction from total sales by foreign affiliates; similarly, U.S. affiliates' purchases in the United States are recorded as a component of U.S. sales to foreign- ers rather than as a deduction from total sales by U.S. affiliates. There are both advantages and dis- advantages with this approach: It produces larger gross flows of sales and purchases than does the directional methodology followed by the nas panel and thus depicts more completely the total magnitude of two- way transactions between U.S.- and foreign-owned entities; however, it makes it harder than under the directional methodology to isolate and analyze the transactions of compa- nies grouped on the basis of ownership. From the standpoint of the overall U.S. trade (or sales) balance, it is immaterial which method of record- ing is selected, for the choice of method alone has no effect on the balance. The correspondence between lulius' net for- eign sales balance and the balance on goods and services plus the balance on direct investment income in the standard balance o\ payments ac- counts suggests that one way of viewing the lulius measure is as a more gross variant o( the stan- dard accounts. Whereas the balance of payments is. Gu) V.G Stevens, "The Net Foreign Sales Balance of rv\nnc luliuC Board ot Governors ol the Federal Revrrsc System, stiff mcmorjndum. lulv »$, 1990, 34 BEA STUDIES OF DIRECT INVESTMENT accounts reflect the net effect of subtracting the affiliate's purchases from its sales — specifically, the parent's share in the affiliate's net income — the estimates constructed by Julius show the purchases and sales separately. The results of applying the Julius method to data for 1991 are shown in table 3. 19 The table shows that in 1991, total U.S. sales to unaffiliated foreigners (with "foreigners" defined, as before, 19. It should be noted that in this table and in table 4, items labeled "costs and profits" accruing to U.S. or foreign persons are computed residually, as sales less direct investment income and less certain trade flows that can be identified as affiliates' purchases. To the extent that some of the trade flows recorded in a given period may represent capital goods or goods used in producing for inventory, neither of which may enter into the affiliate's cost of goods sold during that period, the trade-flow and "costs and profits" items must be interpreted simply as flows of funds rather than as an allocation of factor and nonfactor payments related to current production. Over time, however, capital goods are depreciated and inventories sold, and in any event, capital goods and goods used in producing for inventory probably account for a relatively small share of total trade; thus, on average, the labeling of the items likely provides a generally accurate representation of their nature. In any case, the net sales measure as shown in table 3 is correctly measured, irrespective of the fact that the true composition of some of the expense items may at times deviate from that shown. from an ownership perspective) were $2,523 bil- lion, compared with total sales by foreigners to unaffiliated U.S. persons of $2,499 billion; thus, the United States had a positive sales balance of $24 billion in 1991. While this balance equals the sum of the standard balances on goods, serv- ices, and direct investment income, it is produced by estimates that provide a considerably more detailed picture of the gross flows that produce the balance and of the channels of delivery that companies use to service international markets. 20 Alternative residency-based approach As an alternative to producing ownership-based estimates, the standard balance of payments ac- counts can be recast to provide more information 20. The $24 billion figure differs slightly from that derived from bea's quarterly balance of payments accounts because the estimates presented in this article exclude direct investment income from affiliates in banking (which are not covered by bea's financial and operating data for affiliates) and exclude the current-cost adjustment to income. Table 3.— Julius Proposal [Millions of dollars] Line 1991 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Sales by U.S. persons to foreigners (lines 2-3 + 7) U.S. cross-border exports of goods and services Less: Direct-investment-related U.S. exports To foreign affiliates of U.S. companies By U.S. affiliates of foreign companies Adjustment to remove duplication of exports by U.S. affiliates to their foreign affiliates (included in both lines 4 and 5) Plus: Local sales to U.S. affiliates of foreign companies or by foreign affiliates of U.S. companies U.S.-affiliate purchases from, and profits accruing to, U.S. persons Total sales by U.S. affiliates of foreign companies Less: U.S. imports to U.S. affiliates Plus: Adjustment to add back imports to U.S. affiliates from their foreign affiliates Less: Sales to other U.S. affiliates Less: Net payment of profits to foreign parents from sales by U.S. affiliates Sales by foreign affiliates of U.S. companies to unaffiliated foreigners Sales by foreigners to U.S. persons (lines 16-17 + 21) U.S. cross-border imports of goods and services Less: Direct-investment-related U.S. imports From foreign affiliates of U.S. companies To U.S. affiliates of foreign companies Adjustment to remove duplication of imports to U.S. affiliates from their foreign affiliates (included in both lines 18 and 19) Plus: Local sales by U.S. affiliates of foreign companies or to foreign affiliates of U.S. companies U.S.-affiliate sales to unaffiliated U.S. persons Foreign-affiliate purchases from, and profits accruing to, foreigners Total sales by foreign affiliates of U.S. companies Less: U.S. exports to foreign affiliates Plus: Adjustment to add back exports by U.S. affiliates to their foreign affiliates Less: Sales to other foreign affiliates Less: Net receipts of profits by U.S. parents from sales by foreign affiliates Net sales by U.S. persons to foreigners (lines 1 - 15) Addenda: Net U.S. cross-border exports (lines 2-16) Standard balance on goods, services, and direct investment income (equals line 29) 2,522,962 581,197 239,961 139,976 108,434 -8,449 2,181,726 993,273 1,174,069 186,945 4,699 n.a. -1,450 1,188,453 2,498,612 609,117 . 291,035 108,789 186,945 -4.699 2,180,530 1,065,635 1,114,895 1,543,450 139,976 8,449 246,208 50,820 24,350 -27,920 24,350 n.a. Not available. Note.— In this table, "foreigners" is defined from an ownership-based perspective; thus, it encompasses U.S. affiliates of foreign companies but does not encompass foreign affiliates of U.S. companies. Sales are designated as "local" based on whether they occur in the United States or in all other countries combined. Thus, "local" sales to foreigners by a foreign affiliate of a U.S. company, for example, include sales to all foreign (non-U.S.) per- sons, not just sales to persons in the affiliate's country of location. ALTERNATIVE FRAMEWORKS FOR U.S. INTERNATIONAL TRANSACTIONS 35 on ownership. In so doing, the varied needs of data users can be met without giving up the link- age to economic activity in specific economies and the integration with broader national ac- counts that are among the virtues of standard balance of payments accounts. Table 4 shows one such reconfiguration. It retains the stan- dard measures of cross-border trade in goods and services, and its key measure of activity by affiliates is conceptually equivalent to the con- ventional measure of direct investment income. 21 However, it separately records a number of de- tails that show the data from a new perspective 21. Minor variances from the figures published in the U.S. balance of payments accounts exist for the reasons noted in footnote 20. and that allow a more complete analysis of ownership relationships and of the scope and im- portance of intrafirm trade than is allowed by the conventional presentation. In the estimates shown in table 4, as in the standard balance of payments and in the nas pro- posal, the results of affiliates' activities in their countries of location are recorded on a "direc- tional" basis: Net receipts by U.S. companies resulting from the operations of their foreign affiliates are recorded as a component of U.S. sales (exports) to foreigners, and net receipts by foreign companies resulting from the oper- ations of their U.S. affiliates are recorded as a component of U.S. purchases (imports) from Table 4.— Alternative Residency-Based Approach [Millions of dollars] Line 1991 35 36 37 39 39 U.S. exports (sales) (lines 2 + 7) U.S. cross-border exports of goods and services, total To unaffiliated foreigners To affiliated foreigners To foreign affiliates of U.S. companies To foreign parents of U.S. affiliates U.S. companies' net receipts from sales by their foreign affiliates Sales by foreign affiliates Less: Foreign-affiliate purchases of goods and services from the United States Less: Costs and profits accruing to foreigners Employee compensation Other Less: Sales by foreign affiliates to other foreign affiliates U.S. imports (purchases) (lines 15 + 20) U.S. cross-border imports of goods and services, total From unaffiliated foreigners From affiliated foreigners From foreign affiliates From foreign parents Foreign companies' net receipts from sales by their U.S. affiliates Sales by LLS. affiliates Less: U.S. affiliate-purchases of goods and services from abroad .... Less: Costs and profits accruing to U.S. persons Employee compensation Other Less: Sales by U.S. affiliates to other U.S. affiliates Net U.S. exports (imports) (lines 1 — 14) ' Net cross-border exports (lines 2- 15) Net receipts Irom sales by affiliates (lines 7 - 20) Addenda: Composition of the content of foreign-affiliate sales (to nonaffiliates): Output sold to nonaffiliates or added to inventory, total (lines 8-13 plus inventory change) Foreign content- 1 Value added by loreign affiliates of U.S. companies Other foreign content U.S. content (line 9) Composition of the content of U.S. -affiliate sales (to nonaffiliates): Output sold to nonaffiliates or added to inventory, total (lines 21 - 26 plus inventory change) U.S. content Value added by U.S. affiliates ol loreign companies Other U.S. content Foreign content (line 22) 632,017 581,197 412.066 169,131 122,127 47,004 50,820 1.543.450 139.976 1,106.446 196.979 909.467 246.208 607,667 609,117 379.212 229.905 89.558 140.347 -1,450 1.174.069 186.945 988.574 173.911 814.663 n.a 24,350 -27^20 52.270 1,296.262 1.156.286 442^91 713.394 139.976 1.176.845 989 900 258.370 731.530 186.945 1, Equals the balance on goods, services, and direct investment income in the standard balance of payments accounts Also equals net sales by U.S. persons to foreigners under the Julius approach (table 3. line 29). 2. Differs from loreign content as shown in table 2. line 31 by the amount ot purchases Irom other foreign achates (table 2. Ire 28) In this table, the output whose content is being decomposed is only that sold to nonaff*ates (or added 10 inventory); thus, sales between affiliates are eiduded Table 2. t\ contrast snows a decomposition ol total output ndudng that sold to other afhtates. 36 BEA STUDIES OF DIRECT INVESTMENT foreigners. Although equivalent to direct invest- ment income, the "net receipts" terminology used in the presentation to represent the difference between affiliates' sales and purchases — each of which is also shown in the table — is more sug- gestive of the underlying operations that generate the income. In accordance with its residency basis, the presentation retains the standard meas- ures of cross-border trade in goods and services; however, it separately identifies the portions of the total that are accounted for by intrafirm, or affiliated, trade. In addition, the account pro- vides addenda that break down the content of foreign affiliates' output into its U.S. and for- eign components and that show the extent to which the local content of affiliates' output is at- tributable to the affiliates' value added or to other local content, including returns to local investors. This framework is consistent with the needs of traditional economic accounting and analysis and maintains the strict correspondence between output and the location or ownership of fac- tors of production that exists in the standard accounts. By retaining the residency concept, it maintains consistency with internationally recog- nized standards for measuring production and determining its location, and it keeps attention focused on the effects of direct investment activi- ties on the U.S. economy. However, it encourages the user of the international accounts to look beyond the information on cross-border trade alone and to recognize that the overseas oper- ations of foreign affiliates constitute an integral part of the nation's economic interaction with the rest of the world. Indeed, direct investment income differs fundamentally from income on portfolio investments: It represents U.S. com- panies' returns on sales to foreigners that — for reasons such as efficiency, lower transport costs, or avoidance of trade barriers — are made from foreign instead of U.S. locations, whereas port- folio income merely represents returns to passive investments in foreign stocks and bonds. The residency-based framework suggested here adds many details needed for such uses as sup- porting international trade negotiations and eco- nomic policies toward multinational companies and assisting with the analysis of these com- panies' global operations. The key summary measure from this framework — termed "net ex- ports," but viewing exports in a sense broader than its usual meaning — combines the standard balance on cross-border trade in goods and serv- ices with the net receipts from sales by affiliates. In 1991, U.S. cross-border exports of goods and services were smaller than U.S. imports — $581 bil- lion and $609 billion, respectively (table 4, lines 2 and 15), for a deficit on cross-border trade of $28 billion (line 28). However, net U.S. receipts from sales by foreign affiliates of U.S. companies were much larger than net foreign receipts from sales by U.S. affiliates of foreign companies — $51 billion and -$1 billion, respectively (lines 7 and 20), for a surplus on net receipts of $52 billion (line 29). Combining the cross-border trade with the net receipts related to sales by affiliates yields exports (in the broad sense mentioned above) of $632 billion (line 1), imports of $608 billion (line 14), and a net export, or sales, surplus of $24 billion (line 27). The $24 billion surplus is identical to that ob- tained under the Julius approach, although the latter is derived as the net of much larger gross flows, reflecting its use of an "export/import" recording methodology rather than the "direc- tional" methodology used here. The surplus is much smaller than the $164 billion produced by the measure suggested by the nas panel. However, as discussed earlier, that measure, being geared more to analyzing production at- tributable to domestic- and foreign-based multi- national companies than to analyzing production attributable to U.S.- and foreign-supplied factors of production, includes the returns to foreign- supplied factors of production in net U.S. sales to foreigners and includes the returns to U.S.- supplied factors of production in net foreign sales to the United States. This definitional differ- ence, together with the fact that foreign affiliates of U.S. companies obtain more factor services abroad than U.S. affiliates of foreign companies obtain in the United States, accounts for the dif- ference between the nas balance and the balance from the alternative residency-based framework. Alternatively, the difference can be said to result from an excess of value added abroad (less direct investment income, which is included in both measures) by foreign affiliates of U.S. companies over value added in the United States (similarly adjusted) by U.S. affiliates of foreign companies. 22 22. Lois Stekler, in comparing the nas measure with the conventional trade balance, has made a similar observation: The net sales balance ... is approximately equal to the trade balance [on goods and services] plus the value added by U.S. direct investment abroad minus the value added by foreign direct investors in the United States. As long as the value added by U.S. businesses abroad is higher than the value added by foreign direct investors in the United States, the proposed measure will be more favorable than the traditional measure of the trade deficit. See Lois E. Stekler, review of Behind the Numbers, Journal of Economic Literature 31 (September 1993): 1,461. ALTERNATIVE FRAMEWORKS FOR U.S. INTERNATIONAL TRANSACTIONS 37 (As noted in the addenda to table 4, value added by U.S. affiliates of foreign firms in 1991 was $258 billion, while value added by foreign affiliates of U.S. firms was $443 billion.) The gross flows under the alternative residency- based measure are smaller than both the esti- mates proposed by Julius and the nas panel. However, the reason for the larger nas flows is the omission from purchases of the pay- ments to foreign capital and labor rather than, as in the case of the Julius approach, the gross recording of foreign affiliates' purchases in "imports" and of U.S. affiliates' purchases in exports. From 1981 to 1991, the U.S. surplus under the broadly defined net export measure rose from $8 billion to $24 billion, whereas the deficit on cross- border trade rose from $16 billion to $28 billion. Although in terms of balances, the new measure presents a significantly different picture from that presented by cross-border trade alone, in terms of shares in world totals, the differences are less sig- nificant, because income on direct investment is relatively small in comparison with cross-border trade in goods and services, both globally and for the United States. From 1981 to 1991, the U.S. share of world exports under this measure rose from 14 percent to 15 percent, while the U.S. share of world cross-border exports of goods and serv- ices rose from 12 percent to 14 percent. lj From 1981 to 1991, the U.S. share of world imports rose from 13 percent to 14 percent both under the new measure and as measured by cross-border trade alone. In addition to its usefulness in analyzing the economic effects on the United States of U.S. international sales and purchases of goods and services, whether effected through cross-border transactions or through sales by affiliates, the al- ternative framework can be used to derive other information that may be useful for specific pur- poses. For example, in addressing questions of market access, one might want to disregard local purchases by affiliates (which seldom would be subject to any sort of restriction) and ask what is the total of U.S. sales to unaffiliated foreigners. From table 4, this measure could be derived as the sum of cross-border exports to unaffiliated for- eigners (line 3) and sales to unaffiliated foreigners by foreign affiliates of U.S. companies (line 8 minus the sum of lines 13 and 18). Total U.S. purchases from foreigners could be derived sim- ilarly. In addition, the framework could be built upon by incorporating subtotals and groupings of particular interest or new addenda lines; alter- natively, auxiliary analytical tabulations could be developed. £g| 23. The world totals used in deriving these shares are from International Monetary Fund. Balance of Payments Statistics Yearbook (Washington. DC: International Monetary Fund, various issues). 38 BEA STUDIES OF DIRECT INVESTMENT An Ownership-Based Disaggregation of the U.S. Current Account, 1982-93 By Obie G. Whichard and Jeffrey H. Lowe This article was first published in the October 1995 Survey of Current Business. With the growing integration of the world economy, foreign direct investment has flourished, and the multinational company (mnc) has become a major force in the delivery of goods and services to overseas markets. Interest in analyzing foreign trade from the perspective of mnc's has grown accordingly. In response, bea has prepared a supplemental disaggregation of the U.S. current account along ownership lines by combining information from its direct invest- ment surveys with information from the standard current account. The new disaggregation builds on a proposal introduced in an earlier bea study of alternative balance-of-payments frameworks. It presents information on the sales by mnc's through their affiliates as well as through cross- border trade. By viewing the activities of mnc's and their affiliates in the context of a formal eco- nomic accounting framework, these activities can be analyzed in a more consistent fashion than previously was possible. This new disaggregation, presented for 1982-93, breaks down cross-border trade according to whether it is between affiliated parties — that is, within mnc's — or between unaffiliated parties. Trade within mnc's ("intrafirm trade") is further disaggregated according to whether it is between U.S. parent companies and their foreign affiliates or between U.S. affiliates of foreign companies and their foreign parent groups. In addition, details on receipts and payments of direct in- vestment income are provided to show how the income is derived from the production and sales of affiliates. The disaggregation of the current account pres- ented here provides information not available in the standard disaggregation. The standard dis- aggregation breaks down cross-border trade in goods and services on the basis of the com- modity classifications of the goods and services traded and the geographic location of the parties involved, but it generally does not indicate rela- tionships between the exporters and importers. Nor does it show how production and sales by foreign affiliates give rise to income on direct investments. In a previous Survey of Current Busi- ness article, bea described and evaluated three frameworks that supplement the information on cross-border trade shown in the standard balance of payments accounts with information on sales and purchases abroad by the foreign affiliates of U.S. companies and on sales and purchases in the United States by the U.S. affiliates of foreign companies. 1 Two of the frameworks had been suggested earlier, one by a National Academy of Sciences study panel and one by DeAnne lulius. Both of these frameworks used ownership as the basis for determining the nationality of transac- tors and, thus, the boundary between domestic (U.S.) and international transactions. The third framework, introduced in the article, differed from the others in that — like the standard bal- ance of payments accounts — it used residency rather than ownership to determine this bound- ary. By doing so, it retained the linkages to economic activity in specific economies provided by the standard balance of payments accounts. As with the other frameworks, however, it provided a number of new details that facilitate analyses of ownership relationships and of the scope and importance of intrafirm trade. The present article focuses on the third frame- work and extends it in five ways: First, it places the ownership-based disaggregation of cross-border trade and net receipts or payments resulting from sales by affiliates, shown in the framework presented in the previous article, into the framework of the overall U.S. cur- rent account; second, it further breaks down the ownership-based components of cross-border trade into trade in goods and trade in services; 2 1. See "Alternative Frameworks for U.S. International Transactions,"SuR- vey of Current Business 73 (December 1993): 50-61, which discusses technical issues pertaining to the three frameworks and presents estimates of U.S. sales and purchases under each framework for 1991. 2. For technical reasons, an acceptable estimate of this breakdown could not be made for net receipts resulting from sales by affiliates. One reason is that the data on affiliates' activities are classified according to the primary industry of the affiliate rather than according to the type of good or service OWNERSHIP DISAGGREGATION OF CURRENT ACCOL'M 39 third, it records net receipts or payments resulting from sales by affiliates on a current-cost, rather than on a historical-cost, basis; fourth, it shows data for affiliates in banking for the first time (though without the detail provided for non- banks); and fifth, it presents estimates for the period 1982-93 rather than for only 1 year. The following are among the patterns that emerge when the current account is viewed along ownership lines. Many of these patterns con- firm or reinforce the conclusions of earlier bea analyses of affiliate operations. • Transactions within mnc's accounted for a significant share — about one-third — of both U.S. exports and U.S. imports of goods and services throughout 1982-93. Intrafirm trade accounted for a growing share of U.S. im- ports of goods and services — 37 percent in *993> compared with 32 percent in 1982 — reflecting the rapid rise in foreign direct investment in the United States during the late i98o's. However, much of this trade simply represented goods imported by U.S. wholesale trade affiliates established by for- eign companies to facilitate the distribution of their goods, largely to unaffiliated cus- tomers, in the United States. The share of intrafirm trade in U.S. exports fluctuated somewhat, but it ended the 1982-93 period at the same level — 30 percent — as it began. • Trade in goods — rather than in services — accounted for the predominant share of both unaffiliated trade and intrafirm trade, but the share was higher for intrafirm trade. For exports, goods tended to account for about 85 percent of intrafirm trade, com- pared with about 70 percent of unaffiliated trade. For imports, the difference was even more marked, with goods tending to ac- count for about 95 percent of intrafirm trade, compared with about 75 percent of unaf- filiated trade. The higher share of goods in intrafirm trade partly reflects the absence of some types of services — such as travel and other services sold to individuals — from trade within firms. • Both intrafirm exports and intrafirm im- ports of goods and services were largely accounted for by transactions in which af- filiates were used as distribution channels sold. Another is th.U some of the income from a given alfiliatc m.iv reflect the affiliate's earnings that are derived from its ownership of other affiliates in different industries. Similar considerations preclude a geographic break- down of the ownership- based presentation: In some cases, income from one country ma\ partly derive from the operations of indirectly owned affiliates located in other countries, for their parents' output (sometimes with further processing), rather than as sources of supply. Exports by U.S. parent compa- nies to their foreign affiliates accounted for roughly two-thirds to three-quarters of total intrafirm exports, while imports by U.S. af- filiates from their foreign parents accounted for 55-64 percent of total intrafirm imports. • Direct investment income — that is, net re- turns to direct investors resulting from sales by their affiliates — was a small component of both total exports and total imports of goods, services, and income: 7-9 percent of exports and less than 2 percent of imports. The par- ticularly low import share largely reflects the low returns foreigners have realized on their direct investments in the United States. • All account balances — that on the overall current account and those on various group- ings of its components — were more negative at the end of 1982-93 than at the beginning. However, the balance on goods, services, and net receipts resulting from sales by affiliates was more favorable than the others in every year since 1985. This balance, which shows the net result of all active participation of companies in international markets (that is, through both cross-border trade and sales by affiliates), went from a $2.2 billion deficit in 1982 to an $18.5 billion deficit in 1993. By comparison, the deficit on cross-border trade alone increased from $24.2 billion to S74-8 billion during the same period. The differ- ence between the two balances is attributable to the sizable surplus throughout the period on net receipts and payments resulting from sales by affiliates. • Notwithstanding the importance of affiliates as distribution channels for their parents' output, most of the content of affiliates' sales is of local (or, for foreign affiliates, non-U. S) origin: 88-92 percent of the content of the output of foreign affiliates originated abroad, and 80-84 percent of the output of U.S. af- filiates originated in the United States. Most of the local content represented payments for locally procured inputs. The remainder of this article consists ot' four sections and a technical note. The first section describes in more detail the differences between the ownership-based disaggregation and the stan- dard disaggregation o\ the U.S. current account. The second section explains the structure of the ownership-based disaggregation. The third sec- 40 BEA STUDIES OF DIRECT INVESTMENT tion reviews patterns of transactions, focusing particularly on changes in composition during 1982-93. The fourth section discusses the deriva- tion of net receipts or payments resulting from sales by affiliates and the origin of the content of affiliates' sales. The technical note provides de- tails on the sources and methods used for making the estimates. Ownership-Based and Standard Disaggregation Compared The ownership-based disaggregation of the U.S. current account presented in this article covers the same transactions as those in the standard current account, but it provides a different way of viewing the information. Perhaps its main distinguishing characteristic is its grouping of cross-border transactions in goods and services on the basis of the relationship between im- porters and exporters rather than on the basis of the types of goods and services traded. Informa- tion on whether these transactions are in goods or in services is provided, but as a secondary breakdown. Another distinguishing characteristic concerns the information provided on direct investment income. Whereas the standard disaggregation simply shows the income itself — the end re- sult, from the direct investor's perspective, of the activities of its affiliates — the disaggregation introduced here adds detail on the sales, ex- penses, and other deductions from sales that, taken together, determine the income. To high- light the link between direct investment income and the activities that produce it, this income, for purposes of the presentation, is redesignated as net receipts or payments resulting from sales by affiliates. A third distinguishing characteristic of the ownership-based disaggregation is the inclusion of a balance on cross-border trade and net receipts resulting from sales by affiliates as a memorandum item. This balance, like any bal- ance on groups of transactions, may be subject to different interpretations; however, it highlights two facts: Cross-border trade and sales through foreign affiliates both represent methods of active participation in international markets for goods and services, and both may be contrasted with the more passively generated income on portfo- lio investment and the fundamentally different types of transactions recorded under unilateral transfers. Finally, the presentation provides addenda to show the source of the content of both foreign and U.S. affiliates' sales (other than to affiliates of the same parent). For both types of affiliates, output sold (or added to inventory) is broken down between U.S. and foreign content. For foreign affiliates of U.S. companies, foreign con- tent is further broken down between the affiliates' own value added and other foreign content; for U.S. affiliates of foreign companies, the U.S. con- tent is similarly broken down. These content measures do not enter the current account, but rather complement the information used to de- rive net receipts and payments resulting from sales by affiliates. Structure of the Ownership-Based Disaggregation At its highest level, the ownership-based disaggre- gation of the current-account is identical to the standard disaggregation. Specifically, it is broken down into three components: Exports of goods, services, and income; imports of goods, services, and income; and net unilateral transfers (table 1). At the next level of disaggregation, however, the breakdown is quite different from the standard one. Exports and imports of goods, services, and income are first disaggregated into two categories: (1) U.S. receipts or payments from cross-border trade and net receipts or payments resulting from sales by affiliates and (2) other income receipts or payments. The first category — which records the results of activities involving direct participation by enterprises in the production or sale of goods and services — is further disaggregated into U.S. cross-border exports or imports of goods and services and net receipts or payments resulting from sales by affiliates. Each of these categories is, in turn, disaggregated in a unique manner. Cross-border transactions in goods and serv- ices are disaggregated to show transactions with unaffiliated foreigners separately from intrafirm transactions. For intrafirm transactions, a fur- ther disaggregation breaks down transactions into those between U.S. parent companies and their foreign affiliates (that is, intrafirm trade related to U.S. direct investment abroad) and those between U.S. affiliates and their foreign parents (intrafirm trade related to foreign direct investment in the United States). Separate estimates of trade in goods and trade in services are provided for each of these categories. For net U.S. receipts resulting from sales by foreign affiliates, separate estimates are provided OWNERSHIP DISAGGREGATION OF CURRENT ACCOL'M 41 Table 1.— Ownership-Based Disaggregation of the U.S. Current Account, 1982-93 [Billions ol dollars] Line 1982 1983 1984 1985 1986 1987 1988 •%'i MM Ittl ■m •sw 1 Exports ol goods, services, «nd Income 3614 3513 3959 382.7 4018 4495 5604 6420 6974 7182 TV* 7638 2 2992 293.1 3224 3196 3418 3884 4834 5449 5959 6334 (70.1 70(2 3 275.2 266 1 291.1 289 1 3099 3487 4314 4895 537 1 5812 1110 (44* 3a 2112 2018 2199 2159 2233 2502 3202 3621 3893 t*. 4 4568 3b Services .... 641 643 712 73 2 865 985 111 1 147 8 1788 4 To unalliliated foreigners 1933 1839 1965 189 7 2123 2468 3065 342 5 3824 4-32 4a 139 1298 1361 1282 1404 164 7 214 4 2384 K'5 2778 ■ '. 2986 4b Services 543 540 603 616 72 821 921 104 1 1209 1356 1538 5 819 822 946 994 97 5 1019 124 9 147 154 7 168 1822 5a Goods 722 72 838 87 8 830 855 1058 123 7 127 8 •54 5 1582 5b 98 103 108 116 146 164 191 233 269 287 323 339 6 55 4 580 656 713 72 7 79 7 954 1092 "25 120 6 ■3' 4 6a 47 1 494 567 619 611 664 794 894 90i 17.1 1060 6b 83 86 89 95 116 133 160 197 224 235 254 7 26 5 24 3 290 280 24 9 222 294 37 8 422 567 7a Goods 250 15 23.9 226 17 27.0 27 1 19 31.3 259 21 305 219 30 320 191 31 39 6 264 30 52.1 343 35 55 4 37 8 45 587 422 5' 522 488 69 519 7b Services 66 8 U.S. companies' net receipts resulting from sales by their foreign affiliates (l( 4 Nonbank afliliates 20 5 9358 239 8863 284 898 6 28 6 895 5 306 928 9 39 3 10528 503 1.194 7 55' 12849 584 1493 4 5' 1 ' 54'5 57 6 10 11 Less Foreign affiliates' purchases of goods and services from the United States 650 661 75 3 791 826 922 1109 122 3 1288 1388 ■<-4 12 726 8 673 3 6726 6645 6806 7598 847 5 914 5 1.072 3 • '054 1.1125 13 1117 1028 1007 1024 1176 1361 1515 1658 1848 2015 14 Other 6151 570 5 5719 5621 5630 6237 6961 748 7 887 5 9093 M 2 15 1234 1230 1224 1233 1351 1615 1859 1930 2339 245 4 2645 257 7 16 Bank affiliates 34 31 29 20 14 04 18 02 04 03 22 37 17 623 58.2 73.5 63.1 600 61.1 77.0 97.2 101 i 848 6ti 577 1fl 582 534 683 57 6 536 558 70 3 915 910 768 594 526 19 4 1 48 52 55 64 53 67 57 105 80 71 51 20 355.8 377.6 474.2 484.0 5235 5927 662.5 719.8 756.7 732.5 766J 82*7 21 301.3 328 1 408.9 418.2 4564 508.9 5584 587.4 620 6072 6587 7247 22 299.4 323.9 400.2 411.0 449.4 501.4 5467 5809 817.1 6106 6584 7194 22a 247 6 2689 3324 3381 3684 409 8 4472 477 4 498 3 4905 5365 5894 22b 517 550 67 7 729 810 917 995 1035 "88 1196 1220 1300 23 204 2216 272 7 2708 2962 3262 3514 3666 3880 3823 453 9 23a 1564 170 5 209 2 2023 2200 2412 259 3 272 7 2806 2'4 3 3048 3380 23b 47 5 51.1 635 685 76 2 85 920 939 107 5 106 9 1089 "55 24 From affiliated foreigners (mtralirm imports) 95 4 1023 127 5 1401 1533 1752 1953 2-43 2291 2283 244 3 2655 24a Goods 912 42 984 39 1232 42 1358 4 -1 1484 48 1686 67 187 9 75 2047 96 2178 11 3 2'56 127 2317 111 25i5 24b •4 • 25 42.1 45 8 550 565 57 5 636 731 796 859 889 994 1086 25a 39 3 436 528 540 55 604 69 5 747 803 835 939 1029 25b 28 534 22 564 22 72 5 24 837 25 957 32 111 6 36 1222 49 134 7 56 1432 54 1394 55 '15 3 26 26a 519 1.4 548 16 70 5 20 817 19 934 23 1082 34 1184 39 1299 48 137 5 58 1322 1378 75 '485 26b 82 27 1.9 4.2 8.7 7.2 7.1 7.4 11.7 65 29 -34 3 53 28 12 34 80 59 58 72 102 60 43 -30 • 29 Sales by U.S. affiliates 5181 5366 593 6 6330 672 744 6 8864 1.0566 1.1759 1.1859 12320 13021 30 Less. U.S. affiliates' purchases of goods and services from abroad Less. Costs and profits accruing to U.S. persons 857 831 102 5 1153 1281 1470 159 4 1766 188 7 1860 1920 Si 31 431 1 4501 4830 5119 5381 5904 7168 874 9829 10029 V0393 • BU 32 615 668 73 2 79 9 865 960 1196 1442 1636 1760 ltt.1 1903 33 Other 369 7 3833 409 9 4319 4517 494 4 5972 7298 8193 8269 8572 9003 34 Less: Sales by U.S. affiliates to other U.S. affiliates ol the same parent n.a. na na na na na na na na -» - 1 -a 35 .7 54.5 352 8 495 305 7 65.3 442 1 4 65.9 42 7 13 720 47 4 2 839 57 7 15 1041 724 5 1324 940 -• 4 136.7 957 -5 1253 838 -4 1060 4 36 1058 37 U.S. Government payments 634 38 193 190 212 231 24 6 262 317 384 410 4' 5 405 39 -17.1 -17.7 -20.6 -23.0 -24.2 -23.1 -25.0 -28.1 -334 u -321 -Ml Memoranda: 40 -24.2 -22 -578 -350 -1091 -865 -1219 -985 -1396 -114 6 -1S27 -1205 -1153 -74 9 -914 -425 -800 -C4' -294 262 -395 HI --4! 41 42 56 -263 -78 4 -1013 -126 7 -1432 -1021 -777 -693 -'4 3 -29 4 -651 43 -114 -440 -990 -124 2 -1509 -166 3 -1271 -1038 -927 -• « -6' 5 -»99 Addenda: Source ol the content ol nonbank foreign affiliates' sales (except to other foreign affiliates ol the same parent): 44 Output sold or added to inventory, total (line 10 minus line 15 plus the change in inventones) 802 9 746 7 773 7 7790 8009 9081 1019 4 1.094 2 12770 ■ .*J ■ 13084 45 737 9 286 7 6806 2721 698 5 2761 6999 2804 7182 2988 8159 3482 9084 3831 4031 4400 u- f 46 47 4512 650 408 5 661 422 4 75 3 4195 791 4'94 826 467 7 322 5253 1109 5688 1223 7082 1288 -4 4 1388 •44 48 Source ol the content ol nonbank U.S. afliliates' sales (except to other U.S. affiliates ol the same parent): Output sold or added to inventory, total (line 29 minus line 34 plus the change in inventories) 49 5215 5348 6003 6385 6780 7516 8997 1.0705 11866 13076 50 4358 1035 451 7 1115 497 8 128 8 5233 1349 549 9 6046 157 9 1904 8938 2234 2393 M ] 51 Value added by U.S. affiliates ol foreign companies 2904 52 3323 3402 3690 3884 407 8 446 7 5500 6704 S3 Foreign content 857 S3' 1025 1153 ltt.1 147 •5?4 1756 188" Ittl ,- :•:► | n.a. Not available 42 BEA STUDIES OF DIRECT INVESTMENT for nonbank and bank affiliates. For nonbank af- filiates, net receipts are derived as affiliates' sales less their purchases from the United States, their costs and profits accruing to foreigners, and their sales to other foreign affiliates of the same U.S. parent company. For bank affiliates, only total net receipts are shown, because annual infor- mation on sales and deductions from sales is unavailable. Information on net U.S. payments to foreign companies resulting from sales by their U.S. affiliates is presented in a parallel fashion. Other receipts or payments consist of other pri- vate and U.S. Government transactions. These transactions differ from those recorded under cross-border trade and net receipts from sales by affiliates in terms of the nature of the transac- tor's involvement: Rather than entailing an active involvement in the production or sale of goods and services by the cross-border exporter or by the direct investor and its affiliates, these receipts and payments cover transactions in which indi- viduals or firms make an investment and receive a return, but without being actively involved in the activities generating the return. Patterns of Transactions This section focuses on changes in the compo- sition of the various ownership-based categories that comprise the current account. Before ex- amining these changes, however, it can be noted that during the period covered, each major cate- gory of transactions roughly doubled: From 1982 to 1993, U.S. exports of goods, services, and in- come increased by a factor of 2.1; imports of goods, services, and income, by a factor of 2.3; and net unilateral transfers, by a factor of 2.0. Over the same period, the current-dollar value of overall U.S. economic activity — whether meas- ured by gross domestic product or gross national product — increased by a factor of 2.0, roughly the same as the growth in exports and imports. Reflecting the tendency for differences in growth of opposing flows to result in much larger relative movements in the corresponding net bal- ances, changes in the balances on the current account and its components were, in relative terms, quite large, even though the major compo- nents from which the balances are derived grew at similar rates. Although there were several years in which they moved in a positive direc- tion, all of the balances were more negative in 1993 than in 1982. The total deficit on current account rose from $11.4 billion to $99.9 billion (chart 1 and table 1, line 43), while the balance on goods, services, and income shifted from a surplus of $5.6 billion to a deficit of $65.8 bil- lion (line 42). The deficit on goods, services, and net receipts resulting from sales by affili- ates increased from $2.2 billion to $18.5 billion (line 41). Throughout 1982-93, this measure showed a smaller deficit (or, in 1991 and 1992, a surplus) than was recorded for the balance on cross-border trade in goods and services alone, because net U.S. receipts from sales by foreign af- filiates consistently exceeded net U.S. payments to foreign companies from sales by their U.S. affili- ates. The deficit on cross-border trade in goods and services increased from $24.2 billion to $74.8 billion (line 40). Changes in composition The period 1982-93 saw numerous developments that might have been expected, directly or indi- rectly, to have had a material impact on the com- position of the ownership-based current-account components: Major movements in exchange rates, rising trade and investment in services, growing integration of the world economy and of global financial markets, emergence of newly in- dustrialized economies and liberalization of trade and investment policies by a number of de- veloping countries, the political and economic transformation of Eastern Europe, rapid increases in foreign direct investment in the United States, and cyclical fluctuations in economic activity. Given these developments and the length of the period studied, significant changes in the com- position of these components would have been expected. As described in this section, some CHART 1 Comparison of Balances, 1982-93 Billion$ 50 -100 -150 -200 Balance on goods and services Balance on goods, services, and income ,,..._ Balance on current account / 1982 83 84 85 86 87 88 89 90 91 92 93 U.S. Department of Commerce, Bureau of Economic Analysis OWNERSHIP DISAGGREGATION OF CURRENT ACCOUNT 43 changes did occur; however, somewhat surpris- ingly, the overall picture is one more of stability than of change. Throughout 1982-93, cross-border exports of goods and services accounted for a substantially larger share of total exports of goods, services, and income than either net receipts from sales by affiliates or other income receipts (chart 2). The share of exports of goods and services remained in the range of 74-78 percent through 1990 and then rose to a peak of over 84 percent in 1993. The rise in share toward the end of the period came at the expense of the share of "other in- come receipts," which fell not only relatively but also in absolute terms in the early i99o's, as inter- est rates and lending to foreigners by U.S. banks declined in response to sluggish economic condi- tions in several major borrowing areas. The share of receipts from sales by affiliates was relatively CHART 2 Exports and Imports of Goods, Services, and Income: Shares of the Major Components, 1982-93 Percent 100 90 80 70 60 50 40 30 20 10 100 90 80 70 60 50 40 30 20 10 ..L EXPORTS Goods and services Net receipts resulting from sales by foreign affiliates Other income receipts II IMPORTS 1 Goods and services 1 Net payments resulting Iron sales by US. affiliates Other income payments III I MM stable, ranging from just under 7 percent to over 9 percent. For U.S. imports of goods, services, and in- come, similar patterns held. Trade in goods and services accounted for an even larger share of im- ports than of exports, ranging from 81 percent to 87 percent. The share of "other income pay- ments" was next largest, ranging from nearly 13 percent to over 18 percent. The share of payments resulting from sales by U.S. affiliates was con- sistently the smallest — less than 2 percent in all years; although foreign direct investment in the United States grew rapidly in the late 1980 's and early i99o's, this growth generally did not trans- late into commensurately higher earnings for U.S. affiliates. 3 For both exports and imports, goods consis- tently accounted for a much larger share of total trade in goods and services than did services, probably because of the generally greater "trade- ability" of goods (which usually are transportable and storable) than of services (which usually are not) in foreign markets. The share of goods in imports was particularly high — 80-83 percent. For exports, the share of goods was somewhat lower, and it tended to decline as growth in services exports outpaced growth in goods ex- ports. 4 The share of goods did rise noticeably in 1988, when U.S. merchandise exports grew at an unusually high 28-percent rate because of a con- vergence of favorable price and demand factors, but it fell steadily thereafter. By type of transactor. — Most trade in goods and services represented trade with unaffiliated for- eigners rather than intrafirm trade. For exports, the share of unaffiliated transactions ranged from 66 to 71 percent, ending the period at the same level as it began (chart 3). For imports, the share of unaffiliated transactions trended down- ward over much of the period, from 68 percent in 1982 to 63 percent in 1993. The decline was reflected in both goods and services and mostly occurred in the late i98o's; during this period, foreign direct investment in the United States was growing very rapidly, boosting imports by U.S. affiliates from their foreign parents. 1982 83848586 87 888990 919293 U.S. Department of Commerce, Bureau of Economic Analyse y For further discussion of the returns on foreign direct imrslmcnt in the United Stales, see "Rates of Return on Direct Investment." Si«wi -: (August 1991): 79-86. 4. Some of the decline in the share of goods is j statistical artifact result- ing from improvements in coverage of services transactions instituted in 19*6. The improvements rjiscd estinules of both exports and imports of services. but the effect on exports WM larger F\cn alter allowing for this statistical I.Ktor. however, the services share oi exports still would have increased over the period as it did in everv vcar except 19M. when special EM merchandise export*. 44 BEA STUDIES OF DIRECT INVESTMENT The aforementioned tendency for goods to ac- count for the predominant share of total trade in goods and services holds for both unaffiliated and intrafirm trade, but the share is higher for intrafirm trade than for unaffiliated trade. For exports, goods accounted for 82-88 percent of in- trafirm trade, compared with 66-72 percent of unaffiliated trade. For imports, the differences were even more marked: Goods accounted for 94-97 percent of intrafirm trade, compared with 72-77 percent of unaffiliated trade. The tendency for goods to dominate intrafirm trade held for trade involving both inward and outward investment. In all cases, the share ac- counted for by services was less than 20 percent, and in many cases, particularly for imports, the services share was much lower. Although the services shares were uniformly rather low, it is noteworthy that they were larger for exports than for imports in the case of both trade between U.S. parents and foreign affiliates and trade be- tween U.S. affiliates and foreign parents. Thus, the overall U.S. comparative advantage in serv- ices evidently is a more significant determinant of the distribution of intrafirm trade between goods and services than the type of affiliation between transactors. To some extent, the larger share of goods in intrafirm trade than in unaffiliated trade reflects the fact that some services — most notably travel, which is the largest services item in the U.S. bal- ance of payments accounts — by their very nature are not applicable to trade within multinational firms. It also reflects exporters' use of locally es- tablished wholesale trade affiliates as conduits for distributing their goods abroad. This practice is particularly widespread among foreign exporters to the United States and helps to explain the ex- CHART 3 Cross-Border Exports and Imports of Goods and Services: Shares by Transactor, 1982-93 Percent 100 90 80 70 60 50 40 30 20 10 100 90 80 70 80 50 40 30 20 10 EXPORTS To unaffiliated foreigners To affiliated foreigners CHART 4 Intrafirm Exports and Imports of Goods and Services: Shares by Type of Affiliation, 1982-93 Percent EXPORTS To foreign affiliates from U.S. parents To foreign parents from U.S. affiliates nnnnn 1982 8384858687888990 91 9293 U.S. Department of Commerce, Bureau of Economic Analysis IMPORTS From foreign parents to U.S. affiliates From foreign affiliates to U.S. parents nnnnn 1982 83 84 85 86 87 88 89 90 91 92 93 U.S. Department of Commerce, Bureau of Economic Analysts OWNERSHIP DISAGGREGATION OF CURRENT ACCOLN I 45 tremely large share of goods in U.S. imports from affiliated foreigners. 5 Intrafirm exports accounted for 29-34 percent of total U.S. exports of goods and services and largely comprised transactions associated with outward investment. U.S. parents' exports to their foreign affiliates accounted for roughly two- thirds to three-quarters of total intrafirm exports (chart 4). In most years, U.S. parents' exports to their foreign affiliates accounted for over 20 per- cent of total U.S. exports of goods and services, compared with a share of 10 percent or less for U.S. affiliates' exports to their foreign parents. Intrafirm imports accounted for 32-37 percent of total U.S. imports of goods and services and largely comprised transactions associated with in- ward investment. Imports by U.S. affiliates from their foreign parents accounted for 55-64 per- cent of total intrafirm imports. These imports accounted for roughly 20 percent of total U.S. im- ports of goods and services, somewhat above the 13-15 percent share accounted for by U.S. parents' imports from their foreign affiliates. From these figures, it can be seen that for both exports and imports, the larger share of intrafirm trade was accounted for by sales by parents — whether U.S. or foreign — to their affil- iates. Although affiliates are often established to provide goods and services to their parent compa- nies, these figures suggest that it is more common for them to receive goods and services from their parents. Put another way, using affiliates as con- duits for the parents' output (sometimes with further processing) appears to be a more com- mon business practice among both U.S. -based and foreign-based multinational companies than does using affiliates as sources of supply. Supplemental Details on Affiliate Operations In addition to providing an alternative disag- gregation of U.S. current-account transactions, table 1 provides a variety of details that assist in describing affiliate operations and analyzing the role of direct investment as a vehicle for supply- ing international markets. Two related types of information are given: Estimates used in deriving net receipts and payments resulting from sales by nonbank affiliates, and estimates of the content of nonbank affiliates' output. Net receipts and payments resulting from affiliates' sales As explained earlier, net U.S. receipts from sales by foreign nonbank affiliates are derived as sales less three items: Purchases from the United States, costs and profits accruing to foreigners, and sales by foreign affiliates to other foreign af- filiates of the same U.S. parent (lines 11-16 of table 1). Purchases from the United States and costs and profits accruing to foreigners represent outlays that must be deducted from sales in or- der to arrive at the earnings that accrue to the U.S. parent company. The deduction for sales to other foreign affiliates of the same U.S. parent is made to avoid duplicating goods and services that are embodied in the sales of more than one affiliate. 6 Net U.S. payments to foreign compa- nies from sales by their U.S. affiliates are derived in a parallel fashion. Turning to the specific results under this methodology, the relationships among the items used to derive net receipts or payments changed relatively little over time and were similar for U.S. and foreign affiliates. Compared with total sales by nonbank affiliates, net receipts tended to be quite small — 1 percent or less for U.S. affil- iates and 2-4 percent for foreign affiliates. For both types of affiliates, the largest portion of the sales dollar went to "locally" supplied factors of production (in the case of foreign affiliates, to all factors supplied by countries other than the United States). For foreign affiliates of U.S. companies, 70-78 percent of sales went to costs and profits accruing to foreigners, and the shares tended to be higher during the earlier years; most of these costs and profits represented items other than employee compensation — probably payments for locally procured inputs for the most part. For U.S. affiliates of foreign com- panies, 79-85 percent of sales went to costs and profits accruing to U.S. residents; as with out- ward investment, most of these costs and profits were for items other than employee compen- sation and probably were largely payments tor locally procured goods and services. Content of affiliates' sales The addenda to table 1 examine nonbank affili- ates' sales from a related, but somewhat different, 5. The role of U.S. affiliates in facilitating the distribution in the United States of goods produced by their foreign parents is discussed in "Merchandise Trade of U.S. Affiliates of Foreign Companies." Survby -j (October 1993): 52-65. 6. Rather than being treated as .\n item to be eliminated through consol- idation, sales between affiliates oi the same parent compam could hj\r been recorded U I "purchases" item, to he deducted as a cost accruing to foreigners (because, according 10 the rules ^\ residents used in the l S international accounts, foreign affiliates arc regarded U 'torcigncrs." even though (ho arc U.S. owned). However, n doing would lu\c had no effect on total . total imports, or any of the baknca presented in table 1. 4 6 BEA STUDIES OF DIRECT INVESTMENT perspective from that taken above. 7 These items focus on the output of affiliates and, in particular, on the output's geographic origin and whether it represents production by affiliates themselves or by firms that supply them with intermediate inputs. Specifically, sales (plus the change in in- ventories) of U.S. and foreign nonbank affiliates, excluding sales to other affiliates of the same par- ent, are separated into two components: U.S. content and foreign content. The U.S. content of U.S. affiliates' sales to nonaffiliates is then fur- ther broken down into the affiliates' own value added and other U.S. content, and the foreign content of foreign affiliates' sales is broken down in a parallel fashion. During 1982-93, foreign affiliates' output and U.S. affiliates' output had similar, quite stable structures. As would be expected, the location of the affiliate largely determines the origin of the output: The bulk — 88-92 percent — of the out- put of foreign affiliates originated abroad, while the bulk — 80-84 percent — of the output of U.S. affiliates originated in the United States. The ten- dency for the U.S.-content share of the output of U.S. affiliates to be lower than the foreign- content share of the output of foreign affiliates appears largely to reflect U.S. affiliates' higher im- port propensities; however, it also reflects U.S. affiliates' lower profitability (profits are included in local content as a component of the affiliates' own value added) and the fact that the "foreign" content of the output of foreign affiliates includes content attributable to third countries. Affiliates' own value added accounted for a minority of both the foreign content of foreign affiliate output and the U.S. content of U.S. af- filiate output. For foreign affiliates, own value added accounted for roughly 40 percent of for- 7. This information is not available on an annual basis for bank affiliates. Data Availability Estimates of value added (gross product) of non- bank majority-owned foreign affiliates of U.S. parent companies for 1983-88 are now available; the estimates are disaggregated by country and industry of affili- ate and by component. Previously, such estimates were available only for 1977, 1982, and 1989-93. (The aggregate estimates for all nonbank affiliates presen- ted in table 1 were derived from the estimates for majority-owned affiliates, as described in the technical note.) For information on how to obtain the new esti- mates, call (202) 606-9867, or write to Research Branch, International Investment Division (BE-50), Bureau of Economic Analysis, Washington, dc 20230. eign content. For U.S. affiliates, own value added accounted for a somewhat lower share of U.S. content — roughly 25 percent. In addition to low profitability, the lower value-added share for U.S. affiliates may reflect the influence of age. Overall, U.S. affiliates tend to be newer than foreign affil- iates, and it is possible that as they mature they will tend to rely more on their own production and less on local suppliers (as well as on for- eign suppliers). There is little evidence for such a pattern in the available data, which show only a small variation in the value-added share of local content over an 11-year period; however, because the period includes several years of rapid growth in foreign direct investment in the United States, entries into the direct investment universe may have reduced or eliminated growth in the average age of all affiliates. Technical Note: Sources and Methods Most of the data shown in table 1 are taken di- rectly from either the U.S. balance of payments accounts or from bea's annual surveys of finan- cial and operating data of U.S. parents, their foreign affiliates, and foreign-owned U.S. affili- ates. Some items had to be estimated because data were not available for them in the form re- quired. A few items were derived as residuals. The sources for the various line items of table 1 follow; line references appear in parentheses. Ex- cept where specifically noted, data on import items have been taken from the same sources as the data on exports or from corresponding sources. Total cross-border exports of goods and serv- ices (3, 3a, and 3b) were taken from the balance of payments accounts. Cross-border exports of goods and services to affiliated foreigners (5, 5a, and 5b) were derived as follows: Exports of goods to foreign affiliates of U.S. companies (6a) were taken from bea's annual surveys of U.S. direct investment abroad; exports of services to foreign affiliates of U.S. companies (6b), from bea's quar- terly surveys of transactions between U.S. parents and their foreign affiliates; exports of goods by U.S. affiliates to their foreign parent groups (7a), from bea's annual surveys of foreign direct in- vestment in the United States; and exports of services by U.S. affiliates to their foreign par- ent groups (7b), from bea's quarterly surveys of transactions between U.S. affiliates and their for- eign parents. Cross-border exports of goods and services to unaffiliated foreigners (4, 4a, and 4b) OWNERSHIP DISAGGREGATION OF CURRENT ACCOUM 47 were derived as a residual, by subtracting exports to affiliated foreigners from total exports. U.S. companies' net receipts resulting from sales by their foreign affiliates (8) are equivalent to di- rect investment income as shown in the balance of payments accounts. Estimates of this income are derived from bea's quarterly surveys of trans- actions between U.S. parents and their foreign affiliates. Before being entered into the balance of payments accounts, the estimates are adjusted to a current-cost basis. Distribution of the current- cost adjustment among industries is not possible, and in table i, the adjustment has been allocated entirely to nonbank affiliates; the affected lines are lines 9 and 14. Sales by (nonbank) foreign affiliates (10) and employee compensation (13) were taken from bea's annual surveys of U.S. direct investment abroad. U.S. companies' net receipts resulting from sales by their foreign bank affiliates (16) were taken from bea's quarterly surveys of transactions between U.S. parents and their foreign affiliates. Foreign affiliates' purchases of goods and services from the United States (11) weretaken from bea's annual survey of U.S. direct investment abroad (for goods) and from bea's quarterly survey of U.S. direct investment abroad (for services). U.S. companies' net receipts resulting from sales by their foreign nonbank affiliates (9), costs and prof- its accruing to foreigners (12), and other costs and profits accruing to foreigners (14) were derived from other lines as follows: Line 9 is the resid- ual derived by subtracting line 16 from line 8; line 12 is derived as line 10 minus lines 8, 11, and 15 plus line 16; and line 14 is the residual derived by subtracting line 13 from line 12. Fi- nally, survey data on sales by foreign affiliates to other foreign affiliates of the same parent (15) were obtained from the annual surveys of U.S. direct investment abroad but were only available for majority-owned affiliates; an estimate for all non- bank affiliates was extrapolated from these data, based on the relationship between total sales by all nonbank affiliates and total sales by nonbank majority-owned affiliates. On the import side of the accounts, sales by U.S. affiliates to other U.S. affiliates of the same foreign parent (34) could not be estimated. (However, due to the consolidated basis for re- porting by U.S. affiliates, it is probably safe to assume that these sales were relatively small.) The other lines that are related to net payments to foreign companies for sales by their U.S. affiliates (27-35) were derived in a manner analogous to those for net receipts. Other income receipts (17-19), other income payments (36-38), and net unilateral transfers (39) were taken directly from the balance of payments accounts. The balance on goods and services (40), balance on goods, services, and income (42), and balance on current account (43) were also taken from the balance of payments accounts. They also can be derived from other lines as line 3 minus line 22, line 1 minus line 20, and line 1 minus line 20 plus line 39, respectively. The balance on goods, services, and net receipts resulting from sales by af- filiates (41), the new balance shown in this article, was derived by subtracting line 21 from line 2. The addenda items were derived mainly from data shown in the main body of table 1. Out- put sold or added to inventory (excluding sales to other foreign affiliates of the same parent) (44) by nonbank foreign affiliates is equal to line 10 minus line 15 plus the annual change in in- ventory (estimated for all nonbank affiliates by extrapolating data for majority-owned affiliates from bea's annual surveys of U.S. direct invest- ment abroad, based on the relationship between total assets of all nonbank affiliates and total as- sets of nonbank majority-owned affiliates). U.S. content (48) is equal to line 11. Foreign con- tent (45) is the residual obtained by subtracting line 48 from line 44. Value added by foreign affiliates of U.S. companies (46) was estimated from bea's annual surveys of U.S. direct invest- ment abroad (by extrapolation of estimates for majority-owned affiliates). Other foreign content (47) is a residual derived by subtracting line 46 from line 45. The addenda items for U.S. affiliates were de- rived analogously from the same or correspond- ing sources. However, because bea publishes value added by all nonbank U.S. affiliates, no spe- cial estimates for minority-owned affiliates had to be prepared. £g| Multinational Companies Production, Sourcing, Distribution, and Trading Patterns 49 GROSS PRODUCT OF U.S. AFHI.I.VI lis 51 Gross Product of U.S. Affiliates of Foreign Companies, 1977-87 By Jeffrey H. Lowe This article was first published in the June 1990 Survey of Current Business. This article presents estimates of gross product (value added) of nonbank U.S. af- filiates of foreign companies — the affiliates' con- tribution to U.S. gross domestic product (gdp) — for 1977-87. 1 Gross product is an economic accounting measure of production. For an in- dividual business, it can be defined as sales plus inventory change, less purchases from other busi- nesses. Thus, it measures value added by the business. It can also be defined as the sum of income from current production plus certain nonfactor charges. For affiliates, the major types of income are employee compensation, profit- type return, and net interest; nonfactor charges are indirect business taxes and capital consump- tion allowances. The estimates presented in this article were prepared by summing these items. Estimates of affiliate gross product are useful in measuring the size and economic impact of affiliates on the U.S. economy as a whole and on individual U.S. industries. Although sales by affiliates can also be used to measure this im- pact, gross product is a preferable measure for some purposes. Gross product indicates the ex- tent to which affiliates' sales result from their own production rather than from production that originates elsewhere, whereas sales data do not distinguish between these two sources of pro- duction. In addition, gross product estimates measure the value added to the economy by affil- iates in a specific time period. In contrast, sales in a given period may represent production of earlier periods, that is, out of inventory. The gross product estimates, while useful meas- ures of U.S. gdp attributable to firms in which there is foreign direct investment, are subject to several limitations or qualifications. Movements in affiliate gross product reflect acquisitions of existing U.S. businesses, as well as the establish- ment of new affiliates and changes in production by existing affiliates. Thus, an increase in affiliate gross product may not represent an increase in U.S. gdp; rather, it may simply represent a shift in the ownership or control of productive resources that would have contributed to gdp in any event. 1 Furthermore, because the estimates are in current dollars, they reflect changes in prices as well as changes in real output. Finally, it should be em- phasized that not all of the factors of production that generate affiliate gross product are foreign owned. The largest share of affiliate gross prod- uct is accounted for by employee compensation, almost all of which accrues to U.S. workers, and some of the profit- type return of affiliates that are not wholly owned by foreign direct investors accrues to U.S. owners. The remainder of this article is divided into three sections. The first reviews the growth and distribution from 1977 to 1987 of U.S. affiliate gross product by industry of affiliate, by coun- try of ultimate beneficial owner (ubo), <\nd by component. 3 The second compares the level, growth, and composition of affiliate gross prod- uct with those of all-U.S. -business gross product, as measured in the national income and prod- uct accounts (nipa's). The third illustrates how gross product data, together with other data on U.S. affiliates' operations, can be used to ana- lyze the structure of affiliates' production. A technical note at the end o\ the article dlSCU data sources, estimation procedures, and oon< tual differences between the components oi U.S. affiliate and nipa gross product. 1. A U.S. iffillatt is .1 U.S. business enterprise In which .1 single foreign penon owns or controls, directly or indirclK. 10 percent or more of the voting securities ol in Incorporated business enterprise or the e\iuis-alenl interest In .\n unincorporated business enterprise : because data on U S affiliates are reported to m » on a consolidated basis, it u not possible to isolate increases in grots product due to -■• Hon, FfOtn increases due to other RKUMl Vs. hen j I entcrpriK i» acquired bj an existing 1 S affiliate, dan lor the acquired emits arc consol- idated with those of the existing affiliate and cannot be separately identified It should be noted thjt although the primax) ettcvt oi the acquiuti. existing business enterprise n mereb a shilt in owners}- . Ml U S BOS nui ivait lor example, some or all ^i am funds that were brought into the United States from abroad and transferred to the previous owners mas be used for investment in the United States, or the new ownen mas utilize resources more or less efficiently than the previous one* needed to gauge uish scsondars effects are unavailable i The 1 to is that person, proceeding up a US affiliate's ownership chain beginning with and including the foreign parent, that is not owned more than so percent bi another person. 52 BEA STUDIES OF DIRECT INVESTMENT Growth and Distribution of U.S. Affiliate Gross Product, 1977-87 Overview Gross product of U.S. affiliates grew from $35.2 billion in 1977 to $151.9 billion in 1987 (table 1). The average annual growth rate during this pe- riod was 16 percent. Affiliate gross product grew much more rapidly during 1977-81, although from a smaller base, than during 1981-87 — an av- erage annual rate of 29 percent, compared with 7 percent. The faster growth in the earlier period may have reflected several factors. First, during that period, U.S. companies were being acquired by foreigners at a rapid pace. After slowing in 1982-83, the pace and the size of acquisitions picked up again in 1984. However, after 1981, dis- investment increased, as some of the acquisitions made earlier proved unprofitable and as foreign parents sold off unwanted divisions of recently acquired affiliates. 4 Second, growth in affiliate gross product slowed considerably in 1982 because of the world- wide economic recession. Slack demand led to sharp declines in production by existing affiliates, 4. The pattern of rapid growth during 1977-81 followed by slower growth from 1981-87 is also reflected in other measures of foreign direct investment in the United States. For example, sales by affiliates grew at an average annual rate of 27 percent in 1977-81 and 6 percent in 1981-87. The respective growth rates for assets were 30 percent and 15 percent; for employment, 19 percent and 5 percent; and, for the foreign direct investment position in the United States, 33 percent and 16 percent. and slow recovery overseas limited foreigners' ability to make new investments. Third, inflation rates in the United States were higher during 1977-81 than after 1981. (As noted earlier, the estimates are in current dollars and thus reflect price changes as well as changes in real output.) Finally, growth in affiliate gross product may have been affected by fluctuations in the value of the dollar vis-a-vis foreign currencies. During 1977-80, depreciation of the dollar encouraged new investment in the United States by mak- ing it cheaper for foreigners to produce and invest here. When the dollar appreciated during 1981-85, these activities became relatively more expensive, and new U.S. investment may have been dampened. By industry The pattern of rapid growth of affiliate gross product in 1977-81, and of much slower growth in 1981-87, was widespread by industry. For ex- ample, in manufacturing — which accounted for nearly 50 percent of the affiliate total through- out 1977-87 — gross product grew at an average annual rate of 30 percent in 1977-81, compared with 8 percent in 1981-87, about the same rates as those for all industries combined. In petro- leum, a 29-percent growth rate was followed by a negative 2-percent rate. All other industries corn- Table 1.— Gross Product of U.S. Affiliates, by Industry of Affiliate, 1977-87 Millions of dollars 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Percent Average annual growth rate 1977-81 1981-87 1977-87 Distribution 1977 1987 All industries . Petroleum Manufacturing Food and kindred products Chemicals and allied prod- ucts Primary and fabricated metals Machinery Other manufacturing Wholesale trade Retail trade Finance, except banking Insurance Real estate Services Other industries Addenda: Motor vehicles and equip- ment manufacturing Motor vehicles and equip- ment wholesale trade .... Total motor vehicles and equipment 35,222 7,654 16,672 2,603 5,373 2,010 3,191 3,494 5,044 2,310 238 925 429 586 1,363 38 1,091 1,129 42,920 9,263 20,403 2,868 6,273 2,125 4,160 4,976 5,319 2,786 331 1,263 698 911 1,946 ( D ) ( D ) 1,629 55,424 11,869 26,429 3,398 7,417 3,080 6,081 6,452 6,624 3,899 462 1,349 1,165 1,223 2,404 1,217 1,721 2,938 70,906 16,988 30,981 3,884 8,240 3,662 7,432 7,764 8,366 5,265 881 1,678 1,722 1,554 3,470 1,511 2,396 3,907 98,828 21,336 47,117 4,847 18,623 3,994 9,105 10,548 11,191 6,192 1,078 2,007 2,606 2,034 5,267 1,747 3,333 5,080 103,489 20,453 47,189 4,833 18,323 3,557 9,532 10,944 13,650 8,004 1,650 1,609 2,580 2,209 6,145 1,736 3,931 5,667 111,490 19,901 52,461 5,375 19,857 5,540 9,776 11,913 14,154 8,646 2,744 1,692 3,512 2,975 5,405 1,765 4,662 6,427 128,761 20,782 61,423 5,939 22,296 6,840 11,876 14,472 17,153 9,501 4,103 1,241 4,564 4,066 5,928 2,741 6,513 9,254 134,852 21,162 62,536 6,299 21,893 7,023 11,520 15,801 19,656 10,304 4,394 1,768 4,359 4,741 5,932 2,669 8,209 10,878 142,120 17,165 65,794 6,381 22,564 7,407 11,942 17,500 19,639 12,439 6,416 4,114 4,423 5,166 6,964 2,221 7,386 9,607 151,905 18,786 73,796 6,222 25,690 7,183 12,373 22,329 18,879 10,505 6,504 5,250 4,564 6,498 7,123 1,484 6,712 8,196 29 29 30 17 36 19 30 32 22 28 46 21 57 36 40 160 32 46 10 5 13 9 9 35 17 10 21 5 -3 12 16 9 16 9 17 14 15 20 14 16 39 19 27 27 18 44 20 22 100 22 47 7 15 6 9 10 14 7 1 3 1 2 4 100 12 49 4 17 5 8 15 12 7 4 3 3 4 5 D Suppressed to avoid disclosure ol data ol individual companies. ' Less than 0.5 percent. Note— Details may not add to totals because ol rounding. GROSS PRODUCT OF U.S. AFFILIATES 53 bined grew at a 30-percent rate in 1977-81 and a 12-percent rate in 1981-87. In manufacturing, growth in gross product throughout 1977-87 was at an average annual rate of 16 percent. Within manufacturing, the most rapid growth was in "other manufacturing" and chemicals. 5 In "other manufacturing," growth was partic- ularly strong in motor vehicles and equipment. However, most U.S. affiliates of large foreign au- tomobile manufacturers are classified in motor vehicle and equipment wholesale trade and not in motor vehicle and equipment manufacturing, because a majority of their sales result from the wholesale distribution of imported cars rather than from their sales of cars manufactured in the United States. For analytical purposes, it is useful to combine these two segments of the auto indus- try and examine them together. In the tables, the data for the combined industries are shown in the addenda, under the heading of "total motor vehicles and equipment." Most of the growth in total motor vehicles and equipment occurred between 1977 and 1985. Surging demand for fuel-efficient imported ve- hicles induced foreign auto companies — mainly from Japan and Germany — to expand their U.S. wholesale operations. Fears of U.S. trade pro- tectionism may have also encouraged them to produce in the United States rather than to sup- ply U.S. markets entirely from abroad. Some increases in production from affiliates of Japanese ubo's may have resulted from Japan's institu- tion of a voluntary export restraint program for motor vehicles in 1981. In addition, a French ubo's acquisition in 1979 of a U.S. automobile manufacturer boosted affiliate production. In 1986-87, gross product in total motor ve- hicles and equipment declined. The French ubo's automobile manufacturer proved unprof- itable and was sold to a U.S. company in 1987. That same year, a German ubo closed its U.S. production facilities following several years of poor sales. In addition, gross product declined in 1986-87, when wholesalers were forced to raise prices for imported vehicles, because of dollar depreciation. These higher prices dampened de- mand. Although several joint ventures between Japanese and U.S. companies to produce cars in the United States were launched during 1986-87, they did not make substantial contributions to gross product in those years, because they had not become fully operational. Since 1987, most of these ventures have become operational, and their gross product has probably incr eased. In chemicals, gross product rose at an average annual rate of 17 percent in 1977-87. Growth was very rapid in 1977-81; however, much of it oc- curred in 1981, when gross product more than doubled because a Canadian ubo acquired a mi- nority interest in a major producer of industrial chemicals and synthetics. The rate of growth slowed in 1981-87, largely because increased affili- ate production resulting from several acquisitions in 1985-86 was mostly offset by the disinvestment of a large agricultural chemicals affiliate that re- purchased the minority equity interest held by its German ubo. In petroleum, gross product grew at an average annual rate of 9 percent in 1977-87. During 1977- 81, gross product of petroleum affiliates increased at the same rate as that of all affiliates. The increase mainly reflected rising crude oil prices and stepped-up production in Alaska. However, crude oil prices began to fall in 1982; in 1986 alone, they fell by one-half. As a result of the price collapse, gross product in petroleum de- clined in 1981-87, and these affiliates' share of total affiliate gross product fell from 22 percent in 1981 to 12 percent in 1987. 6 In finance (except banking), gross product of affiliates grew at an average annual rate of 39 per- cent. These affiliates accounted for a small, but growing, share of affiliate gross product. Their faster-than-average growth mirrored the faster growth of this industry in the U.S. economy as a whole. Increased consolidation and global- ization and a surge in the varieties of financial instruments available made it essential for suc- cessful competitors in this industry to have access to large amounts of capital. Foreign investors were willing to supply this capital in return for minority ownership interests. 7 By country of ubo Gross product of affiliates with European ubo's grew at a 14-percent average annual rate in 1977- 87 (table 2). These affiliates accounted for 69 percent of total affiliate gross product in 1977, but 5. Industries in "other manufacturing" ire textile products and apparel; lumber, wood, furniture, and fixtures paper and allied products; prim- ing and publishing; rubber and plastics products; stone, clav. and glass products; transportation equipment; instruments and related products, and manufacturing industries not elsewhere classified. t>. The acquisitions of the remaining shares of .1 petroleum affiliate b* .1 Netherlands < no In w ( D ) 172 195 293 243 117 6 17 99 79 148 5 42 47 151,905 18.786 73.796 6,222 25.690 7.183 12.373 22.329 18.879 10.505 6.504 5.250 4.564 6.498 7,123 1,484 6.712 6.196 93.652 4.903 49.946 3.788 14.940 5.689 10,431 15.098 10.536 7.363 6.833 2,758 802 5,167 5,344 1.195 2.822 4.017 13,609 3.859 6.699 239 4 178 64 -248 2.467 1.164 84 1.069 1.628 -483 -251 -151 -3 1.117 1.114 8.325 1.153 4.076 530 1.442 353 398 1.353 565 759 -: M7 26 2.458 631 504 49 -219 -170 18.568 5.161 UBS 1.183 1.673 250 437 1296 5 002 1.402 59 660 716 341 388 97 2296 2393 17,751 Petroleum Manufacturing 3.710 Food and Kindred products Chemicals and allied products 189 3 458 Primary and fabricated metals Machinery Other manufacturing 827 1354 2.115 Wholesale trade 1.612 Retail trade HI Finance, except bankinq M Insurance Real estate 178 1.060 Services Other industries 611 1.038 Addenda: Motor vehicles and equipment manufacturing Motor vehicles and equipment wholesale trade .... Total motor vehicles and equipment 146 843 Percent rJstnbirbon All Industries 100 100 100 100 100 100 100 100 100 too 100 100 100 100 100 100 100 100 53 25 64 37 65 75 76 68 50 61 91 53 20 68 77 89 36 38 18 31 13 7 15 8 12 17 18 12 24 51 -26 9 ( n ) 34 ( n ) 6 9 5 1 4 5 10 1 -20 -19 65 4 7 ( n ) 10 ( n ) 14 22 10 49 3 2 3 3 16 21 3 13 18 5 6 8 17 17 9 13 8 ('') M 9 6 8 5 5 3 2 23 13 11 13 4 4 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 62 a 68 61 58 79 84 68 56 70 105 53 18 80 75 81 48 9 21 9 4 16 1 -2 11 6 1 16 31 -11 -4 -2 14 5 6 6 9 6 5 3 6 3 7 -28 ' 54 10 7 3 -3 -2 12 27 7 19 7 3 4 6 26 1 13 16 5 5 7 3 12 Petroleum Manufacturing ■ 11 Food and Kindred products 8 Chemicals and allied products 13 Primary and fabricated metals 12 Machinery Other manufacturing Wholesale trade 11 9 9 Retail trade 9 Finance, except banking 6 Real estate 3 Services Other industries 9 15 Addenda: Motor vehicles and equipment manufacturing Motor vehicles and equipment wholesale trade .... Total motor vehicles and equipment .. 10 10 10 n Suppressed to avoid disclosure ol data ol individual companies ' Less than 5 percent (±). Note.— Details may not add to totals because ol rounding. 56 BEA STUDIES OF DIRECT INVESTMENT an ec share of only 26 percent in 1987 — grew more slowly than average. The increased ec share may also have reflected the increased concentra- tion of affiliates in certain high-wage industries, such as manufacturing. Capital consumption allowances. — The share of total gross product accounted for by capital consumption allowances (cca) — a measure of depreciation — increased from 9 percent in 1977 to 12 percent in 1987. Most of the increase occurred after 1981 and may have reflected the availability of accelerated depreciation methods for calculating income taxes under the Economic Recovery Tax Act of 1981. Although cca for affiliates are computed on the basis of book de- preciation, rather than tax depreciation, the 1981 Act may have encouraged new investment in depreciable assets, thus yielding higher cca for affiliates. The increased cca share may have also reflected stepped- up investment in assets that have relatively short service lives, such as computers. Profit-type return. — The share of gross product accounted for by profit-type return (ptr) de- clined from 18 percent in 1977 to 9 percent in 1987. This component is more sensitive to changes in general economic conditions than other compo- nents. Although generally trending downward, the ptr share of total gross product fluctuated considerably during 1977-87. It averaged about 15 percent in 1978-81 but declined sharply to 7 percent in 1982, when the economic recession caused profits to drop. Manufacturing affiliates — particularly those in nonelectrical machinery, transportation equipment, primary metals, and stone, clay, and glass products — suffered large losses. The profits of petroleum affiliates declined slightly, as crude oil prices began to fall from their 1981 peak. After 1982, production and profits began to recover. By 1984, the share of gross product ac- counted for by ptr grew to 13 percent. After 1984, however, the ptr share declined. In each year, sharp decreases in the ptr of different industries accounted for the overall decline. In 1985, man- ufacturing affiliates' profits decreased. In 1986, petroleum affiliates' ptr declined because of the steep drop in crude oil prices. In 1987, prof- its in retail trade and finance were down; the decline in retail trade may have reflected the in- creased debt burden and higher interest expenses associated with leveraged buyouts of several U.S. retailers. (Retail trade was one of the few in- dustries in which the net interest share of gross product increased from 1982 to 1987.) The decline in finance affiliates' ptr probably reflected the sharp decline in stock prices and the divestiture of several affiliates in that year. Indirect business taxes. — The share of gross prod- uct accounted for by indirect business taxes (ibt) declined from 14 percent in 1977 to 12 percent in 1987. This decline partly reflected slower growth in two industries — food manufacturing and petroleum — in which ibt accounted for a large share of gross product. In food manufactur- ing, the large share mainly reflected excise taxes on alcoholic beverages; production grew slowly, partly because of shifting tastes away from dis- tilled liquors. In petroleum, growth was slow for the reasons discussed earlier. Net interest. — The share of gross product ac- counted for by net interest was roughly the same in 1977 and 1987 — 6 percent and 5 percent, re- spectively. However, it was as high as 9 percent in 1982. The increase from 1977 to 1982 proba- bly reflected rising interest rates. Following 1982, the net interest share generally declined through 1987. The decline probably reflected falling inter- est rates and a slight increase in the portion of affiliate operations that was financed with funds from their foreign parent groups. (These funds tend to cost less than externally borrowed funds.) By industry, the net interest share was by far the largest in real estate, where affiliate assets tend to be heavily leveraged. Comparison With All-U.S.-Business Gross Product This section examines the U.S. affiliate share of all-U.S.-business gross product and how it has changed since 1977. In addition, distributions of affiliate and all-U.S.-business gross product by component are compared. Certain adjustments were made to the all-U.S.- business data, which are from the national income and product ac- counts (nipa's), to make them more comparable to the U.S. affiliate data. 10 Overall, therefore, the affiliate gross product estimates are conceptually consistent with the nipa estimates. However, it is important to note that the affiliate data are on an enterprise, or company, basis, while those for all U.S. businesses are on an establishment, or plant, basis. Thus, the two sets of data are not 10. Specifically, gross product originating in banks, government and gov- ernment enterprises, and private households; imputed gdp of owner-occupied farm and nonfarm housing; rental income of persons; business transfer pay- ments; subsidies; and the statistical discrepancy were excluded from the all-U.S.-business data. GROSS PRODUCT OF U.S. AFFILIATES 57 strictly comparable at a detailed industry level. Because the sources of data for affiliate and nipa estimates differ, differences in timing, valuation, and industry classification could also significantly hamper detailed industry comparisons. Despite these limitations, analyses for major industries probably are not significantly affected, and com- parisons of the two data sets can provide a picture of the relative shares of all- U.S.- business gross product accounted for by affiliates in the major industries. U.S. affiliates accounted for 4.3 percent of all- U.S. -business gross product in 1987 (table 4), up from 2.3 percent in 1977. Nearly all of the in- crease, however, occurred during 1977-81, when growth in affiliate production mainly reflected the rapid pace of acquisitions of U.S. businesses by foreigners. From a relatively small base, affil- iate gross product grew during this period at an average annual rate of 29 percent, compared with about 11 percent for all U.S. businesses; thus, the affiliate share of all-U.S. -business gross product rose. Since 1981, however, both affiliate and all- U.S. -business growth have slowed to about the same 7-percent average annual rate, and the affil- iate share of all-U.S. -business gross product has remained constant. By major industry Despite the increase in the affiliate share of all- U.S. -business gross product since 1977, the share in 1987 remained relatively small. In four in- dustries that accounted for over 60 percent of the all-U.S. -business gross product in 1987 — retail trade, real estate, services, and "other industries" — the affiliate share ranged from only 1 percent to 3 percent." In only one major indus- try, manufacturing, did the affiliate share exceed 10 percent. In retail trade and services, much of the all- U.S. -business gross product is accounted for by small businesses, such as proprietorships, which usually do not attract foreign investment. In real estate, despite the widely publicized for- eign investment in some expensive "trophy" properties — mainly urban office buildings — most investments by foreigners tend to be fairly small; in addition, the vast majority of U.S. commer- cial properties remain domestically owned. In "other industries," the low affiliate share partly re- flects restrictions on foreign investment in some segments of these industries, especially in trans- portation, communications, and public utilities. Additionally, like retail trade and services, much of the remainder of this industry group consists of small businesses that do not attract foreign investment. Affiliate shares in manufacturing and finance (except banking) increased sharply from 1977 to 1987 — from 5.0 percent to 10.5 percent in manu- facturing and from 2.2 percent to 9.4 percent in finance (except banking). 12 In manufacturing, as in all industries combined, virtually all of the in- crease in share occurred before 1982. Although, for the reasons stated earlier, exact comparisons of affiliate data with all-U.S. -business data are in- 11. "Olher industries" consists of agriculture, forestry, and fishing: mining; construction; transportation; and communication and public utilities. 12. In this section, unlike elsewhere in this article, manufacturing includes petroleum refining and coal products, and petroleum is not shown as a sep- arate major industry. Instead, in order to be consistent with the indusm classification of the all-U.S. -business data, affiliate gross product in the vari- ous petroleum subindustries is distributed among the other maior industries. Thus, in table 4. manufacturing includes petroleum refining and coal prod- ucts, wholesale trade includes petroleum wholesale trade, retail trade includes gasoline service stations, and so on. Table 4.— Growth in Gross Product of U.S. Affiliates and Gross Domestic Product of All U.S. Businesses, 1977-87 Millions of dollars Percent 1977 1981 1987 US affiliate share of all-US business GDP Average annual growfi rale Gross product ol U.S. affiliates ' GDP of all U.S. busi- nesses - Gross product of U.S. affiliates ' GDP of all US busi- nesses 2 Gross product ol US affiliates ' GDP ol all U.S. busi- nesses-' US alMM AJ US busnatm 1977 1981 1987 1977-81 1981-87 1977-87 1977-81 1981-87 1977 -:" All industries Manufacturing Wholesale trade 35,222 23,053 5,250 2,310 238 925 429 1,171 1.846 1,555,047 464.090 139.205 191,111 10,814 39.322 77.059 246,099 387,347 98,828 65,886 12,066 6.192 1,078 2.007 2.606 2.853 6.140 2,364,507 641,213 213.090 266.787 25.714 49.764 118.708 413.352 635.879 151,905 88.848 21.037 10.506 6.504 5.250 4.564 6.655 8.541 3,542,815 849,560 311,263 422.405 69.173 100.314 194.816 777.995 817.289 23 50 38 12 22 24 6 5 5 4.2 103 5.7 23 42 40 22 .7 10 4,3 10 5 68 25 94 52 23 9 10 29 30 23 28 46 21 57 25 35 7 5 10 9 35 17 10 15 6 16 14 15 16 39 19 27 19 17 11 8 11 9 24 6 11 14 13 7 5 7 8 18 12 9 11 4 9 6 8 Retail trade 8 Finance, except banking Insurance Real estate 20 10 10 Other industries 12 8 1. In this table, unlike other tables in this article petroleum is not shown as a separate major industry instead, to be consistent with ihe industry classification ol the all-US -business data, affiliate gross product m the vanous petroleum subindustries is distributed among the other ma/or mdustnes Thus, manufactunng includes petroleum re- fining and coal products, wholesale trade includes petroleum wholesale trade, retail trade includes gasoan* service stations, and so on. 2 EiOudes GDP o( banks, of govemmw »-«j govp-i^ft entrant** tne of orvw "vrx**nocs i-cv»d GOP of owncr-occuMd 'ami and nontann rtxinj rental room* of gnom outness ran** pjygwt s . sutwdwi and the statistical docrtoarcy Note -For dHenjnow n the oXnttns ol aftkatt gross product and aHJ S -Ounnm GOP. n* X* teal GDP Gross domestic product 58 BEA STUDIES OF DIRECT INVESTMENT appropriate at a detailed industry level, affiliate shares probably increased in most manufacturing subindustries. The increase appears to have been particularly large in chemicals. 13 In chemicals, the increase in the affiliate share reflected several factors. Rather than export- ing to the United States, foreigners may have preferred establishing production facilities here, partly because of the availability of raw material feedstocks, such as petroleum. In addition, for- eign pharmaceutical companies may have found it easier to obtain U.S. Federal Government ap- proval of new products by producing them here rather than abroad. Before 1977, foreign chem- ical manufacturers — mostly European — gained a share of U.S. production mainly by establish- ing operations in the United States. Since then, they have expanded their U.S. presence primar- ily through acquisitions of existing companies. Much of this expansion reflected a single ac- quisition, mentioned earlier, in 1981 — that of a minority interest in a major producer of indus- trial chemicals and synthetics by a Canadian ubo. Since 1982, growth in the affiliate share has slowed partly because numerous acquisitions have been largely offset by the divestiture, mentioned earlier, of the minority interest in the German-owned agricultural chemicals affiliate. In finance (except banking), most of the in- crease in the affiliate share of all-U.S. -business gross product resulted from the foreign acquisi- tions of minority interests in large U.S. finance companies mentioned earlier. By component In 1977, the distributions of the components of affiliate and all-U.S.-business gross product were similar and only differed significantly for em- ployee compensation and indirect business taxes (table 5). 14 Although both the affiliate and all- U.S.-business distributions changed between 1977 and 1987, the pattern of change differed mainly for employee compensation and net interest. The employee compensation share of affiliate gross product increased sharply — from 53 per- cent to 62 percent — in 1977-87, even though for all U.S. businesses, it increased only slightly, 13. This statement is based upon an examination of the two measures of affiliate operations — employment and sales — that are available on an industry-of-sales basis, which approximates an establishment-based classifi- cation. The employment data were collected on this basis only for the 2 years— 1980 and 1987 — for which bea conducted benchmark surveys of for- eign direct investment. By either measure, chemicals had a higher initial share, a faster growth rate, and a higher share in 1987 than any other major manufacturing industry. 14. Conceptual differences between U.S. affiliate and all-U.S.-business gross product components, that is, nipa components, are discussed in the technical note. from 58 percent to 59 percent. The share in- crease for affiliates occurred because, compared with all U.S. businesses, affiliates have become increasingly concentrated in industries — such as manufacturing, finance (except banking), and insurance — in which compensation per employee (cpe) is higher than average, and relatively less concentrated in industries, such as services and retail trade, in which cpe is lower than aver- age. Furthermore, affiliate cpe tends to be higher than all-U.S.-business cpe in the high-CPE in- dustries and to be lower than all-U.S.-business cpe in the Iow-cpe industries. The affiliate share may also have increased because foreign investors focused their more recent acquisition efforts on large companies, which tend to pay above-average compensation. For example, in finance (except banking), most of the affiliate gross product is accounted for by major securities firms, which generally have very high levels of compensation. Moreover, foreign parents may be shifting more of their higher paid positions, such as those involving financial management and marketing, from abroad to their U.S. affiliates. The net interest share of affiliate gross prod- uct decreased slightly — from 6 percent in 1977 to 5 percent in 1987. The share for all U.S. busi- nesses increased from 4 percent to 6 percent. The different pattern may reflect two factors. First, between 1977 and 1987, affiliates had be- come relatively more concentrated than all U.S. Table 5.— Gross Product of U.S. Affiliates and Gross Do- mestic Product of All U.S. Businesses, by Component, 1977 and 1987 Total Employee compensation Profit-type return Net interest Indirect business taxes, etc Capital consumption allowances Total Employee compensation Profit-type return Net interest Indirect business taxes, etc Capital consumption allowances 1977 Gross product of U.S. affiliates GDP of all U.S. busi- nesses ■ 1987 Gross product of U.S. affiliates GDP of all U.S. busi- nesses ! Millions of dollars 35,222 18,781 6,181 2,177 5,025 3,058 1,555,047 907,422 308,542 57,778 137,942 143,363 151,905 93,652 13,609 8,325 18,568 17,751 3,542,815 2,097,461 472,229 207,728 310,393 455,004 Percent 100 53 18 6 14 9 100 58 20 4 9 9 100 62 9 5 12 12 100 59 13 6 9 13 1 . Excludes GOP of banks, of government and government enterprises, and of private house- holds; imputed GDP of owner-occupied farm and nonfarm housing; rental income of persons; business transfer payments; subsidies; and the statistical discrepancy. Notes.— (1) For differences in the definition of affiliate gross product and all-U.S-business GOP, see the text. (2) Details may not add to totals because of rounding. GDP Gross domestic product GROSS PRODUCT OF U.S. AFFILIATES 59 businesses in certain industries — particularly fi- nance (except banking) and insurance — in which the net interest share of gross product is usu- ally very small or negative. Second, although the degree of leverage has increased both for affiliates and all U.S. businesses since 1977, af- filiates' interest payments may have been held down by an increase in the portion of bor- rowed funds that are from their foreign parent groups; these funds are often supplied at in- terest rates below those charged by financial intermediaries. Structure of Affiliate Production The estimates of U.S. affiliate gross product, to- gether with other information on U.S. affiliates' operations, can be used to analyze how affili- ates structure their production (table 6). Data on gross product, sales, and inventory change can be used to derive estimates of affiliates' pur- chases from outside suppliers (i.e., as sales minus gross product plus inventory change). These es- timates, together with the data on sales and gross product, can in turn be used to gauge the ex- Table 6.— Structure of Affiliate Production, by Industry of Affiliate, 1977 and 1987 (Millions of dollars or percent] Sales Gross product (2) Inven- tory change (3) Purchases Total (cols. 1- 2+3) (4) Mer- chan- dise imports (5) Other I (cols. 4- 5) (6) Local content of sales 2 (cols. 2+6) (7) Ratio of gross prod- uct to sales plus inven- tory change (percent) (cols. (27 (1+3)) x 100) (8) Ratio of merchan- dise imports to total pur- chases (percent) (cols. (5/4) x 100) (9) Ratx> of local con- tent to sales (per- ce-!i : (cols. (7/1) x 100) (10) 1977 All Industries Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery Other manufacturing Wholesale trade Retail trade Finance, except banking Insurance Real estate Services Other industries Addenda: Motor vehicles and equipment manufacturing ... Motor vehicles and equipment wholesale trade Total motor vehicles and equipment All industries Petroleum Manufacturing Food and Kindred products Chemicals and allied products Primary and fabricated metals Machinery Other manufacturing Wholesale trade Retail trade Finance, except banking Insurance Real estate Services Other industries Addenda: Motor vehicles and equipment manufacturing ... Motor vehicles and equipment wholesale trade Total motor vehicles and equipment 193,991 25,753 50,489 6,983 16,303 6.881 9,838 10.484 95,151 8,349 1,328 6,785 935 1,371 3,831 102 18.182 18,284 35,222 7,654 16,672 2,603 5,373 2,010 3,191 3,494 5.044 2.310 238 925 429 586 1,363 38 1,091 1,129 2,403 161,172 365 815 127 211 66 242 170 926 189 20 9 78 4 212 216 18,464 34.632 4,507 11,141 4,937 6,889 7,160 91,033 6,228 1.110 5,860 506 794 2,546 68 17,303 17,371 43,896 117,276 152,498 6,094 5.624 751 986 948 1,896 1,042 31,369 323 < n ) 43 ( D ) 33 9.737 9.770 12.370 29,008 3,756 10.155 3,989 4.993 6.118 59.664 5,905 ( n ) 5,860 506 751 ( D ) 35 7,566 7.601 20.024 45.680 6.359 15.528 5.999 8,184 9,612 64.708 8.215 n 6.785 935 1,337 n 73 8,657 8,730 29 32 37 33 29 32 33 5 27 18 14 46 42 35 36 6 6 1987 731,392 74,494 220,702 22,424 70.238 27,138 38,791 62,112 273,887 47,193 26,465 39,106 10.538 18.001 21.005 5.569 84.984 90.553 151,905 18,786 73,796 6,222 25.690 7,183 12.373 22.329 18.879 10.505 6,504 5.250 4.564 6.498 7.123 1.484 6,712 8,1% 4,671 236 3,242 -64 570 77 553 2.095 1,753 -«7 -643 11 -71 196 -64 -429 -1.217 -1,646 584,158 55,944 150.148 16,148 45,118 20.032 26.971 41,878 256,761 36.601 19.418 33.867 5.903 11.699 13.818 3.656 77.055 80.711 140,617 8,981 23,420 1,658 5,104 3.856 6.735 6,068 105.323 2.290 35 7 84 476 1.524 49.831 51.355 443,541 46.963 126.728 14.490 40.014 16.176 20.236 35.810 151.438 34.311 19.383 33.867 5.896 11.615 13.342 2.132 27.224 29.356 595,446 65.749 200.524 20.712 65.704 23.359 32.609 58.139 170.317 44.816 25.887 39.117 10.460 18.113 20.465 3.616 33.936 37.552 21 25 33 28 36 26 31 35 7 22 25 13 44 36 34 29 8 9 27 33 16 17 9 19 28 15 34 5 n o o 5 ( D ) 49 56 56 24 16 16 10 11 19 25 14 41 6 M 1 3 42 65 64 79 78 90 91 95 87 83 92 68 98 n 100 100 98 PJ 71 48 48 91 92 94 86 84 94 62 95 98 100 99 101 97 65 40 41 n Suppressed to avoid disclosure ol data ol individual companies " Loss than S500.000 or 5 percent. 1 . Includes purchases ol goods and services in the United States, and purchases ol services from foreigners. 2 local content ol sales' s overstated to m# erttrt that purctasts bom oomesoc supptwt includes metchandrse imports and to Hit «trt mil thty "dude putM*«s or s«vcm *om *x- eigners mat wen not reported separately, md thus coutd not s* Brown out As a -W.-1 re rate ol local content to sales ot It* servos idustry « 1967 icnos 100 ptrot*. 6o BEA STUDIES OF DIRECT INVESTMENT tent to which affiliates' sales result from their own production (as measured by gross product) or from the production of others (as measured by purchases). In addition, by subtracting affiliates' imports from their total purchases, the portion of total purchases that is from U.S. businesses can be estimated. By summing affiliates' gross product and purchases in the United States, an estimate of the local (U.S.) content of U.S. af- filiates' sales can be made; this estimate includes both the affiliates' own production and the pro- duction of other U.S. businesses that is used as inputs into the affiliates' production. The remainder of this section briefly discusses some of these estimates by industry of affiliate to illustrate a few uses of the gross product data. 15 One possible extension of the analysis presented here would be to compare these data by industry to similar data for all U.S. businesses to determine whether affiliates and all U.S. businesses structure their production differently. The extent to which affiliate sales are provided by the affiliates' own production, rather than by production originating elsewhere, is indicated by the ratio of gross product to sales. 16 This ra- tio indicates the degree of vertical integration of affiliates; the higher the ratio, the higher the de- gree of integration. For all industries, the ratio increased from 18 percent in 1977 to 21 percent in 1987. (Consequently, the portion of affiliate sales derived from the production of others de- clined.) The increase suggests that production in the United States may have become a somewhat more important way for foreign companies to serve the U.S. market during this period. How- ever, the ratio has remained roughly constant at between 21 percent and 22 percent since 1983, perhaps indicating that the degree of vertical in- tegration of affiliates has stabilized or that there have been offsetting industry mix effects. By industry, the ratio of manufacturing af- filiates, which accounted for nearly one-half of affiliate gross product, increased slightly, from 32 percent in 1977 to 33 percent in 1987. Within man- ufacturing, however, there were larger, mostly offsetting changes. The ratios of affiliates in chemicals and "other manufacturing" increased, 15. Data by country of ubo will not be presented in this section because differences among countries in the ratios shown in table 6 mainly reflect variations in the industry mix of affiliates of the ubo's in those countries. :6. Because, as mentioned earlier, affiliate sales can come out of inventory (which may have resulted from affiliate production) or production may be added to inventory, the extent to which affiliate sales are provided by the affiliates' own production is measured in table 6 by comparing gross product to the sum of sales and inventory change, rather than to sales alone. However, because inventory change tends to be very small compared to either gross product or sales, the ratio is referred to in this section as the "gross product to sales" ratio. while the ratios of affiliates in foods, in pri- mary and fabricated metals, and in machinery decreased. In total motor vehicles and equipment (defined earlier as the sum of motor vehicles equipment manufacturing and wholesale trade), the ratio increased from 6 percent to 9 per- cent. In wholesale trade, where affiliates mainly distribute, without adding significantly to their value, goods produced by others, the ratio in- creased from 5 percent to 7 percent, but it remained lower than in any other industry. Its increase may reflect the fact that some affili- ates classified in wholesale trade — particularly in motor vehicles and equipment — have expanded into manufacturing and have increased the ex- tent to which their sales resulted from their own production. If sales by affiliates do not result from their own production, they must result from the pro- duction of others, as shown by total purchases by affiliates. This measure can be derived by sub- tracting affiliate gross product from affiliate sales and adding inventory change. 17 The ratio of im- ports to total purchases by affiliates indicates the extent to which purchases of goods and services used by the affiliate are provided by imports. For all industries, imports as a percentage of total purchases declined from 27 percent in 1977 to 24 percent in 1987; however, the decline was not continuous. From 1979 to 1983, the import con- tent dropped steadily, mostly because the price (and volume) of imports shipped to petroleum affiliates declined sharply. In 1983-87, however, the import content rose, perhaps in response to the relatively high value of the U.S. dollar, par- ticularly through 1985, which made it cheaper for affiliates to import. (In 1987, the import con- tent rose slightly from 1986, although the dollar declined sharply.) By industry, the sharp decline in petroleum af- filiates' imports-to-total-purchases ratio, from 33 percent in 1977 to 16 percent in 1987, was partly offset by an increase in the ratio in wholesale trade, from 34 percent to 41 percent. The ra- tio for manufacturing affiliates was unchanged at 16 percent. Within manufacturing, declines in the ratios for food, machinery, and "other man- ufacturing" affiliates were offset by an increase in the ratio for chemical affiliates. In the total motor vehicles and equipment industry, the ra- tio increased from 56 percent to 64 percent. The very high, and rising, ratio in 1977-87 probably reflected the significant reliance by these affiliates 17. Affiliate inventory data were not available for yearend 1976; thus, it was necessary to estimate the inventory change for 1977. GROSS PRODUCT OF U.S. AFFILIATES 6l on imports both of goods for resale without ad- ditional processing and of components to be used in subsequent production. Inputs to production that are not imported by affiliates are purchased domestically. By adding domestic purchases to the gross product of affil- iates and by comparing the sum to affiliate sales, an estimate of the ratio of "local content" to af- filiate sales can be derived. 19 Over time, this ratio usually moves inversely to the ratio of imports to total purchases. For all industries, the ra- tio increased slightly, from 79 percent in 1977 to 81 percent in 1987. However, the 1987 ratio re- flects a decline since 1983, when local content was about 85 percent; in recent years, affiliates, like all U.S. businesses, have apparently increased their reliance on imported inputs. By industry, a large increase in the ratio of lo- cal content to sales by petroleum affiliates and a small increase by manufacturing affiliates were partly offset by a large decline in wholesale trade and a smaller decline in retail trade. In petro- leum, the ratio rose from 78 percent in 1977 to 88 percent in 1987, because of a slowdown in the use of imports as an input to production. Within manufacturing, the small increase — from 90 to 91 percent — reflected offsetting changes. Increases in foods, machinery, and "other manufacturing" were offset by declines in chemicals and in pri- mary and fabricated metals. In the total motor vehicles and equipment industry, the ratio of lo- cal content to sales declined from 48 percent to 41 percent. However, the ratio probably increased in 1988-89, because several manufacturing joint ventures between Japanese and U.S. companies increased U.S. affiliate production during these years. In addition, some foreign parts manu- facturers that previously exported goods to the United States have located production facilities here to be closer to their U.S. customers. Technical Note Data sources 18. Addition.il d.iu on trade of U.S. affiliates in 1987 can be found in Foreign Direct ttWBttncnt in the United States: IgSp Benchmark Survey, Prt" liminary Results. This publication can be ordered from the U.S. Government Printing Office, Washington, dc (gpo Stock No. 003-010-00188-7. price S5.00). 19. These estimates should be used with caution, because the calculation of "local content" is subject to several qualifications. First, merchandise imports are reported on a "shipped" basis, that is, on the basis of when, where, and to whom the goods were physically shipped. Most affiliate keep their sales data on a "charged" basis, that is, on the basis of when, where, and to whom the goods were charged. Thus, the derived data on purchases are on a "charged" basis and are not completely comparable to the import data. Second, local purchases are overstated to (he extent that purchases from domestic suppliers Include imports. Third, local purchases IK overstated because the) include purchases of services from foreigners, which were not reported scparatclv and thus could not be subtracted from total purchases in deriving local purchases. For all years except 1980 and 1987, U.S. affiliate gross product estimates were based on universe estimates derived from sample data from bea's Annual Survey of Foreign Direct Investment in the United States. For 1980 and 1987, the esti- mates were based on universe data from bea's Benchmark Survey of Foreign Direct Investment in the United States. Estimates of 1987 all-U.S. -business gross prod- uct were obtained from table 6.1, gnp by Indus- try, in the national income and product accounts (nipa's) tables in the July 1988 Survey of Cur- rent Business. Estimates for 1977 and 1982 were obtained from The National Income and Product Accounts of the United States, 1929-82: Statistical Tables. 20 Estimation Although most of the data required to obtain af- filiate gross product were collected in the bea surveys mentioned above, several data items had to be estimated for some or all of the years. Capital gains and losses had to be estimated for 1977-79, because, for those years, data on them were not collected in the annual surveys. (Profit- type return (ptr) is measured before capital gains and losses.) An inventory valuation adjustment (iva) was estimated for all years and applied to affiliate ptr. The iva is defined as the excess of the replacement cost of inventories used up over their historical cost. In the nipa's, the iva is calculated from information on inventory book values, account- ing methods for valuing inventories, and price changes. Because this information is not available for U.S. affiliates, affiliate iva was estimated. Except for the benchmark survey years of 1980 and 1987, when data on monetary interest paid and received were collected, it was necessary to estimate these items in order to calculate the net interest component of gross product. In addition, for all years, it was necessary to estimate imputed interest paid and received. Differences in U.S. affiliate and nipa gross product components U.S. affiliate and nipa gross product compo- nents are compared in table 7. In general, the 10. sca is currcntb incorporating several improvement! into us estimates of gnp by Industry; revisions will be available back to w-- However, most of the Improvements relate to the constant dollar estimates that are pub- lished in nips table j&t corr t urns a t*<* ott-o- leunr category m other tables m this and* except that < tcbdts wno*sa* trad*, tamer ocw ations. rxwimes. storage tor hire, and gasofcn* serve* stations The tnanuticrunng" and 1»» ces~ categories m this table correspond to categories ol the same nam* n tne atm taWts in th< atide 68 BEA STUDIES OF DIRECT INVESTMENT The growth in gross product by U.S. parents was further depressed by their relatively low concen- tration in services, a faster growing segment of the economy. Services accounted for 5 percent of U.S.-parent gross product in 1989, compared with 23 percent of all-U.S.-business gdp. Gross product by component Table 4 shows U.S.-parent gross product in 1977, 1982, and 1989 by major industry, disaggregated into the five components of costs and profits. In 1989, in all industries combined, employee com- pensation accounted for 64 percent of U.S.-parent gross product, profit-type return for 16 percent, net interest paid for 3 percent, indirect busi- ness taxes for 6 percent, and capital consumption allowances for 12 percent. In manufacturing and wholesale trade, the component shares of gross product closely mir- rored the average component shares of gross product for all industries. However, in petro- leum, services, "finance (except banking), in- surance, and real estate" (fire), and "other" industries, component shares differed consider- ably from the all-industries averages. In petro- leum, employee compensation accounted for a lower-than-average share of U.S.-parent gross product, and indirect business taxes and capital goods and services produced. For details, see "Gross Product by Industry, 1977-90," Survey 73 (May 1993): 36-37. consumption allowances accounted for higher- than-average shares. These differences reflect the capital-intensive nature of petroleum extraction and refining and the relatively high level of ex- cise taxes on petroleum products. In services, the employee- compensation share was higher than average, reflecting the labor-intensive nature of many types of services. In fire, the employee- compensation and profit-type-return shares were higher than average, and in "other" industries, the capital-consumption-allowances share was higher than average. Structure of output This section examines changes in the structure of U.S.-parent output from 1977 to 1989. Changes in the gross-product share of U.S.-parent output will be examined first, followed by an examina- tion of changes in the local content of U.S.-parent output. It should be noted that from the perspec- tive of a U.S. parent, unlike that of the worldwide U.S. mnc, total purchases (shown in table 5, column 5) includes purchases from foreign affili- ates as well as from unaffiliated U.S. and foreign persons. In all industries combined, the gross-product share of U.S.-parent output edged down from 34 percent in 1977 to 33 percent in 1989. In manu- facturing, the gross-product share declined from 40 percent to 38 percent, as the shares of out- put accounted for by both imports from foreign Gross Product of Nonbank U.S. Parents, by Major Industry, 1977 and 1989 1977 1989 Services (2%) Wholesale Trade (1%) 1 . Finan ce (except banking), insurance, and real estate . U.S. Department of Commerce, Bureau of Economic Analysis GROSS PRODUCT OF U.S. MNC S 69 affiliates and purchases from outside the mnc increased. Among manufacturing industries, the largest decreases in the gross-product share of U.S.- parent output were in nonelectrical machinery (mainly computers), down 11 percentage points; transportation equipment (mainly automobiles), down 10 percentage points; and electric and elec- tronic equipment, down 4 percentage points. In these industries, the movement by U.S. par- ents away from internal production and toward greater reliance on outside suppliers may have been in response to increased global competi- tion; to improve their competitiveness, parents may have sought to specialize in areas in which they had an advantage and to allocate other functions to foreign affiliates and to companies outside the mnc. The largest increase in the gross- product share of U.S. -parent output was in food manufacturing, up 6 percentage points. ' The local (U.S.) content of U.S. -parents' output — the portion of their output accounted for by their own production and by inputs 9. It should be noted that changes in the gross-product share of U.S.- parent output in a particular manufacturing industry may reflect changes in the U.S. parents' industry composition in addition to actual changes in the structure of U.S.-parent output. As mentioned earlier, the U.S. -parent data are on an enterprise basis; thus, the totals for a particular industr. both the parents' activities in (heir primary industry and in their secondary industries. As a result, changes in the gross-product share of output in a particular industry may reflect changes in the composition of the secondary activities of the U.S. parents classified in that industry rather than a tendency for U.S. parents to produce more or less of what they sell in a particular industry. For example, if a U.S. parent classified in wholesale trade (where the ratio of gross product to output is relatively low) ventures into a secondary industry like pharmaceutical manufacturing (where the ratio of gross product to output is relatively high), its gross-product share will rise, even if the purchasing patterns in its primary industry do not change. Table 4.— Gross Product of Nonbank U.S. Parents, Major Industry by Component, 1977, 1982, and 1989 [Millions of dollars] Gross product Employee compensation Profit •type return Net interest Indirect business taxes. etc. Capital consumption allowances All industries Petroleum Manufacturing Food and "kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real estate Services Other industries All Industries Petroleum Manufacturing Food and "kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real estate Services Other industries All Industries Petroleum Manufactunng Food and Kindred products Chemicals and allied products Primary and labricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real estate Services Other industries 490,529 52,052 301,286 21,782 39,133 35,380 42,356 26,683 71,302 64,649 5.058 22,825 9,950 99,358 796,017 134,096 421,050 35,804 66,234 37,215 60,597 59,323 71,256 90,621 13.604 22.801 25,997 178.469 1,044,884 93,128 586,568 60.310 97,119 37.556 70,887 56.139 121.141 143,417 22.587 50.535 57.090 234.975 1977 305,504 103,375 17,093 16.008 204,782 58,005 13,142 4.826 22,959 10.023 27,347 2,871 28,708 9.552 19,210 4,980 53,030 12.437 40,386 13.317 3.273 881 14,166 8,717 7,066 1,795 59,124 17,969 9,823 2,140 4,363 519 1,025 1,143 272 309 -650 1,745 330 -2,849 238 5.601 1982 520,383 43,876 313,068 22.755 43,102 31,994 44,467 45,975 64.201 60,573 8.591 26.409 18.054 110.385 121,061 29.341 48,163 6.919 11,071 -1,696 7.851 8.223 2.162 13,634 2.301 9.853 3.832 27.571 10,687 8.144 6.980 1,081 1.838 2.085 1.489 -236 -1.753 2,474 1.088 -18.319 1.183 11.611 1989 666,196 164,910 26.344 27.140 15.807 9.086 393.495 86.214 25.258 28.633 14,574 4.886 54.004 23.389 4.423 26.562 6.335 908 56.649 1.799 2,397 40.398 9.218 -683 94.585 11.552 415 92.664 19.347 12.911 13.982 3.176 1.654 46.830 16.406 -22.821 41.414 5.949 3.0% 143.335 37.358 10.071 32,642 9.913 13.734 2.021 1,346 1,086 822 796 3.108 4.555 310 1.988 617 6.080 63.026 34,134 15.586 2.484 2.683 1.194 1.211 962 1.604 5.449 566 3.263 600 8.878 66.639 22 09: 21.943 6.372 3.044 986 2.606 1.084 2.551 5.299 1.656 6.667 1.767 12.513 39,185 6.898 20.402 1.274 3.781 2.933 3,003 1.388 3,378 4.646 264 803 233 10386 80,860 18.601 37.254 2.565 7.540 3.637 5.579 5.043 8.491 1 osa 1.595 2.329 120,798 19.003 59.658 5.844 12.258 2.765 7.436 6.121 12.037 13.196 2.120 3.454 4.864 S1.897 70 BEA STUDIES OF DIRECT INVESTMENT purchased from other U.S. companies — in all in- dustries was 94 percent in both 1977 and 1989. By industry, there were offsetting changes over the period; local content increased in petroleum and decreased in manufacturing and wholesale trade (table 5, column 14) . 10 10. The precision of this measure of local content is limited by the fol- lowing qualifications. First, the measure of domestic, or "other," purchases Table 5.— Structure of Output of Nonbank U.S. Parents, by Major Industry, 1977, 1982, and 1989 Millions of dollars Sales (1) Inventory change (2) Total output (col.1 + col.2 = col.4 + col.5) (3) Gross product (4) Purchases Total (col.3 - col.4) (5) Merchandise imports Total (6) Shipped by for- eign affili- ates 1 (7) Shipped b y unaffiliated foreign persons (8) Other 2 (col.5 - col.6) 0) Local content of out- put 3 (col.4 + col.9) Percent Share of total output accounted for by: U.S. parent gross product ((col.4 / col.3) x 100) (10) (11) (12) (13) Mer- chan- dise imports from affili- ates ((col.7 / col.3) x 100) Pur- chases from outside the MNC (((col.8 + col.9) / col.3) x 100) (14) All industries Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real es- tate Services Other industries All industries Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real es- tate Services Other industries All industries Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real es- tate Services Other industries ,412,293 221,757 739,460 83,422 96,474 94,563 80,174 62,631 165,681 156,516 77,683 119,596 23,777 230,020 2,348,388 570,213 1,017,591 119,431 169,628 100,142 115,679 126,194 182,242 204,276 129,493 196,492 46,745 387,854 3,136,837 328,989 1,553,374 190,617 235,731 104,727 171,239 146,277 361,979 342,804 226,707 394,461 106,517 526,789 1977 14,155 3,185 7,253 530 1,169 300 1,463 1,038 994 1,759 628 107 78 2,904 1,426,448 224,942 746,713 83,952 97,643 94,863 81,637 63,669 166,675 158,275 78,311 119,703 23,855 232,924 490,529 52,052 301,286 21,782 39,133 35,380 42,356 26,683 71,302 64,649 5,058 22,825 9,950 99,358 935,919 172,890 445,427 62,170 58,510 59,483 39,281 36,986 95,373 93,626 73,253 96,878 13,905 133,566 81,500 37,266 30,247 2,219 2,824 3,116 2,178 3,496 12,224 4,188 9,824 ( D ) (3 ( D ) 36,266 16,496 16,807 563 978 1,141 1,260 2,139 8,949 1,776 1,513 108 36 1,306 45,234 20,770 13,440 1,656 1,846 1,975 918 1,357 3,275 2,412 8,311 ( D ) !nl ( D ) 854,419 135,624 415,180 59,951 55,686 56,367 37,103 33,490 83,149 89,438 63,429 ( D ) !n ( D ) 1,344,948 187,676 716,466 81,733 94,819 91,747 79,459 60,173 154,451 154,087 68,487 ( D ) ft ( D ) 1982 -7,380 -2,714 -6,040 -642 -981 -1,635 -558 -950 -31 -1,244 -138 -79 -69 1,661 2,341,008 567,499 1,011,551 118,789 168,647 98,507 115,121 125,244 182,211 203,032 129,355 196,413 46,676 389,515 796,017 134,096 421,050 35,804 66,234 37,215 60,597 59,323 71,256 90,621 13,604 22,801 25,997 178,469 1,544,991 433,403 590,501 82,985 102,413 61,292 54,524 65,921 110,955 112,411 115,751 173,612 20,679 211,046 108,651 52,930 41,081 3,060 4,835 2,964 3,765 7,137 13,841 5,480 9,599 ( D ) ( D ) 4,772 39,288 11,027 24,959 651 1,848 1,373 2,786 3,842 12,038 2,421 828 105 23 2,345 69,363 41,903 16,122 2,409 2,987 1,591 979 3,295 1,803 3,059 8,771 ( D ) ( D ) 2,427 1,436,340 380,473 549,420 79,925 97,578 58,328 50,759 58,784 97,114 106,931 106,152 ( D ) ( D ) 206,274 >,232,357 514,569 970,470 115,729 163,812 95,543 111,356 118,107 168,370 197,552 119,756 ( D ) ( D ) 384,743 1989 13,474 -464 6,945 254 817 346 1,447 1,132 1,181 1,768 1,249 1,238 214 4,292 3,150,311 328,525 1,560,319 190,871 236,548 105,073 172,686 147,409 363,160 344,572 227,956 395,699 106,731 531,081 1,044,884 93,128 586,568 60,310 97,119 37,556 70,887 56,139 121,141 143,417 22,587 50,535 57,090 234,975 2,105,427 235,397 973,751 130,561 139,429 67,517 101,799 91,270 242,019 201,155 205,369 345,164 49,641 296,106 178,526 25,976 106,532 3,609 11,783 5,665 16,660 13,169 44,973 10,674 34,644 ( D ) 508 ( D ) 74,738 7,789 61,122 966 3,708 2,088 11,763 5,382 31,808 5,407 2,492 ( D ) 219 ( D ) 103,788 18,187 45,410 2,643 8,075 3,577 4,897 7,787 13,165 5,267 32,152 357 289 7,393 1,926,901 209,421 867,219 126,952 127,646 61,852 85,139 78,101 197,046 190,481 170,725 ( D ) 49,133 ( D ) 1,971,785 302,549 ,453,787 187,262 224,765 99,408 156,026 134,240 318,187 333,898 193,312 ( D ) 106,223 ( D ) 64 69 58 68 57 62 52 58 58 57 89 ( D ) 46 n ' Less than 0.5 percent D Suppressed to avoid disclosure of data of individual companies. 1. As reported on parents' forms. 2. Includes purchases of goods and services from U.S. residents and purchases of services from foreign resi- dents. 3. The local content of output is overstated to the extent that "other" purchases (column 9) include imported services and that imported merchandise and services are embodied in purchases from domestic suppliers. (These items were not reported separately and thus could not be identified and included in foreign content.) GROSS PRODUCT OF U.S. MNC S 71 In manufacturing, the local content of output decreased modestly, from 96 percent in 1977 to 93 percent in 1989. This decrease reflected the substitution of merchandise imports for products that U.S. parents formerly produced themselves. The gross-product share of U.S. -parent output (table 5, column 11) fell 2 percentage points, and the U.S. -import share of U.S. -parent out- put (table 5, column 6 divided by column 3) increased by a like amount. This decrease in local content appears to have occurred among other U.S. manufacturing companies as well; the share of U.S. gross domestic purchases of goods accounted for by U.S. merchandise imports shipped to companies other than U.S. parents in- creased from 8 percent in 1977 to 13 percent in 1989. Judging from the patterns of trade between U.S. parents and mofa's, this decrease in lo- cal content primarily reflected increased imports from high-wage countries (such as Canada and used (tabic 5, column 9) is overstated because merchandise imports (table 5, column 6) includes only the direct merchandise imports of U.S. parents and therefore excludes any imports embodied in purchases from domestic suppli- ers. Second, merchandise imports are reported on the basis of when, where, and to whom the goods were shipped. Most U.S. parents account for sales on the basis of when, where, and to whom the goods were charged. Thus, the derived data on output (the denominator of the local content ratio) are on a "charged" basis and are not completely comparable to the import data used in deriving the numerator. Third, "other" purchases are overstated because they include purchases of services from foreigners, which are not reported separately and thus could not be subtracted from total purchases. Japan)." u It does not, therefore, appear to have been primarily a reflection of U.S. parents shift- ing their production of goods for the U.S. market to low-wage countries. Thirty-seven percent of the increase in imports shipped by mofa's to U.S. parents came from low-wage countries. mofa's Country and industry trends In this section, trends in the gross product of mofa's are examined using estimates from bea's annual surveys for 1990 and 1991 and from its benchmark surveys for 1977, 1982, and 1989. Gross product by mofa's in all industries com- bined was $356 billion in 1991. mofa's in manu- facturing accounted for $182 billion, or just over one-half of the total (chart 2). mofa's in petro- leum accounted for one-quarter of the total, and mofa's in wholesale trade for about one-eighth. From 1977 to 1991, the share of mofa gross prod- uct in petroleum shrank from 38 percent to 25 11. Data on imports shipped by unaffiliated foreigners to U.S. parents are not available for individual countries. 12. The distinction between "high-wage" and "low-wage" countries is based on the 1989 estimates of average hourly wages of production work- ers of mofa's in the 26 countries that hosted at least 10,000 employees of manufacturing mofa's in that year. A country was classified as "low wage" if the average hourly compensation of production workers in manufacturing mofa's was below the mofa average or as "high wage" if the compensation was above the mofa average. The estimates are derived from data collected in the 1989 benchmark survey of U.S. direct investment abroad. For details, see "U.S. Multinational Companies: Operations in 1991," Survey 73 (July 199}): 47-48. CHART 2 Gross Product of Nonbank Majority-Owned Foreign Affiliates, by Major Industry, 1977 and 1991 ■ 1977 1991 Wholesale Trade F | RE ' .^..Services (2%) Wholesale 1™ (12\) . Finance (except banking), insurance, and real estate. US Department of Commerce. Bureau of Economic Analysis 72 BEA STUDIES OF DIRECT INVESTMENT percent, and the share in manufacturing rose from 44 percent to 51 percent. Most of mofa gross product originated in the major industrialized countries, mofa's in Eu- rope accounted for $218 billion, or 61 percent, of the worldwide total (table 6 and chart 3). Among countries, the United Kingdom was the biggest single host of affiliate production, with $59 billion in gross product, or 17 percent of the total, followed by mofa's in Germany (14 per- cent), Canada (13 percent), France (8 percent), Italy (6 percent), and Japan (5 percent). Outside the principal industrial economies, mofa's in Brazil and Mexico accounted for the largest shares of gross product — between 2 and 3 percent each. Despite the increasing importance of the newly industrialized countries of the Asia and Pacific region to the U.S. economy, mofa's in the rapidly growing economies of this region still accounted for a relatively small share of total mofa gross product, mofa's in Indonesia, Singa- pore, and Hong Kong had the largest shares, but each country's share was only about 1 percent of the worldwide total. Trends in the geographic location of the for- eign manufacturing operations of U.S. mnc's do not appear to have been related primarily to differences in labor costs among countries. Of countries with large mofa employment, the share of mofa manufacturing gross product for "low- wage" host countries rose slightly, from 15 percent in 1977 to 16 percent in 1991, while the share for "high-wage" countries decreased slightly, from 85 percent to 84 percent. The most notable changes in the geographic distribution of mofa gross product since 1977 were an increase in the share of the total ac- counted for by mofa's in Europe and a decrease in the share of mofa's in the Middle East. Table 6.— Gross Product of Nonbank Majority-Owned Foreign Affiliates, by Country, 1977, 1982, and 1989-91 [Millions of dollars] 1977 1982 1989 1990 1991 1977 1982 1989 1990 1991 All countries Canada Europe Austria Belgium Denmark Finland France Germany ' Greece Ireland Italy Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland Turkey United Kingdom Other Latin America and Other Western Hemi- sphere South America Argentina Brazil Chile Colombia Ecuador Peru Venezuela Other Central America Costa Rica Guatemala Honduras Mexico Panama Other 161,136 27,783 69,360 844 4,244 672 247 9,688 18,115 389 762 5,825 198 4,209 1,655 178 2,019 1,103 2,015 266 16,861 70 16,036 10,927 1,449 6,485 162 532 307 404 1,370 216 2,879 115 156 142 2,050 289 127 223,717 34,017 112,577 981 5,127 1,334 574 12,196 24,756 497 1,893 8,481 235 5,392 4,440 341 2,571 1,889 3,198 152 38,465 54 27,939 20,358 2,902 11,199 468 1,361 516 1,116 2,394 402 4,927 163 276 251 3,561 433 244 319,994 52,114 179,758 2,021 8,540 1,243 1,065 22,625 35,683 677 4,473 16,487 587 13,214 4,164 997 7,398 2,229 5,106 463 52,703 83 29,601 21,843 1,577 16,618 681 1,150 272 397 736 412 6,208 208 158 287 4,883 530 143 356,033 50,820 213,419 2,380 10,081 1,476 1,203 27,410 46,969 925 5,416 18,967 730 13,724 5,120 1,269 8,428 2,128 6,072 812 60,123 188 31,080 22,782 2,603 16,093 801 1,399 341 412 694 438 6,947 176 110 213 5,800 522 126 356,069 47,126 217,515 2,365 9,831 1,894 1,125 27,306 49,524 1,169 5,318 20,308 672 13,444 4,939 1,507 8,308 2,432 6,756 848 59,494 275 28,464 19,188 3,363 11,514 926 1,278 327 340 1,080 360 9,014 192 238 276 7,585 561 163 Other Western Hemisphere Bahamas Barbados Bermuda Dominican Republic Jamaica Netherlands Antilles Trinidad and Tobago United Kingdom Islands, Caribbean Other Africa Egypt Nigeria South Africa Other Middle East Israel Saudi Arabia United Arab Emirates Other Asia and Pacific Australia China Hong Kong India Indonesia Japan Korea, Republic of Malaysia New Zealand Philippines Singapore Taiwan Thailand Other International 2 Addenda: Eastern Europe 3 European Communities (12) 4 OPEC 5 2,230 157 25 398 226 370 89 ( D ) 24 ( D ) 8,020 344 1,848 1,317 4,511 22,260 225 ( D ) 1,117 ( D ) 16,367 5,578 2 542 210 4,661 3,065 79 333 384 549 400 260 254 50 1,311 63,162 32,948 2,654 209 59 82 122 403 189 ( D ) 23 ( D ) 10,055 1,389 2,219 2,330 4,117 8,112 280 3,965 3,060 28,438 10,069 7 959 229 6,317 4,587 219 1,691 618 1,074 1,109 616 657 288 2,579 101,289 21,801 1,549 425 203 -113 209 455 -244 497 -10 128 5,299 769 1,733 701 2,097 4,891 359 2,735 1,176 621 46,875 13,902 8 2,926 157 3,999 14,940 726 1,749 985 1,006 2,353 1,938 1,815 372 1,457 4 164,628 10,730 1,351 286 193 -210 263 338 -506 775 74 136 6,162 1,016 2,222 698 2,226 3,206 577 123 1,644 862 49,786 14,178 114 3,122 136 4,987 14,565 906 1,825 914 1,015 3,547 2,255 1,832 389 1,559 ( D ) 195,516 10,158 262 279 159 -727 270 334 -802 642 9 97 6,074 849 2,239 752 2,235 2,882 632 254 1,475 521 52,208 12,295 211 3,192 123 5,031 16,517 1,031 2,016 2,264 1,189 3,333 2,395 2,203 408 1,798 122 198,775 10,492 D Suppressed to avoid disclosure ol data of individual companies. 1. Prior to 1990, Includes only the Federal Republic ol Germany (FRG). Beginning with 1990, also includes the lormer German Democratic Republic (GDR), which reunited with the FRG in October 1990. This change does not affect the comparability of the 1990 data with the data for earlier years, because no affiliates of U.S. companies were in the former GDR before 1990. 2. "International" affiliates are those that have operations in more than one country and that are engaged in petroleum shipping, other water transportation, or operating movable oil- and gas-drilling equipment. 3. Comprises Albania, Bulgaria, Czechoslovakia, Hungary, Poland, Romania, and the Union of Soviet Socialist Republics. 4. Comprises Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, and the United Kingdom. 5. OPEC is the Organization of Petroleum Exporting Countries. Through yearend 1992, its members were Algeria, Ecuador, Gabon, Indonesia, Iran, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Ven- ezuela. GROSS PRODUCT OF U.S. MNC S 73 European affiliates accounted for three- quarters of the total increase in mofa gross product between 1977 and 1991; affiliates in the Asia and Pacific region accounted for most of the remainder. In Europe, mofa gross product grew at an average annual rate of 9 percent from 1977 to 1991; this high growth rate (compared with 6 percent in all countries combined) was about in line with the growth in nominal demand in Europe. European affiliates' share of total mofa gross product rose from 43 percent in 1977 to 61 percent in 1991. Among the factors that may have contributed to this increase were the expan- sion of the European Communities (ec) and the movement toward closer economic integration. Economic integration stimulated overall growth in demand; in addition, it offered potential for- eign investors a means of accessing a large and increasingly important market on the same terms as local firms, without having to establish pro- duction facilities in each country. By locating operations within the ec, a U.S. firm could avoid actual or potential tariffs or other trade barriers applied to nonmember countries. Some of the rise in mofa gross product in the ec was due to the rapid growth of mofa's in countries that have smaller economies, such as Spain (which joined the ec in 1986); however, the leading factor was the growth of mofa's in countries in which U.S. affiliates had long been established, particularly the United Kingdom and Germany. In the United Kingdom, mofa gross product more than tripled from 1977 to 1991, growing at an average annual rate of 9 percent and accounting for over one-fifth of the world- wide increase in gross product. In Germany, mofa gross product almost tripled, growing at an average annual rate of 7 percent. The share of worldwide mofa gross product accounted for by affiliates in the Middle East fell from 14 percent in 1977 to 1 percent in 1991. This sharp decline mainly reflected falling oil prices in the 1980's and the measures taken by the petro- leum exporting countries in the Middle East to increase their own involvement in extraction and refining and to reduce that of foreign-owned firms in the region. Faced with these unfavor- able developments, oil companies in the 1980's tended to shift their operations from the Middle East to Europe (mainly the North Sea area) and the Pacific (particularly Australia, Malaysia, and Thailand). Developments in the oil industry, including a sharp fall in oil prices beginning in 1986 and the sell-off of two large affiliates, also contributed to the decline in Canadian affiliates' share of gross product from 17 percent in 1977 to 13 percent in 1991. However, the decline in Canada pri- marily reflected sluggish growth in production in manufacturing industries. From 1977 to 1991, the average annual rate of growth in the gross product of Canadian manufacturing affiliates was less than one-half that of manufacturing affiliates in all countries combined — 3 percent, compared Gross Product of Nonbank Majority-Owned Foreign Affiliates, by Area, 1977 and 1991 1977 1991 Interna bonal (1N) International (1%) Latin America and Other Western Hemisphere ix. - Aran •'"- Other Western Itynuphfe U.S. Department o< Commerce, Bureau of Economic Analysts 74 BEA STUDIES OF DIRECT INVESTMENT with 7 percent; growth slowed for Canadian af- filiates in each of the major industries within manufacturing, as well as in all manufacturing industries combined. Share of host-country gdp mo fa gross product accounted for only a small share of the gdp of most host countries. Based on World Bank estimates of foreign-country gdp, in 1991, U.S.-mofa gross product represented 5 percent or less of host-country gdp in all but five countries: Ireland (14 percent), Canada (9 percent), Singapore (8 percent), United Kingdom (7 percent), and Nigeria (7 percent) (table 7). 13 By comparison, nonbank U.S. affiliates of foreign companies for all countries combined accounted for 6 percent of U.S. gdp in 1991; affiliates of the country with the largest share, the United Kingdom, accounted for 1 percent of U.S. gdp, and affiliates of Japan and Canada each accounted for 0.7 percent. The six largest host economies — Japan, Ger- many, France, Italy, the United Kingdom, and Canada — together accounted for 62 percent of mofa gross product in 1991. Among these coun- tries, the mofa share of host country gdp was largest in Canada (9 percent) and smallest in Japan (0.5 percent). Canada's large share reflects several factors: Canada's proximity to the United States; its use of the English language; the integration of its automotive, energy, and mineral industries with their U.S. counterparts; and the similar- ity of U.S. and Canadian technology and tastes. Likewise, the United Kingdom's large share re- flects the traditionally close ties between U.S. and British business, which are facilitated by a com- mon language and similar tastes, technology, and regulatory environments. Among other major industrial countries, Japan, Germany, and France had relatively small shares. Japan's particularly small share (0.5 percent) may reflect several factors: Past Japanese restrictions on foreign investment, informal barriers associ- ated with extensive interlocking stock ownership 13. World Bank, World Development Report 1993 (New York: Oxford Uni- versity Press, 1993): 242-43. These estimates of gdp were obtained from national sources and are expressed in U.S. dollars. It should be noted that the mofa gross product estimates are not strictly comparable with the World Bank statistics because the latter cover banking, government, and other segments of the economy in which nonbank mofa's do not (or cannot) have operations. Comparability may also be affected by coverage problems or by the use of statistical methods and definitions that differ in some respects from those used in deriving the gross product estimates for mofa's or that differ from one country to another. (The international System of National Accounts provides guidelines that may alleviate these comparability problems if more countries move into conformity with them.) Thus, the computed mofa shares of host-country gdp probably provide only a rough indication of the mofa shares of various host economies. among major Japanese corporations (which tend to inhibit foreign investment), close ties between business and government, and a business cul- ture that prizes long-term relationships and is averse to buyouts and takeovers. Germany's low share (3 percent) may reflect similar pat- terns of cross ownership among large German manufacturing concerns and financial institu- tions. As in Japan's case, France's share (2 percent) may reflect historic restrictions on for- eign investment and government ownership and other intervention in significant areas of the economy. The high share for Ireland probably reflects the relatively small size of its economy, its proximity to the ec, and its considerable efforts to attract foreign direct investment. Several of the other countries with shares of at least 4 percent also have relatively small economies and are situated near a large market. Table 7.— Gross Product of Nonbank Majority-Owned For- eign Affiliates as a Percentage of GDP of Selected Host Countries, 1991 Ireland Canada Singapore United Kingdom Nigeria New Zealand .... Belgium Hong Kong Norway Netherlands Indonesia ... Malaysia .... Australia Germany .... Colombia ... Chile Argentina ... Switzerland Ecuador Egypt Brazil Mexico Philippines Thailand .... Portugal .... France Venezuela . Greece Italy Denmark ... Uruguay Spain Austria Sweden Finland Israel Turkey South Africa . Peru Japan Korea, Republic of Saudi Arabia India China 13.6 9.2 8.3 6.8 6.6 5.3 5.0 4.7 4.7 4.6 4.3 4.3 4.1 3.1 3.1 3.0 2.9 2.9 2.8 2.8 2.8 2.7 2.6 2.4 2.3 2.3 2.0 2.0 1.8 1.7 1.6 1.6 1.4 1.2 1.0 1.0 .9 .8 .7 .5 .4 .2 .1 .1 Note.— Host country GDP data are from the 1993 World Development Report, published by the World Bank. GDP Gross domestic product GROSS PRODUCT OF U.S. MNC S 75 Gross product by component Table 8 shows mofa gross product in 1977, 1982, 1989, and 1991 by major area and industry, dis- aggregated into the five components. In 1989, profit-type return accounted for a higher por- tion of gross product for mofa's than it did for U.S. parents — 27 percent, compared with 16 per- cent). The share of gross product accounted for by indirect business taxes was also higher for mofa's (25 percent, compared with 6 percent). In contrast, the share accounted for by employee compensation was lower for mofa's (41 percent, compared with 64 percent). To some extent, the higher profit-type-return share for mofa's prob- ably reflects the higher rate of return on invested capital for foreign operations than for U.S. op- erations; U.S. mnc's tend to limit their overseas operations to those that are expected to earn above-average profits in order to compensate for the added risks of operating abroad, such as those associated with currency fluctuations and Table 8.— Gross Product of Nonbank Majority-Owned Foreign Affiliates, Major Area and Industry of Affiliate by Component, 1977, 1982, 1989, and 1991 (Millions of dollars] Gross product Em- ployee com- pensa- tion Profit- type return Net interest Indirect busi- ness taxes, etc. Capital con- sump- tion al- low- ances Gross product Em- ployee com- pensa- tion Profit- type return Net interest nd nd busi- ness ta^es. 6'- Qqtt con- ump- ton al- low- ances 1977 1982 All areas, all Industries 161,136 27,783 69,360 16,036 8,020 22,260 16,367 1,311 62,010 71,609 5,598 10,075 4,231 13.555 8,062 13,921 16,165 11,301 1,948 3,929 10,339 59,534 14,465 31,658 5,848 965 1,417 4,765 416 4,876 40,416 3,136 5.366 2.271 7,551 5,404 8.127 8,109 5.010 855 2,530 5,847 52,197 6,470 13.150 5,189 4,793 15,688 6.803 105 28,978 14,852 1,415 2.624 890 3.520 1,373 2,387 2,643 3,511 1,604 987 2,265 2,778 231 1.546 341 28 25 357 250 848 1.929 205 511 152 200 209 225 429 226 -657 5 427 35,409 4,522 17,755 3.370 1,807 4,812 3,136 7 24,143 8.837 521 693 158 630 657 2.105 4.074 1.399 90 140 800 11,218 2,094 5.252 1.288 428 317 1.306 532 3.165 5.575 321 882 311 1,654 419 1,077 910 1.156 56 268 998 223,717 34.017 112.577 27.939 10.055 8.112 28.438 2.579 85.608 99.756 8.884 16,429 5.402 17.619 9.876 18.055 23.491 19.409 1.180 8.009 9.757 89,445 17,215 46.455 10.970 1.599 3.275 9.033 897 10,336 56.436 4.716 8.794 3.698 10.182 6.715 11.240 11.091 9.534 1.800 5.250 6.088 54,851 6.069 20.652 8.622 5.130 3.844 9.812 722 28.933 14,254 2.065 3.693 558 3.907 1.330 -166 2.867 4.119 4.524 1.584 1.437 -406 -281 1 180 -1.877 42 -59 284 306 977 3.715 419 811 291 592 300 745 557 255 -6.676 -87 409 62290 7.883 35629 7.960 2.766 829 7.208 14 4C 754 16.141 1.102 1.604 364 688 848 3.853 7.683 3.837 291 453 814 17,538 By major area Canada Latin America and Other Western Hemisphere 3.132 8661 2284 Middle East 518 222 Asia and Pacific 2,101 International By major Industry Petroleum Manufacturing Food and Kindred products 641 4.607 9.210 581 Chemicals and allied products 1.527 Primary and fabricated metals 491 Machinery, except electrical 2251 Electric and electronic equipment 683 Transportation equipment Other manufacturing Wholesale trade 2.383 1.293 1.663 Finance (except banking), insurance, and real estate 240 Services Other industries 1 KM 1989 1991 All areas, all industries 319,994 52.114 179,758 29.601 5.299 4,891 46,875 1,457 77,195 173,298 13,643 32,059 7,623 31,720 12,646 33,764 41,843 36,760 3,439 14.509 14.793 132,565 26,495 75,722 10,038 683 2,781 16,332 514 9,277 81.732 6,147 13.615 4.135 16.663 7,651 16.598 16.923 18.324 4.928 10.046 8.258 86,524 11,496 40.701 12.624 2.806 1.390 17.039 467 15,176 48.877 4.269 11.716 2.161 10.374 2.839 8.068 9.450 10.493 6.046 2.593 3.339 -4,986 647 -2.231 -3.406 119 -85 -128 99 1.935 1.273 290 217 212 634 173 -556 305 -307 -8.767 141 738 78,902 8.883 50.394 8.174 1.147 466 9.827 11 44.769 26.251 1.948 2.583 523 1.480 615 6.461 12.641 5.951 504 510 918 26,989 4,593 15.172 2,170 543 339 3.806 366 6.038 15.164 988 3.928 592 2.570 1.369 3.193 2.525 2.299 728 1.219 1.541 356,069 47,126 217.515 28.464 6.074 2.882 52.208 1.798 88.835 182.085 17.922 32.690 7.113 29.923 13.389 33.944 47.104 41.060 4.739 18.097 21.253 160,385 28.127 11.468 783 767 19.944 495 8.183 96.168 8.315 16.734 4.582 19.306 9.076 19.755 20 396 22.170 5.913 13.126 12.825 74.528 5.3-5 30 (00 9,477 3.184 1.387 15.976 730 16.413 35.598 5.981 9.593 1.056 5.698 2.072 4.208 6.990 10.311 5.932 2.703 3.571 -7.227 839 -J.228 -3.921 139 -79 -61 103 1.060 115 -7 19 263 -202 55 62 -639 -8.454 -134 824 96.318 7.405 67.350 8.823 1315 496 10.921 5 55.891 SO 937 2.319 513 1.833 BL390 16.413 6 6* 989 1.535 32066 By major area Canada Europe Latin America and Other Western Hemisphere 5 380 17.193 2.617 Middle East 653 308 Asia and Pacific 5.449 By major industry Petroleum Chemicals and allied products 465 7.287 17.267 3.386 Primary and fabricated metals 699 Machinery, except electrical 3.287 Electric and electronic equipment - Transportation equipment 3.546 Other manufacturing Wholesale trade 2.522 Finance (except banking), insurance, and real estate m Services Other industries 2.498 76 BEA STUDIES OF DIRECT INVESTMENT Table 9.— Structure of Output for Nonbank Majority-Owned Foreign Affiliates, by Major Area and by Major Industry of Affiliate, 1977, 1982, 1989, and 1991 llions of dollars Sales (1) Inven- tory change (2) Total output (col.1 + col.2 = col.4 + col.5) (3) Gross product (4) Purchases Total (col.3 - col.4) (5) U.S. exports to MOFA's Total (6) Shipped by U.S. parents (7) Shipped by un- affili- ated U.S. persons (8) Other ' (col.5 - col.6) 0) Foreign content of output (col.4 + col.9) Percent Share of total output accounted for by: Foreign content Total ((col. 10 / col.3) x 100) MOFA gross product ((col.4 / col.3) x 100) Other ((col.9 / col.3) x 100) (10) (11) (12) (13) (14) (15) (16) U.S. content Total ((col.6 / col.3) x 100) 1977 All areas, all industries By major area Canada Europe Latin America and Other Western Hemi- sphere Africa Middle East Asia and Pacific International By major industry Petroleum Manufacturing Food and Kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real estate Services Other industries All areas, all industries By major area Canada Europe Latin America and Other Western Hemi- sphere Africa Middle East Asia and Pacific International By major Industry Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real estate Services Other industries 507,019 84,659 220,213 58,208 19,023 62,922 47,572 14,422 198,624 194,200 21,756 32,396 11,560 28,406 18,655 48,686 32,741 64,463 10,002 9,051 30,679 5,726 248 3,712 909 64 198 632 -39 598 4,015 330 740 252 555 328 1,006 804 781 1 48 283 512,745 84,907 223,925 59,117 19,087 63,120 48,204 14,383 199,222 198,215 22,086 33,136 11,812 28,961 18,983 49,692 33,545 65,244 10,003 9,099 30,962 161,136 27,783 69,360 16,036 8,020 22,260 16,367 1,311 62,010 71,609 5,598 10,075 4,231 13,555 8,062 13,921 16,165 11,301 1,948 3,929 10,339 351,609 57,124 154,565 43,081 11,067 40,860 31,837 13,072 137,212 126,606 16,488 23,061 7,581 15,406 10,921 35,771 17,380 53,943 8,055 5,170 20,623 35,813 16,201 10,866 3,700 648 937 3,346 115 1,639 25,145 974 3,007 845 3,036 2,316 11,805 3,161 7,631 20 201 1,177 29,275 12,566 9,468 2,908 508 801 2,935 87 1,358 20,510 454 2,655 632 2,810 1,986 9,483 2,490 6,607 13 121 666 6,539 3,636 1,398 791 139 136 411 28 282 4,634 520 351 213 227 330 2,322 671 1,023 80 512 315,796 40,923 143,699 39,381 10,419 39,923 28,491 12,957 135,573 101,461 15,514 20,054 6,736 12,370 8,605 23,966 14,219 46,312 8,035 4,969 19,446 476,932 68,706 213,059 55,417 18,439 62,183 44,858 14,268 197,583 173,070 21,112 30,129 10,967 25,925 16,667 37,387 30,384 57,613 9,983 8,898 29,785 100 98 96 62 1982 730,235 108,038 364,405 103,857 23,596 16,699 105,523 8,116 266,304 271,099 32,585 54,840 15,015 40,470 25,248 57,183 45,758 113,622 23,526 17,911 37,773 -€,633 -1,591 -3,092 -1,738 -37 -25 -107 -13 -1,046 -4,757 -314 -798 -462 -546 -678 -1,076 -882 -806 -38 38 -23 723,602 106,447 361,313 102,119 23,559 16,674 105,416 8,073 265,258 266,342 32,271 54,042 14,553 39,924 24,570 56,107 44,876 112,816 23,488 17,949 37,750 223,717 34,017 112,577 27,939 10,055 8,112 28,438 2,579 85,608 99,756 8,884 16,429 5,402 17,619 9,876 18,055 23,491 19,409 1,180 8,009 9,757 499,885 72,430 248,736 74,180 13,504 8,562 76,978 5,494 179,650 166,586 23,387 37,613 9,151 22,305 14,694 38,052 21,385 93,407 22,308 9,940 27,993 52,753 19,413 17,211 6,479 999 632 7,907 111 2,775 34,748 1,866 4,036 941 4,835 4,618 13,963 4,488 14,063 15 266 44,320 15,474 15,167 5,120 764 438 7,306 52 1,784 28,882 948 3,298 724 4,566 4,133 11,265 3,948 12,834 11 139 669 8,432 447,132 3,939 2,044 1,360 234 195 601 59 991 5,865 918 738 216 269 485 2,698 540 1,229 3 127 216 53,017 231,525 67,701 12,505 7,930 69,071 5,383 176,875 131,838 21,521 33,577 8,210 17,470 10,076 24,089 16,897 79,344 22,293 9,674 27,107 670,849 87,034 344,102 95,640 22,560 16,042 97,509 7,962 262,483 231,594 30,405 50,006 13,612 35,089 19,952 42,144 40,388 98,753 23,473 17,683 36,864 100 99 98 See footnotes at end of table. GROSS PRODUCT OF U.S. MNC S 77 Table 9.— Structure of Output for Nonbank Majority-Owned Foreign Affiliates, by Major Area and by Major Industry of Affiliate, 1977, 1982, 1939. and 1991— Continued Millions ol dollars Sales Inven- tory change (2) Total output (col.1 ♦ col.2 ■ col.4 » col.5) (3) Gross product (4) Purchases Total (col.3 - col.4) (5) U.S. exports to MOFA's Total (6) Shipped by U.S. parents (7) Shipped by un- affili- ated U.S. persons (8) Other I (col.5 - col.6) (9) Foreign content of output (col.4 ♦ col.9) (10) '-<:■.':■• Share of total output accounted for by Foreign content Total ((col. 10 / col.3) x 100) MOFA gross product ((COl.4 / col 3) x 100) r srv ((col.9 /col.3) x 100) US coolant Total [a e /col.3) x 100) 11) (12) (13) (14) (15) (16) US marchan- Z M BDOltl s* *„'jf~ b) U.S. pmnftl ((col.7 /col.3) x 100) Unafl Mad us parw : ((col.8 / COU) x 100) 1989 All areas, all Industries By major area Canada Europe Latin America and Other Western Hemi- sphere Alrica Middle East Asia and Pacific International By major industry Petroleum Manufacturing Food and "kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real estate Services Other industries All areas, all Industries By major area Canada Europe Latin America and Other Western Hemi- sphere Africa Middle East Asia and Pacific International By major Industry Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Machinery, except electrical Electric and electronic equipment Transportation equipment Other manufacturing Wholesale trade Finance (except banking), insurance, and real estate Services Other industries 1,019,966 173,251 573,270 87,014 11,576 8,021 161,640 5,196 179,420 509,308 50,791 94,652 21,032 100.319 39,678 114,391 88,444 204,295 51,137 32,466 43,342 2,182 1,309 -813 530 -267 -43 1,444 22 602 4,299 -245 421 -51 1,073 658 1,000 1,442 105 -3,203 202 178 1,022,148 174,560 572,457 87,544 11,309 7,978 163,084 5,218 180,022 513,607 50,546 95,073 20,981 101,392 40,336 115,391 89,886 204,400 47,934 32,668 43,520 319,994 52,114 179,758 29,601 5,299 4,891 46,875 1,457 77,195 173,298 13,643 32,059 7,623 31,720 12.646 33,764 41,843 36,760 3,439 14,509 14,793 702,154 122,446 392,699 57,943 6,010 3,087 116,209 3,761 102,827 340,309 36,903 63,014 13,358 69,672 27,690 81,627 48,043 167,640 44,495 18,159 28,727 97,488 37,843 29,888 11,236 n 367 17,491 n 2,462 66,493 2,078 7,342 1,756 11,682 8,122 27,874 7,639 26,797 1 448 1,286 86,050 32,050 27,585 9,495 n 288 16,136 ( n ) 1,869 57,707 1.465 6,500 1,409 10,837 7,286 23,841 6,370 25,247 388 838 11,437 5,792 2,303 1,741 ( D ) 78 1,355 ( r> ) 593 8,786 613 842 348 845 837 4,032 1,269 1,550 60 448 604,666 84,603 362,811 46,707 ( n ) 2.720 98,718 100,365 273,816 34.825 55,672 11.602 57,990 19.568 53,753 40,404 140,843 44.494 17,711 27,441 924,660 136,717 542.569 76.308 H 7,611 145,593 ( r> ) 177,560 447,114 48.468 87.731 19,225 89.710 32.214 87,517 82.247 177,603 47.933 32.220 42,234 99 87 96 92 92 88 80 76 92 87 100 99 97 1991 1,240,880 176,996 733,584 102,090 13,513 7,849 200,461 6,387 238,336 595,686 67,968 113,182 22,053 112,724 47,504 127,545 104,710 227,485 65,896 45,651 67.825 -803 -1,040 -880 130 62 53 825 47 17 -979 420 189 -884 -771 73 -214 -293 -173 -13 -13 360 1,240,077 175,956 732,704 102,220 13.575 7,902 201,286 6,434 238,353 594,707 68,388 113,371 21,669 111.953 47,577 127,331 104,417 227,312 65,883 45.638 68.185 356,069 47,126 217,515 28,464 6,074 2.882 52,208 1.798 88,835 182,085 17,922 32.690 7,113 29.923 13.389 33,944 47.104 41,060 4,739 18,097 21,253 884,008 128,830 515,189 73,756 7,501 5,020 149,078 4,636 149.518 412,622 50.466 80.681 14,556 82,030 34,188 93.387 57,313 186,252 61,144 27,541 46.932 108,787 39.522 34.318 14,380 485 309 19,739 34 2,963 72,681 1,846 8,260 1,729 12,775 9,172 29.271 9.628 31.152 38 578 1.375 95,691 32.831 31.229 12.781 336 190 18,293 30 2,311 62,664 1,329 7,028 1,329 11.862 8.470 24,586 8.060 29.289 29 497 899 13,096 6,690 3.089 1,600 149 118 1,445 4 652 10,017 517 1.232 400 913 702 4.685 1.568 1.863 9 80 475 775,221 89,308 480,871 59.376 7.016 4,711 129.339 4.602 146.555 339.941 48.620 72.421 12.827 69.255 25.016 64.116 47.685 155.100 61.106 26.963 45.557 1,131,290 136.434 698.386 87.840 13.090 7.593 181.547 6.400 235.390 522.026 66.542 105.111 19.940 99.178 38.405 98.060 94.789 196,160 65.845 45.060 66.810 78 95 86 96 96 90 99 99 88 97 93 92 89 81 77 91 86 100 99 93 3 2 (°) 1 1 1 1 2 1 2 3 1 1 1 I (') 2 1 1 1 n n 2 i i 2 1 1 i 2 1 n n i n Suppressed to avoid disclosure ol individual company data. dents ' Less than 5 percent. MOFA 1, Includes purchases ol goods and services from loreign residents and purchases ol services from US resi- Majority-owned towgn ifMale 78 BEA STUDIES OF DIRECT INVESTMENT the possibility of changes in the regulatory or policy environment. 14 The higher share of indirect business taxes for mo fa's may partly reflect the fact that the taxes on petroleum products imposed by many for- eign governments are higher than those imposed by the U.S. Government. In 1989, the indirect- business-taxes share of gross product for mofa's in petroleum was 58 percent, whereas it was only 24 percent for U.S. parents in this industry. The factors underlying the differences in the profit-type- return and indirect-business-taxes shares between mofa's and U.S. parents may also underlie the differences in the employee- compensation shares, because a higher (lower) share for one component necessarily means a lower (higher) share for other components. In addition, the employee- compensation share may be more directly affected by the tendency of mofa's to be in less labor-intensive industries. For example, 25 percent of mofa gross product was in petroleum, an industry with relatively low labor intensity, whereas only 9 percent of U.S. parent gross product was in this industry. The employee-compensation share for mofa's may also tend to be lower because average hourly wage rates in many countries where mofa's operate are lower than those in the United States. Among the four major regions that accounted for 97 percent of mofa gross product in 1991 — Canada, Europe, Latin America and Other Western Hemisphere, and Asia and Pacific — the employee-compensation share of mofa gross product was highest in Canada (60 percent), fol- lowed by Europe (45 percent), Latin America and Other Western Hemisphere (40 percent), and Asia and Pacific (38 percent). In contrast, the profit-type- return share of gross product was lowest in Canada (11 percent) and Europe (18 percent) and highest in Latin America and Other Western Hemisphere (33 percent) and Asia and Pacific (30 percent). Canada's employee- compensation share was unusually high in 1991, and its profit-type-return share unusually low. This unusual distribution may have reflected the country's economic recession; in other years, Canada's distribution was more in line with that of other major areas. 15 Structure of output This section examines the changes in the gross- product share of mofa output and the changes in the U.S. content of mofa output from 1977 to 1991. In all industries combined, the gross- product share of mofa output decreased from 31 percent to 29 percent (table 9). By area, the largest decreases were in Asia and Pacific and in Canada. In manufacturing, the gross-product share of mofa output decreased from 36 percent to 31 percent, as the portion of output accounted for by purchases from other foreign persons (table 9, column 13) increased. Among manu- facturing industries, the largest decreases in the gross-product share of mofa output were in non- electrical machinery (mainly computers) and in electric and electronic equipment. In all industries combined, the U.S. content of mofa output — that portion of mofa output represented by purchases from U.S. parents and other U.S. sources — rose from 7 percent to 9 per- cent. By area, the largest increases in U.S. content were in Latin America and in Asia and Pacific. In Latin America (primarily Mexico), the U.S. content more than doubled, from 6 percent to 14 percent. This increase largely reflected rising U.S. merchandise exports to mofa's participating in the Mexican Government's maquiladora pro- gram. 16 Consequently, much of the increase in U.S. content represented unfinished goods that ultimately returned to the United States after fur- ther processing or assembly in Mexico. 17 In Asia and Pacific (primarily Japan), the U.S. content rose from 7 percent in 1977 to 10 percent in 1991. Much of this increase reflected U.S. parents' ex- ports of finished goods to mofa's engaged in wholesale trade. In manufacturing, the U.S. content of mofa output edged down from 13 percent in 1977 to 12 percent in 1991. The changes in all of the ma- jor manufacturing industries except electric and electronic equipment were equally modest. In electric and electronic equipment, the U.S. con- tent increased substantially, from 12 percent to 19 percent, partly reflecting an increase in ship- 14. For additional discussion, see "Rates of Return on Direct Investment," Survey 72 (August 1992): 79-86. 15. Cyclical downturns tend to depress profits more than payroll be- cause many firms tend to maintain their labor force and wage structure in anticipation of an eventual upturn. 16. Under this program, U.S. producers can export components free of customs duties to Mexican affiliates for assembly if a certain percentage of the finished goods are exported back to the United States. U.S. duties are levied only on the value added in Mexico. 17. The increase in the U.S. content of Mexican affiliates' output may be somewhat overstated because of differences between the valuation of mofa sales and the valuation of U.S. exports shipped to mofa's. U.S. exports shipped to mofa's measure the goods' full market value; in contrast, sales by some mofa's participating in the maquiladora program measure only the fees paid to the affiliates for processing or assembling the goods (thus excluding the value of inputs received from the U.S. parents). GROSS PRODUCT OF U.S. MNC S 79 ments to mofa's of components for assembly and reexport to the United States. Technical Note Data sources The 1977, 1982, and 1989 gross product estimates for U.S. parents and mofa's are based on universe data from bea's benchmark surveys of U.S. di- rect investment abroad. The first three columns of table 10 present the U.S. mnc, U.S. parent, and mofa estimates of gross product components from the 1989 benchmark survey; the next two columns indicate the location of the estimates in U.S. Direct Investment Abroad: 1989 Benchmark Survey, Final Results (U.S. Government Printing Office, Washington, dc: October 1992). mofa gross product estimates for 1990 and 1991 are mainly based on universe estimates derived from sample data from bea's annual surveys of U.S. direct investment abroad. Estimation Most of the data required to estimate U.S. -mnc gross product were collected in the bea surveys, but data for several items were not collected; these items had to be estimated for some or all of the years. For both U.S. parents and mofa's, imputed interest received and paid had to be es- timated for all years; these items do not represent actual transactions, so data on them cannot be collected. For mofa's, monetary interest received and paid also had to be estimated for the two nonbenchmark years, 1990 and 1991. In constructing table 5 (structure of output for U.S. parents), the "inventory change" component had to be estimated for 1982 and 1989 because opening balances for inventories for those years were not collected. These estimates were derived using data from the Census Bureau's Quarterly Financial Report, which covers all U.S. businesses. Definitional differences between U.S.-mnc and nipa gross product components In general, the mnc gross product components are conceptually consistent with the correspond- ing nipa components. The last column of table 10 highlights definitional differences between mnc and nipa gross product components. The net ef- fect of these differences is negligible because their individual effects are largely offsetting and be- cause each one is quite small in relation to total GDP. Tables 11 and 12 follow, kaj Table 10.— U.S.-MNC Gross Product Methodology and Its Relation to NIPA Methodology 1989 estimates (millions of dollars) U.S. MNC's U.S. parents MOFA's Location of estimates in 1989 benchmark survey publication ' (table and column number) U.S. parents MOFA's How MNC definition compares with NIPA definition Total gross product Employee compensation Wages and salaries Plus: Employee benefit plans Profit-type return (PTR) Net income Plus: Income taxes Plus: Depletion Less: Capital gains and losses Less: Income from equity investments Net interest paid Monetary interest paid Plus: Imputed interest paid Less: Monetary interest received Less: Imputed interest received Indirect business taxes, etc Taxes other than income and payroll taxes Plus: Production royalty payments to governments Less: Subsidies received Capital consumption allowances (CCA) Depreciation 1,364,878 798,761 645,986 152,775 251,434 242,805 93,737 7,436 24,185 68,358 21,358 182,381 22,542 171,278 12,288 145,541 140,772 5,895 1,127 147,784 147,784 1,044,884 666,196 538,857 127,339 164,910 170,663 60,446 5,234 22,056 49,377 26,344 155,147 21,299 141,578 8,525 66,639 64,028 2,610 2 120,795 120,795 319,994 132,565 107,129 25,436 86,524 72,142 33,291 2,202 2,129 18,981 ■4,986 27,234 1,243 29,700 3,763 78,902 76,744 3,285 1,127 26,989 26,989 II.P 1 (4) IIP 1 (5) I.N 1 (10) II.N 1 (8) II.M 1 (5) II.N 1 (4) II.N 1 (3) II.S 1 (2) estimated II.S 1 (1) estimated II.S 1 (7) II.S 1 (4+5) n.a. II.M 1 (6) III.G 1 (5) III.G 1 (6) III.E 1 (11) III.E 1 (9) III.D 1 (5) III.E 1 (5) I.E 1 (3+4) III.J 1 (2) estimated III.J 1 (1) estimated I.J 1 (4) I.J 1 (3) I.J 1 (5) I.D 1 (6) Same as NIPA's. (1) Based on financial accounting practices; NIPA PTR is based on tax accounting practices. (2) Excludes inventory valuation and capital consumption adjustments, and certain other adjustments. Same as NIPA's. Excludes business transfer payments. (1) Based on financial accounting practices; NIPA CCA is based on tax accounting practices. (2) Excludes depreciation expenditures for mining exploration, shafts and wells, and certain other adjustments. n.a. Not available. 1 . U.S. Department of Commerce, Bureau ol Economic Analysis, U.S. Direct Investment Abroad: 1989 Benchmark Survey, Final Results (Washington, DC: U.S. Government Printing Office, 1992). 2. Data on subsidies received by U.S. parent companies were not collected in the 1989 benchmark survey. Sub- sidies are assumed to be zero because few U.S. parents were in industries that receive most ol the subsidies in the United States. Note.— U.S. MNC gross product excludes the following because tfiey are beyond the scope of direct investment Gross product of government and government enterprises and private households; imputed rental income of owner- occupied larm and nonfarm housing; and rental income of persons. The U.S. MNC estimates also exclude banks. MOFA Majority-owned foreign affiliate NIPA National income and product accounts 8o BEA STUDIES OF DIRECT INVESTMENT Table 11.— Gross Product of Nonbank U.S. MNC's, by Industry of U.S. Parent, 1977, 1982, and 1989 Amount (millions of dollars) U.S. MNC's worldwide 1977 1982 1989 U.S. parents 1977 1982 1989 MOFA's 1977 1982 1989 MOFA share ol MNC total (percent) 1977 All Industries Petroleum Oil and gas extraction Crude petroleum extraction (no refining) and natural gas .... Oil and gas field services Petroleum and coal products Integrated petroleum refining and extraction Petroleum refining without extraction , Petroleum and coal products, nee Petroleum wholesale trade , Other Manufacturing Food and kindred products Grain mill and bakery products Beverages Other Chemicals and allied products Industrial chemicals and synthetics Drugs Soap, cleaners, and toilet goods Agncultural chemicals Chemical products, nee Primary and fabricated metals Primary metal industries Ferrous Nonferrous Fabricated metal products Machinery, except electrical Farm and garden machinery Construction, mining, and materials handling machinery Computer and office equipment Other Electric and electronic equipment Household appliances Household audio and video, and communication equipment Electronic components and accessories Electrical machinery, nee Transportation equipment Motor vehicles and equipment Other Other manufacturing Tobacco products Textile products and apparel Lumber, wood, furniture, and fixtures Paper and allied products Printing and publishing Rubber products Miscellaneous plastics products Glass products Stone, clay, and other nonmetallic mineral products Instruments and related products Other Wholesale trade Durable goods Nondurable goods Finance (except banking), Insurance, and real estate Finance, except banking Insurance Real estate Holding companies Nonbusiness entities, except Government Services Hotels and other lodging places Business services Advertising Equipment rental (ex. automotive and computers) Computer and data processing services Business services, nee Automotive rental and leasing Motion pictures, including television tape and film Health services Engmeenng, architectural, and surveying services Management and public relations services Other Other Industries Agriculture, forestry, and fishing Mining Metal mining Nonmetallic minerals Construction Transportation Communication and public utilities Retail trade 651,665 114,051 4,384 3,052 1,332 101,137 100,837 5,109 3,420 382,280 27,871 4,976 5,016 17,879 51,547 28,970 11,259 7,486 40,209 27,318 19,065 8,253 12,890 60,402 3,388 10,534 30,263 16,218 32,105 3,639 7,859 3,456 17,151 88,513 62,507 26,006 81,633 9,841 9,198 7,322 12,034 5,916 9,902 1,576 2,792 4,872 13,940 4,240 6,536 2,583 3.953 29,230 3,012 24,835 85 1,108 190 11,674 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 107,895 ( D ) 2,415 853 1,562 ( D ) 18,771 47,798 28.740 1,019,734 211,937 14,767 5,034 9,733 175,425 174,483 18,385 3,361 542,689 46,069 6,183 7,661 32,225 93,054 47,841 21,828 14,287 4,070 5,029 43,592 23,046 13,659 9,387 20,546 84,046 3,532 12,171 49,733 18,609 69,259 3,877 25,221 10,844 29,317 91,170 53.350 37,820 115,499 19,527 10,450 7,279 13,454 10,732 11,488 1,249 4,631 6,187 25,456 5,045 17,427 10,431 6,996 31,823 4,991 23,539 135 3.005 154 29,362 2,838 10,026 2,627 652 2,313 4,434 ( 2 ) 941 5,420 3,350 ( 2 ) 6,787 186,496 1,044 956 ( D ) ( D ) 11,583 27,409 99,035 46,471 1,364,878 165,680 4,371 3,211 1,160 151,174 147,690 9,785 350 793,771 79,472 11,957 20,941 46,574 141,006 64,665 43,656 20,174 2,812 9,698 45,775 27,195 8,439 18,756 18,580 116,146 ( D ) 9,937 74,449 68,515 5,256 34,569 13,095 15,595 160,292 97,948 62,343 182,567 20,832 11,549 12,723 36,414 22,271 9,838 6.119 5,649 6,692 46,061 4,422 28,766 13,668 15,098 62,715 16,948 41,233 668 2,808 1,057 66,999 6,676 24,067 3,960 193 6,361 13,551 4,998 3,465 8,965 3,498 1,702 13,629 246,946 366 2,931 2,103 828 8,509 58,371 123,381 53,387 490,529 52,052 3,546 2,368 1,178 43,238 42,941 £! (J 2,193 3,075 301,286 21,782 4,088 3,905 13,789 39,133 23,320 7,697 4,911 35,380 24,800 18,227 6,573 10,579 42,356 2,793 8,425 17,621 13,518 26,683 2,634 7,084 2,784 14,181 71,302 47,979 23,323 64,649 6,023 8.079 6,597 9,708 5,260 7,328 1,285 2,191 3.806 10,656 3,717 5,058 1,939 3,119 22,825 2,488 19,866 72 399 (') 9,950 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 99,358 ( D ) 1,974 680 1,294 ( D ) 17,287 46,536 26,251 796,017 134,096 11,333 4,324 7,009 104,824 104,068 14,828 3,111 421,050 35,804 5,023 6,268 24,513 66,234 34,419 14,589 9,712 3,272 4,242 37,215 20,349 13,103 7,246 16,866 60,597 3,039 9,850 32.221 15,487 59,323 3,128 21,952 9,364 24,879 71,256 36,260 34,996 90,621 11,645 9,432 6,724 11,842 9,812 8,367 1,090 3,896 5,150 18,313 4,351 13,604 7,609 5,995 22,801 4,730 17,954 120 -2 (') 25,997 2,693 8,501 1,947 646 2,135 3,773 ( 2 ) 825 5,234 2,422 6,322 178,469 803 876 ( D ) 9,984 25,386 97,738 43,683 1,044,884 93,128 3,352 2,918 434 82,425 79,831 P) 7,158 193 586,568 60,310 9,990 16,477 33,843 97,119 43,889 30,448 13,123 2,156 7,503 37,556 22,276 7,899 14,377 15,280 70,887 ( D ) 7,921 39,566 56,139 3,556 29,531 9,814 13,238 121,141 65,303 55,837 143,417 11,782 10,098 11,738 29,197 20,184 6,127 4,396 4,793 4,991 36,455 3,657 22,587 10,520 12,067 50,535 15,103 34,948 558 -75 (') 57,090 5,780 18,756 2,349 175 5,353 10,878 4,212 2,663 8,559 2,998 1,180 12,943 234,975 332 2,551 1,764 787 7,300 57,216 120,224 47,352 161,136 61,999 838 685 154 57,899 57,896 -5 -8 2,917 345 80,994 6,088 887 1,111 4,090 12,413 5,650 3,562 2,575 4,829 2,518 838 1,680 2,311 18,046 595 2,109 12,642 2,700 5,422 1,005 775 672 2,970 17,211 14,528 2,683 16,983 3,818 1,119 725 2,325 656 2,574 292 601 1,066 3,284 523 1,478 644 834 6,404 524 4,968 13 709 190 1,724 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 8,537 ( D ) 441 173 268 1,483 1,262 2,490 223,717 77,841 3,434 710 2,724 70,601 70,415 < D > ( D ) 3,557 250 121,639 10,265 1,160 1,393 7,712 26,820 13,422 7,239 4,575 798 787 6,377 2,697 556 2,141 3,680 23,449 493 2,321 17,512 3,122 9,936 749 3,269 1,480 4,438 19,914 17,090 2,824 24,878 7,882 1,018 555 1,612 920 3,121 159 735 1,037 7,143 694 3,823 2,822 1,001 9,022 261 5,585 15 3,007 154 3,365 145 1,525 680 6 178 661 ( 2 ) 116 186 928 ( 2 ) 465 8,027 241 80 48 32 1,599 2,023 1,297 2,788 319,994 72,552 1,019 293 726 68,749 67,859 ( D ) ( D ) 2,627 157 207,203 19,162 1,967 4,464 12,731 43,887 20,776 13,208 7,051 656 2,195 8,219 4,919 540 4,379 3,300 45,259 ( D ) 2,016 34,883 ( D ) 12,376 1,700 5,038 3,281 2,357 39,151 32,645 6,506 39,150 9,050 1,451 985 7,217 2,087 3,711 1,723 856 1,701 9,606 765 6,179 3,148 3,031 12,180 1,845 6,285 110 2,883 1,057 9,909 896 5,311 1,611 18 1,008 2,673 786 802 406 500 522 686 11,971 34 380 339 41 1,209 1,155 3,157 6,035 12 9 4 20 18 30 18 20 42 17 17 28 10 19 17 19 23 10 21 39 12 10 19 11 26 19 22 22 24 12 23 25 21 22 17 20 15 64 100 D Suppressed to avoid disclosure ol data ol individual companies. n.a. Not available. 1. No data are shown in this cell because U.S. nonbusiness entities, such as individuals, estates, or trusts, that directly hold foreign investments are not required to report financial and operating data in BEA surveys ol U.S. direct investment abroad. 2. Included in "other" services. MNC Multinational company MOFA Majority-owned foreign affiliate GROSS PRODUCT OF U.S. MNC S 8l Table 12.1.— Gross Product of Nonbank Majority-Owned Foreign Affiliates, Country by Industry, 1977 [Millions of dollars) Manufacturing Finance (except All industries Petroleum Total Food and kindred products Chemi- cals and allied products Primary and fabricated metals Machin- ery, except electrical Electric and electronic equipment Transpor- tation equip- ment Other manufac- turing Whole- sale trade banking), insurance, and real estate Services Other industries 161,136 62,010 71,609 5,598 10,075 4,231 13,555 8,062 13,921 16,165 11,301 1,948 3,929 10,339 27,783 6,110 15,151 1,364 1,623 1,346 1,682 1,276 3,815 4,044 875 910 621 4,114 69,360 16,944 40,441 2,455 5,412 2,091 9,540 4,935 7,705 8,303 7,628 276 2,102 1,969 344 ( D ) 226 25 17 12 ( D ) 622 ( D ) 70 307 27 P) 4,244 543 2,605 88 524 110 341 n P) 726 21 151 198 672 ( D ) 123 26 P) < D i 1 46 P) 225 P) 7 P) 247 P 6,203 812 5 P) 209 9,688 M 341 165 2,122 655 1,045 1,064 961 P) 416 255 18,115 4,424 12,058 519 1,242 760 3,080 1,262 3,290 1,904 999 78 250 306 389 235 100 9 37 fl 9 P) 38 5 P) P) 762 188 485 62 152 76 32 8 146 83 -2 3 5 5,825 2,430 2,744 199 447 114 909 449 178 447 466 23 82 80 198 23 175 ( D ) ( D ) 32 5 ( D ) 3 -4 4,209 887 2,235 278 592 267 589 123 ( D ) P) 641 19 266 162 1,655 1,207 178 P) ( D ) 4 ( D ) 27 219 -5 27 28 178 n 84 11 h 5 ( D ) ( D ) ( D ) 17 51 P) P) 2 2,019 1,479 115 250 38 117 438 390 130 368 7 49 108 1,103 294 518 ( D ) 49 19 282 ( D ) 14 87 234 P) 40 P) 2,015 321 449 H 49 ( D ) 42 107 195 1,025 42 130 48 266 3,793 69 4 P) ( D ) P) 12 43 P) 16,861 10,679 724 1,145 529 1,905 930 2,292 3,155 1,046 18 586 739 70 7 ( D ) ( D ) P) 14 P) 9 P) 16,036 3,072 9,533 1,156 1,981 587 889 920 1,506 2,494 1,195 348 461 1,426 10,927 1,668 7,534 788 1,518 462 809 676 1,245 2,036 755 45 309 616 1,449 306 945 73 213 35 145 46 179 254 143 3 21 32 6,485 736 5,169 450 1,003 231 657 535 901 1,392 220 26 88 246 162 P) 62 6 21 ( D ) ( D ) ( D ) P) 30 4 P) 532 113 320 39 91 h 1 18 H M 72 6 6 15 307 ( D ) 35 9 10 4 5 6 16 2 P) 404 114 74 14 14 PI 1 13 pi P) 36 (') 4 177 1,370 97 745 168 165 36 5 45 115 212 228 10 185 105 216 ( D ) 184 28 1 < D ) P) ( D ) P) 9 1 P) 2,879 233 1,863 299 433 122 79 242 261 426 313 38 61 371 115 1 57 16 17 1 7 16 5 53 156 45 61 15 18 2 8 18 8 2 39 142 ( D ) 33 23 2 8 3 P) 2,050 21 1,646 232 378 115 79 211 261 369 222 7 39 115 289 89 26 ( D ) 9 P) 67 27 21 60 127 n 41 ( D ) 10 3 16 P) 8 2 P) 2,230 1,170 136 69 30 4 2 32 127 266 92 439 157 39 6 2 5 (') 41 5 46 21 25 { 2 3 P) 398 49 268 23 2 226 33 83 P) 3 4 1 P) 4 2 104 370 (°) 18 5 4 8 4 1 1 P) 89 ( d > 1 1 p] 4 -14 15 P) ( D ) n ( D ) n 1 P) 4 1 4 14 24 1 1 20 2 1 ( D ) 27 ( D ) 1 ( D ) 7 1 P) 8,020 ( D ) 802 n 119 95 < D i 85 n P) 314 43 P) 344 332 4 4 3 5 1,848 1,736 54 2 24 1 ( S P) 31 2 2 24 1,317 ( D ) 546 (°) 80 39 104 H 114 208 8 18 P) 4,511 4,001 198 ( d » 11 55 ( D ) ( D ) 2 P) 72 -10 18 232 22,260 21,120 103 (°) 41 p) 23 P) 103 P) 404 P) 225 ( D ) 84 pj 22 h 21 P) P) 7 11 1 ( D ) 1,072 3 3 8 P) 272 147 1,117 (*] (') 3 42 ( D ) ( D ) 16 1 16 -a 2 P) 1 118 P) 16,367 1,158 5,579 256 900 112 1,317 823 703 1,123 1,186 P) 298 P) 5,578 2,458 381 63 225 167 664 378 178 153 1.253 2 2 2 542 71 199 2 19 n 22 117 P) 172 24 40 36 210 1 205 1 82 25 ( D ) P) 3 -1 2 4,661 4,394 106 2 17 18 69 7 1 1 150 3,065 ( D ) 1,468 ( D ) 228 11 ( D ) 62 1 97 375 94 83 P) 79 59 10 1 t"j 34 P) P) 5 333 161 122 ti 12 p> 80 2 P) 20 1 3 27 384 ( D ) 158 21 ( D ) 8 ( D ) 38 60 6 2 P) 549 ( D ) 278 79 70 el 23 ( D ) 77 40 P) 4 P) 400 105 210 n 2 20 45 127 ( D ) P) 52 -1 3 30 260 9 224 16 23 ( D ) 147 ( D ) P) 21 fl 5 254 { 1 58 8 14 1 n P) 40 5 P) 50 30 3 30 -3 P) P) P) 1,311 873 438 63,162 14,670 38,969 2,372 5,282 2,021 ( D ) pi 7,676 7,865 5,608 228 1.827 1.861 32,948 30,227 963 181 234 41 7 83 115 301 335 P) 583 P) All countries Canada Europe Austria Belgium Denmark Finland France Germany, Federal Republic of Greece Ireland Italy Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland Turkey United Kingdom Other Latin America and Other Western Hemisphere South America Argentina Brazil Chile Colombia Ecuador Peru Venezuela Other Central America Costa Rica Guatemala Honduras Mexico Panama Other Other Western Hemisphere Bahamas Barbados Bermuda Dominican Republic Jamaica Netherlands Antilles Trinidad and Tobago United Kingdom Islands, Caribbean Other Africa Egypt Nigeria South Africa Other Middle East Israel Saudi Arabia United Arab Emirates Other Asia and Pacific Australia China Hong Kong India Indonesia Japan Korea, Republic ol Malaysia New Zealand Philippines Singapore Taiwan Thailand Other International 1 Addenda: Eastern Europe 2 European Communities (12) 3 OPEC 4 D Suppressed to avoid disclosure of data of individual companies. • Less than $500,000. 1. See footnote 2 to table 6. 2. See footnote 3 to table 6. 3. See footnote 4 to table 6. 4. See footnote 5 to table 6. 82 BEA STUDIES OF DIRECT INVESTMENT Table 12.2.— Gross Product of Nonbank Majority-Owned Foreign Affiliates, Country by Industry, 1982 [Millions of dollars] All industries Petroleum Manufacturing Whole- sale trade Finance (except banking), insurance, and real estate Services Total Food and kindred products Chemi- cals and allied products Primary and fabricated metals Machin- ery, except electrical Electric and electronic equipment Transpor- tation equip- ment Other manufac- turing Other industries All countries 223,717 85,608 99,756 8,884 16,429 5,402 17,619 9,876 18,055 23,491 19,409 1,796 1,180 8,009 1,094 9,757 Canada 34,017 10,998 16,413 1,448 2,303 989 2,002 1,680 4,123 3,868 341 3,376 Europe 112,577 38,413 54,727 4,267 7,892 2,954 11,956 5,273 9,462 12,922 12,058 701 4,691 1,987 Austria 981 5,127 1,334 574 12,196 ( D ) 932 749 p> 1,784 246 2,394 231 ( D ) 7,423 9 71 586 16 803 15 4 1,241 1 96 8 347 389 2 2,548 77 513 80 P) 442 -20 18 15 584 122 477 40 4 1,676 297 1,445 294 317 1,972 1 -17 34 81 <°i 50 49 787 PI Belgium Denmark N 11 Finland France 6 196 Germany, Federal Republic of 24,756 497 1,893 8,481 235 5,392 7,137 260 404 3,183 40 1,496 15,292 140 1,336 3,928 196 2,553 638 10 128 312 499 1,541 P) 464 669 P) 467 968 5 25 157 16 285 3,239 247 1,431 12 494 1,641 <°i 106 623 P) 111 4,340 21 145 36 2,925 53 345 592 116 659 1,333 68 143 903 1 808 30 1 -11 23 -2 17 517 < D i 13 292 377 446 Greece Italy Luxembourg Netherlands P 7 153 141 Norway Portugal Spain Sweden Switzerland Turkey United Kingdom 4,440 341 2,571 1,889 3,198 152 38,465 54 3,732 17 88 765 803 74 16,418 257 191 1,854 626 721 49 17,254 P) 2 23 193 ( D ) 68 ( D ) 1,572 21 26 388 52 95 9 1,972 4 13 89 4 53 884 2 (D i 336 403 53 2,749 P) 44 480 Q 16 760 25 202 32 4,065 P) P) 165 P) 353 P) 5,251 P) 345 94 309 391 1,284 P) 2,010 P) 4 2 6 67 552 -4 71 40 242 92 298 8 1,458 18 31 76 9 25 P 774 Other P Latin America and Other Western Hemisphere 27,939 5,974 17,531 2,189 3,907 1,051 1,723 1,129 2,647 4,885 2,199 -159 766 1,629 South America 20,358 2,902 11,199 468 1,361 516 1,116 2,394 402 3,244 664 475 135 434 402 707 300 126 14,093 1,859 9,572 122 720 72 108 1,401 238 1,595 210 809 13 124 18 18 319 83 2,982 428 1,942 34 201 21 37 307 12 868 61 534 22 37 8 17 70 120 1,594 262 1,307 1 20 3 699 58 538 9 <°i 13 9 40 P) 2.418 71 2,031 7 n 229 P) 3,937 768 2,410 37 253 10 27 418 15 1,557 190 665 88 102 22 86 384 20 32 22 11 -1 1 -1 447 66 144 16 33 7 <°i 163 P) 986 Argentina Brazil Chile Colombia Ecuador Peru Venezuela Other 102 332 107 72 12 P 147 P Central America 4,927 163 276 251 3,561 433 244 653 2 139 fl ( D ) 197 213 3,187 68 74 82 2,879 45 39 573 13 16 P) 470 4 P) 788 16 32 10 700 27 3 P) 2 4 166 1 P) 129 129 417 14 6 ' D i 378 P) 229 229 P) 23 16 12 808 12 P) 526 P) 13 4 421 64 P) -22 4 1 -5 -22 128 2 4 2 84 31 5 454 Costa Rica P Guatemala Honduras Mexico Panama Other 45 P P 118 P Other Western Hemisphere 2,654 209 59 82 122 403 189 ( D ) 23 ( D ) 2,076 30 ( D ) 67 2 fl p> ( D ) 2 ( D ) 251 14 13 43 119 6 27 3 25 21 3 4 5 P) P) 3 137 P) 10 95 fl P) P) 1 14 9 2 3 P) P) 5 5 22 115 fl ( ^ R 15 P) -168 7 -38 3 P) -2 1 -A 1 660 46 536 fl P) 477 Israel Saudi Arabia P) 409 United Arab Emirates P) Other P) Asia and Pacific 28,438 10,069 7 959 229 6,317 4,587 219 1,691 618 1,074 1,109 616 657 288 13,578 3,351 3 95 n 5,998 ( D ) fl 207 418 309 ( D ) 446 135 9,553 4,295 4 246 209 146 2,178 119 373 281 447 570 514 96 76 744 418 < D i 7 140 P) P) 27 72 2 29 11 P) 2,056 1,053 fi 66 46 497 7 21 43 155 15 35 32 59 239 P) 7 15 41 P) P P) 3 P) 1 1,801 362 27 25 A q 1 215 P) H 1,646 195 4 140 P) 33 216 78 283 15 81 221 287 37 P) 1,589 1,209 1 p) H 108 P) 1,478 P) fl p) 45 P) H 42 P) P) 5 36 { 1 2,598 844 342 35 777 { 2 104 51 183 297 62 75 4 97 1 4 2 P> 5 P) (') 651 349 71 P) 7 93 P) P) 7 27 23 3 12 22 1,761 Australia China 1,168 Hong Kong 129 India Indonesia Japan Korea, Republic of -4 128 P) P) Malaysia New Zealand 18 Philippines Singapore Taiwan Thailand P) 18 P) P) Other 36 2,579 101,289 21,801 2,237 32,507 17,988 342 Addenda: Eastern Europe 2 52,791 1,737 4,130 349 7,695 414 2,892 127 ft 21 4,817 101 9,450 P) P) P) 9,380 592 627 (') 4,073 787 European Communities (12)' OPEC 4 1,910 697 D Suppressed to avoid disclosure of data of individual companies. • Less than $500,000. 1 . See footnote 2 to table 6. 2. See footnote 3 to table 6. 3. See footnote 4 to table 6. 4. See footnote 5 to table 6. GROSS PRODUCT OF U.S. MNC S 83 Table 12.3.— Gross Product of Nonbank Majority-Owned Foreign Affiliates, Country by Industry, 1989 [Millions of dollars] Manulactunng Finance (except All industries Petroleum Total Food and kindred products Chemi- cals and allied products Primary and fabricated metals Machin- ery, except electrical Electnc and electronic equipment Transpor- tation equip- ment Other manufac- turing Whole- sale trade banking), insurance. and real estate Services Otfier industnes 319,994 77,195 172,008 13,643 32,059 7,623 30,430 12,646 33,764 41,843 37,947 3,439 14,612 14,793 52,114 9,509 28,885 1,759 4,298 1,902 2,676 1,921 8,662 7,667 3,291 1,165 1,998 7,266 179,758 41,596 99,389 6,738 19,241 3,619 19,923 5,853 18,417 25,597 24,463 1,137 9,969 3,204 2,021 582 695 73 53 6 24 82 ( D ) n 659 3 58 24 8,540 1,368 4,956 263 1,828 152 614 224 ( D ) ( D ) 1,521 35 567 93 1,243 128 363 163 51 20 -1 61 7 62 605 18 114 14 1,065 396 68 3 18 4 8 5 31 576 -1 21 5 22,625 ( D ) 11,794 745 2,776 384 3,519 577 639 3,155 4,008 160 1,871 P) 35,683 5,116 25,804 916 3,271 1,312 5,054 1,442 7,056 6,753 2,473 -38 1,318 1,010 677 317 201 42 95 8 55 110 46 3 4,473 569 3,502 406 979 77 842 277 41 881 298 18 82 5 16,487 6,148 7,760 578 1,644 172 2,810 387 809 1,361 1,881 64 422 211 587 64 515 80 369 8 3 4 ( D ) -7 12 4 13,214 ( D ) 7,761 687 3.661 892 545 74 1,533 2,421 -171 1,180 P) 4,164 3,497 120 1 34 4 15 2 63 436 23 P) P) 997 258 342 94 98 ( D ) 6 76 ( D ) ( D ) 308 (1 89 7,398 106 5,723 520 1,007 155 870 250 2,092 828 1,120 -3 316 136 2,229 ( D ) 1,008 58 67 17 649 23 8 186 n 15 77 P) 5,106 768 1,215 106 100 35 140 132 12 690 2,407 273 423 19 463 203 137 22 34 -7 9 P) ( D ) 76 749 P) P) 52,703 15,514 27,423 2,061 3,444 885 4,473 1,748 6,468 8,344 4,703 3,264 1.050 83 ( D ) 1 2 -1 ( D ) -2 15 1 29,601 3,561 21,664 2,540 4,009 1,411 1,854 1,588 4,740 5,522 2,553 -208 687 1,344 21,843 2,332 16,886 1.682 3,036 1.228 1,638 1,104 3,618 4,581 1,737 87 340 460 1,577 454 973 162 249 ( D ) 10 14 ( D ) 75 4 37 35 16,618 849 14,167 1,158 2,352 974 1,413 1,062 3,382 3,826 1,273 62 236 30 681 135 364 10 56 193 P) 5 56 ( D ) 101 19 14 48 1,150 489 650 112 188 25 19 ( D ) h 101 4 21 -115 272 219 37 17 5 11 2 2 11 (') 5 397 ( D ) 90 5 43 6 3 33 21 5 P) 736 64 509 152 138 19 14 3 P) 9 129 -2 22 13 412 ( D ) 95 65 4 2 27 4 P) 6,208 422 4,606 842 897 ( D ) 216 476 1,121 ( D ) 498 54 132 496 208 1 99 28 30 ( D i 8 M 10 3 94 158 52 69 15 11 43 15 -3 2 25 287 69 105 90 800> 2 13 11 H P) 4,883 30 4,123 588 139 216 467 1,121 792 388 68 105 169 530 164 182 124 49 1 7 72 P) 19 P) 143 105 29 -1 7 7 1 15 2 P) 3 P) 1,549 807 172 17 76 n 8 ( D ) 318 -349 215 387 425 61 8 8 62 178 84 33 203 67 3 1 2 101 23 10 -113 49 1 ('] 1 54 -231 12 2 209 11 31 2 12 2 14 10 P) P) 455 58 85 41 c) ( D ) 53 P) P) -244 -16 7 3 4 4 -244 3 2 497 467 16 5 9 2 5 7 1 -10 12 10 1 6 3 24 -80 21 3 128 98 12 6 5 10 1 7 5,299 P) 883 191 228 175 127 17 19 127 117 -15 43 P) 769 689 24 5 10 4 P) ( D ) 30 2 P) P) 1,733 1,701 18 D 15 2 1 12 1 701 ( D ) 441 24 160 58 P) n 19 69 55 11 P) 2,097 1,294 400 161 42 111 16 11 58 20 -17 P) P) 4,891 ( D ) 195 8 23 8 119 37 163 -64 226 P) 359 a 191 6 22 8 119 36 82 -16 102 2,735 6 1 4 1 31 -29 103 p) 1,176 1,156 { 2 27 -24 13 4 621 ( D ) -3 23 5 9 P) 46,875 13,734 20,992 2,407 4,259 516 5,841 3,148 1,927 2,893 7,359 1,424 1,690 1,675 13,902 3,691 6,861 1.500 1,903 250 511 281 1,245 1,171 1,927 203 610 611 8 -28 36 10 9 -1 9 7 2 -6 5 468 2,926 240 751 5 24 55 170 261 11 225 910 302 255 157 -9 161 ( D ) ( D ) A ( n ) 3 1 1 3,999 3,591 100 ( D ) 59 2 7 ( D J 42 -1 14 254 14,940 ( D ) 7,668 464 1,412 111 3,954 863 47 818 3.249 613 602 ( D ) 726 -6 463 56 75 3 11 195 5 119 234 P) 17 P) 1,749 ( D ) 477 4 41 ( D ) 12 313 ( D ) 80 35 5 P) 985 ( D ) 302 58 45 3 8 10 ( D ) ( D ) 173 11 25 P) 1,006 ( D ) 625 183 219 3 124 96 69 P> 18 78 2,353 463 1,453 22 89 20 656 588 34 44 293 51 79 13 1,938 4 1,531 76 167 16 224 455 P) ( D ) 239 P) 34 P> 1,815 1,132 476 14 98 45 (D 8> 46 ( D ) ( D ) 56 17 P) 372 215 88 ( D ) ( D ) ( D ) ( D ) 1 ( D ) P) 5 PI 1,457 692 765 4 -1 -1 5 164,628 35,877 96,145 6,474 18.935 3.560 19,087 5,599 18,014 24,475 19,447 825 9.282 3.052 10,730 9,372 672 177 223 34 20 6 ( D ) ( D ) 260 -65 162 320 All countries Canada Europe Austria Belgium : Denmark Finland France Germany, Federal Republic of '. Greece Ireland Italy Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland Turkey United Kingdom Other Latin America and Other Western Hemisphere South America Argentina Brazil Chile Colombia Ecuador Peru , Venezuela Other Central America Costa Rica Guatemala Honduras Mexico Panama Other Other Western Hemisphere Bahamas Barbados Bermuda Dominican Republic Jamaica Netherlands Antilles Trinidad and Tobago United Kingdom Islands. Caribbean Other Africa W Nigeria South Africa Other Middle East Israel Saudi Arabia United Arab Emirates Other Asia and Pacific Australia China Hong Kong India Indonesia Japan Korea, Republic of Malaysia New Zealand Philippines Singapore Taiwan , Thailand Other International 1 Addenda: Eastern Europe 2 European Communities (121 3 OPEC D Suppressed to avoid disclosure of data of individual companies. • Less than $500,000. 1. See footnote 2 to table 6. 2. See footnote 3 to table 6. 3. See footnote 4 to table 6. 4. See footnote 5 to table 6. 8 4 BEA STUDIES OF DIRECT INVESTMENT Table 12.4.— Gross Product of Nonbank Majority-Owned Foreign Affiliates, Country by Industry, 1990 [Millions of dollars] Petroleum Manul acturing Whole- sale trade Finance (except banking), insurance, and real estate All ndustries Total Food and kindred products Chemi- cals and allied products Primary and fabricated metals Machin- ery, except electrical Electric and electronic equipment Transpor- tation equip- ment Other manufac- turing Services 356,033 86,987 187,573 16,348 32,572 7,665 33,433 13,382 37,078 47,096 40,233 5,637 17,090 50,820 9,003 27,391 2,005 3,375 1,407 2,505 1,833 8,595 7,672 3,444 1,752 2,051 213,419 48,665 116,180 8,926 20,606 4,372 22,779 6,539 22,780 30,179 27,436 2,205 12,148 2,380 ( D ) 733 88 48 15 33 125 ( D ) ( D ) 694 24 104 10,081 1,445 5,485 285 1,824 194 670 278 ( D ) ( D ) 2,101 262 728 1,476 153 429 188 52 ( D ) -1 ( D ) l D ) 73 733 28 123 1,203 ( D ) ( D ) 3 25 6 14 5 3,403 583 1 24 27,410 5,418 13.993 1,012 3,465 500 4,041 972 599 4,593 183 2,489 46,969 6,795 33,620 1,421 3,735 1,454 6.293 1,855 10,460 8,402 3,084 313 1,591 925 530 188 36 89 7 56 129 26 45 5,416 672 4,270 430 1,281 89 1,220 284 48 919 393 -16 90 18,967 6,250 9,227 741 2,193 190 3,212 637 780 1,473 2,271 169 546 730 79 632 70 ( D ) 20 ( D ) P) PI -1 15 13,724 2,392 6,931 833 2,496 482 908 563 62 1,586 2,748 -31 1,496 5,120 4,314 177 2 31 5 48 13 79 518 -1 89 1,269 357 420 113 128 3 12 ( D ) ( D ) P) 381 8 102 8,428 146 6,353 586 1,031 183 923 271 2,509 851 1,215 55 422 2,128 ( D ) 1,049 75 97 11 541 ( D ) ( D ) P) 810 29 9C 6,072 984 1,728 ( D ) 119 50 101 103 18 P) 2,825 28 462 812 422 185 ( D ) 38 ( D ) ( D ) ( D ) P) 115 92 60,123 17,322 30,545 2,627 3,886 1,125 4,741 1,042 6,876 10,248 4,205 1,143 3,616 188 ( D ) ( D ) ( D ) ( D ) -3 38 -15 17 31,080 5,999 21,621 3,043 4,179 1,249 1,774 1,368 4,135 5,873 1,883 -671 754 22,782 4,603 15,934 2,046 3,153 1,063 1,546 781 2,565 4,780 923 189 385 2,603 765 1,397 445 287 15 18 20 17 595 356 P) 26 16.093 2,602 12,938 1,258 2,423 794 1,508 719 2,399 3,837 83 P) 281 801 ( D ) 359 16 100 190 3 8 42 127 P) 16 1,399 581 588 121 201 27 18 P) P) 111 2 21 341 286 40 15 6 11 2 6 11 P> C 412 ( D ) 60 7 16 4 3 31 67 Pi 5 694 76 439 109 116 20 17 11 n ( 30> 148 -5 28 438 ( D ) 113 75 4 4 20 1 5 6,947 340 5,458 980 920 ( D ) 220 579 1,570 P) 577 -1 157 176 1 105 27 29 ( D ) 8 s 17 4 110 27 66 10 13 15 -4 2 213 59 80 74 2 3 7 s -1 5,800 38 4,984 739 817 120 220 569 1,570 948 450 11! 522 130 193 130 54 2 8 85 P) 31 126 86 30 -1 7 7 1 16 3 P) 3 1,351 1,055 228 17 105 ( D ) 7 8 P) 383 -860 212 286 39 8 8 43 41 120 193 63 2 1 (') 1 105 -383 24 -210 17 1 1 134 30 263 19 35 2 16 2 15 11 (!) P) 338 50 133 69 ( D ) P) 57 3 P) -506 4 8 3 4 9 -544 17 775 735 13 5 7 2 19 8 74 17 9 1 6 2 21 3 9 136 111 19 7 7 5 4 1 2 6,162 4,659 868 199 240 131 109 21 18 150 144 21 67 1,016 927 24 5 10 4 ( D ) ( D ) 36 2 20 2,222 2,186 22 4 12 2 1 4 12 1 1 698 ( D ) 423 19 150 65 92 1 18 78 75 14 2,226 ( D ) 399 171 68 60 ( D ) ( D ) 69 21 19 33 3,206 2,428 350 9 30 1 6 255 48 79 -4 291 577 s 341 8 25 6 255 47 20 7 210 123 7 1 4 1 1 23 -26 69 1,644 1,606 23 5 4 862 ( D ) 1 14 10 8 49,786 15,560 21,163 2,165 4,143 504 6,261 3,366 1,550 3,173 7,246 2,334 1,778 14,178 4,445 6,321 1,302 1,872 217 496 247 885 1,301 1,713 359 634 114 -50 41 11 11 -2 ( D ) ( D ) 2 P) 7 3,122 294 856 6 48 ( D ) 233 220 4 P) 933 417 266 136 -9 141 35 ( D ) A P) 3 992 1 4,987 4,529 111 8 58 2 7 P) 42 16 14,565 ( D ) 7,305 497 1,311 117 ( D ) < d ) 43 P) 2,845 544 906 -6 486 70 72 3 12 185 13 132 349 23 44 1,825 1,006 612 7 35 9 15 424 123 119 72 5 914 ( D ) 243 8 54 3 ( D ) 9 { "l P) 171 30 42 1,015 ( D ) 571 137 211 ( D ) 3 103 P) 53 P) -7 3,547 652 2,372 18 98 19 1,340 808 34 54 242 101 162 2,255 5 1,526 77 171 19 202 457 ( D ) P) 489 P) 45 1,832 1,045 496 16 107 ( D ) ( D ) 75 P) 161 P) 18 389 253 82 9 60 1 7 5 P) P) 1,559 673 ( D ) ( D ) ( D ) 1 3 P) 5 195,516 41,560 112,094 8,272 20,248 4,279 22,040 6,101 22,399 28,755 21,852 2,139 11,271 10,158 8,820 621 137 198 37 24 12 42 172 263 -25 132 All countries Canada Europe Austria Belgium Denmark Finland France Germany 1 Greece Ireland Italy Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland Turkey United Kingdom Other Latin America and Other Western Hemisphere South America Argentina Brazil Chile Colombia Ecuador Peru Venezuela Other Central America Costa Rica Guatemala Honduras Mexico Panama Other Other Western Hemisphere Bahamas Barbados Bermuda Dominican Republic Jamaica , Netherlands Antilles Trinidad and Tobago , United Kingdom Islands, Caribbean Other Africa , Egypt Nigeria South Africa , Other Middle East Israel , Saudi Arabia United Arab Emirates Other Asia and Pacific Australia China Hong Kong India Indonesia Japan Korea, Republic of Malaysia New Zealand Philippines Singapore Taiwan Thailand Other International 2 Addenda: Eastern Europe 3 European Communities (12) 4 OPEC 5 D Suppressed to avoid disclosure ol data of individual companies. • Less than $500,000. 1. Beginning with 1990, includes the former German Democratic Republic (GDR), which reunited with the Federal Republic of Germany in October 1990. This change does not affect the comparability of the 1990 data with the data for earlier years, because no affiliates of U.S. companies were in the former GDR before 1990. 2. See footnote 2 to table 6. 3. See footnote 3 to table 6. 4. See footnote 4 to table 6. 5. See footnote 5 to table 6. GROSS PRODUCT OF U.S. MNC S 85 Table 12.5.— Gross Product of Nonbank Majority-Owned Foreign Affiliates, Country by Industry, 1991 [Millions of dollars] Manufacturing Finance (except All industries Petroleum Total Food and kindred products Chemi- cals and allied products Primary and fabricated metals Machin- ery, except electrical Electric and electronic equipment Transpor- tation equip- ment Other manufac- turing Whole- sale trade banking). insurance, and real estate Services Other industries 356,069 88,835 182,085 17,922 32,690 7,113 29,923 13,389 33,944 47,104 41,060 4,739 18,097 21,253 47,126 7,725 23,753 2,075 3,303 1,447 2,140 1,709 6,923 6,155 3,633 2,370 2,155 7,491 217,515 53,114 115,359 10,171 21,094 4,043 20,571 6,496 21,406 31,579 27,663 981 12,953 7,445 2,365 ( D ) 759 90 47 13 38 161 (°) ( D ) 594 38 103 ( D ) 9,831 1,607 5,411 332 1,983 225 436 257 ( D ) < D J 1,749 218 764 84 1,894 532 476 204 77 ( D ) ( D ) ( D ) n 90 709 27 130 20 1,125 n 101 4 30 6 18 5 37 ( D ) 2 25 ( D ) 27,306 5,556 13,768 1,163 3,528 498 3,582 972 627 3,399 4,501 153 2,468 859 49,524 7,512 34,850 1,695 3,862 1,240 6,479 1,691 10.409 9,473 3,471 121 1,811 1,758 1,169 705 230 56 111 10 52 154 30 49 5,318 660 4,224 431 1,494 93 779 283 45 1,098 290 46 80 17 20,308 7,077 9,286 934 2,249 167 3,158 635 701 1,444 2,506 135 661 643 672 90 551 38 (D i 410 25 ( D ) ( D ) 1,789 2 10 16 3 13,444 2,608 6,708 929 2,247 785 476 73 2,963 -481 1,407 240 4,939 4,290 127 2 22 5 28 15 56 411 3 91 18 1,507 461 465 148 175 4 ( D ) n ( D ) ( D ) 443 11 127 8,308 149 6,190 609 1,075 162 821 331 2,417 775 1,230 73 399 267 2,432 ( D ) 1,075 ( D ) 149 8 516 55 ( D ) 277 ( D ) 37 138 ( D ) 6,756 725 2,217 ( D ) 127 52 127 99 19 ( D ) 2,763 456 549 46 848 372 303 ( D ) ( D ) 23 ( D ) ( D ) ( D ) 117 57 -1 59,494 19,048 28,432 2,621 3,795 1,080 3,753 1,233 5,636 10,314 4,496 108 4,058 3,353 275 43 184 ( D ) ( D ) ( D ) -2 28 -5 23 1 28,464 4,681 21,004 3,403 3,977 1,032 1,243 1,214 4,466 5,667 2,102 -1,472 586 1,563 19,188 3,248 13,744 2,108 2,779 842 986 471 2,181 4,376 1,014 74 364 744 3,363 921 1,951 609 369 31 7 30 26 879 370 ( D ) 38 ( D ) 11,514 1,221 9,887 1,080 1,912 558 956 396 1,926 3,058 79 ( D ) 235 <°) 926 ( D ) 325 21 72 172 3 9 49 151 ( D ) 25 169 1,278 453 641 133 213 30 15 ( D ) ( D ) 99 -2 22 64 327 272 33 13 3 11 2 4 12 -2 13 340 ( D ) 63 7 23 4 3 26 69 ( D ) 5 ( D ) 1,080 107 711 150 184 33 19 16 (D o> ( D ) 213 -6 33 23 360 ( D ) 133 96 4 4 30 21 6 6 ( D ) 9,014 567 7,056 1,276 1,117 ( D ) 249 735 2,285 ( D ) 736 44 170 442 192 -7 135 38 30 7 12 48 14 4 46 238 163 69 13 13 42 7 -5 2 3 276 84 119 103 7 2 7 3 ( D ) -1 ( D ) 7,585 52 6,521 992 1,019 ( D ) 249 722 2,285 ( D ) 600 72 143 196 561 153 182 131 41 2 8 109 ( D ) 19 ( D ) 163 122 32 -1 7 7 1 18 1 ( D ) 3 (°) 262 867 204 19 81 (D o> 8 9 n 352 -1,590 52 376 279 59 9 8 42 -9 145 33 159 24 2 1 1 162 -34 6 -727 8 1 N 1 76 -859 20 26 270 ( D ) 39 2 2 19 5 1 ( D ) ( D ) 334 ( D ) 103 47 ( D ) ( D ) 62 3 ( D ) ( D ) -802 4 8 3 4 10 -681 -145 2 642 605 11 5 4 2 18 8 9 15 10 1 7 2 -8 -30 8 15 97 70 21 8 8 5 4 1 2 6,074 4,574 888 220 276 88 105 19 21 159 172 37 51 352 849 ( D ) 21 8 3 4 ( D ) ( D ) 55 2 ( D ) ( D ) 2,239 2,187 38 18 17 2 1 ( D ) 1 ( D ) 752 ( D ) 458 23 181 56 3 ( D ) 21 82 68 13 ( D ) 2,235 ( D ) 371 172 75 26 11 76 ( D ) 35 ( D ) (°) 2,882 1,882 384 14 20 1 16 292 41 83 39 395 100 632 359 11 15 7 286 40 26 11 236 254 73 9 2 4 1 1 10 14 135 13 1,475 ( D ) 15 I*) 9 5 27 5 16 ( D ) 521 ( D ) 1 20 8 8 ( D ) 52,208 16,041 20,697 2,039 4,021 501 5,847 3,658 1,127 3,504 7,408 2,783 1,957 3,323 12,295 4,124 5,311 1,015 1,455 188 496 241 571 1,346 1,032 289 685 854 211 23 77 17 46 -2 11 ( D ) ( D ) 102 8 1 3,192 380 812 19 71 ( D ) 191 226 4 ( D ) 947 484 198 371 123 -11 130 32 ( D ) A ( D ) 3 s 2 iS 5,031 4,590 114 7 69 3 4 ( D ) 46 17 16,517 ( D ) 7,932 542 1,456 137 3,744 1,035 57 962 3.551 1,325 703 n 1,031 -7 593 80 90 4 62 181 12 164 353 38 45 10 2,016 H 813 8 45 9 71 528 151 131 n 6 ( d i 2,264 h 186 3 62 3 ( D ) 13 1 ( D ) 106 38 41 ( D i 1,189 789 688 210 256 ( D ) 3 99 h 68 ( D ) M 3,333 1,924 18 91 20 977 717 36 65 306 110 185 19 2,395 13 1,572 88 190 23 124 479 < D > ( D ) 552 205 48 4 2,203 1,373 475 22 110 ( D ) ( D ) 126 ( D ) 180 ( D ) 19 ( D ) 408 293 70 11 49 1 3 6 32 l D ) h 1,798 819 980 122 122 ( D ) ( D ) 2 -2 -2 5 198,775 46,005 110,593 9,123 20,633 3,936 19,843 6.033 20.983 30.040 22.516 451 11,968 7.243 10,492 8,639 921 190 279 50 33 26 125 218 321 14 207 390 All countries Canada Europe Austria Belgium Denmark Finland France Germany 1 Greece Ireland Italy Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland Turkey United Kingdom Other Latin America and Other Western Hemisphere South America Argentina Brazil Chile Colombia Ecuador Peru Venezuela Other Central America Costa Rica Guatemala Honduras Mexico Panama Other Other Western Hemisphere Bahamas Barbados Bermuda Dominican Republic Jamaica Netherlands Antilles Trinidad and Tobago United Kingdom Islands, Caribbean Other Africa Egypt Nigeria South Africa Other Middle East Israel : Saudi Arabia United Arab Emirates Other Asia and Pacific Australia China Hong Kong India Indonesia Japan Korea, Republic of Malaysia New Zealand Philippines Singapore Taiwan Thailand Other International 2 Addenda: Eastern Europe 3 European Communities (12) " OPEC 5 D Suppressed to avoid disclosure of data of individual companies. ' Less than $500,000. 1. See footnote 1 to table 12.4. 2. See footnote 2 to table 6. 3. See footnote 3 to table 6. 4. See footnote 4 to table 6. 5. See footnote 5 to table 6. 86 BEA STUDIES OF DIRECT INVESTMENT Real Gross Product of U.S. Companies' Majority-Owned Foreign Affiliates in Manufacturing By Raymond J. Mataloni, Jr. This article was first published in the April 1997 Survey of Current Business. (j n an initial attempt to remove valuation JL effects from its measures of the foreign man- ufacturing activities of U.S. multinational com- panies (mnc's), the Bureau of Economic Analysis (bea) has developed experimental estimates of the real gross product of majority-owned foreign affiliates (mofa's) in manufacturing for 1982-94. 1 Gross product — a measure of value added — is used as a summary measure of economic activ- ity because it is free of double counting, unlike sales or receipts data, which reflect not only value added within the firm, but also the value of inter- mediate inputs purchased from outside the firm. bea has long provided current-dollar estimates of gross product for mofa's and for their U.S. parent companies, but the usefulness of these estimates for comparisons over time or across countries has been limited by the fact that they do not allow changes in real value added to be distinguished from changes in value arising from movements in prices or exchange rates. 2 1. A foreign affiliate is a foreign business enterprise in which there is U.S. direct investment; that is, a U.S. person ("U.S. parent") owns or con- trols, directly or indirectly, 10 percent or more of the voting securities or the equivalent. (In this definition, "person" is broadly defined to include any individual, branch, partnership, associated group, association, estate, trust, corporation or other organization — whether or not organized under the laws of any State — or any government entity.) A mofa is a foreign affiliate in which the combined ownership of all U.S. parents exceeds 50 percent. A U.S. parent comprises the domestic (U.S.) operations of a U.S. mnc. Foreign affiliates comprise the foreign operations of a U.S. mnc over which the parent is presumed to have a degree of managerial influence, mofa's comprise the foreign operations over which the parent(s) has a controlling interest. 2. For the most recent current-dollar estimates of gross product, see "Operations of U.S. Multinational Companies: Preliminary Results From the 1994 Benchmark Survey," Survey of Current Business 76 (December 1996): 11-37. For information on methodology and for illustrations of the uses of these estimates, see "Gross Product of U.S. Multinational Companies, 1977-91," Survey 74 (February 1994): 42-63. Employment has sometimes been used as an indicator of mnc economic activity because it is not directly affected by prices or exchange rates, but it is an imperfect measure because it measures the usage of a factor of production rather than production itself and because it does not reflect changes in the hours worked per employee or the usage of nonlabor factors of production. This article benefited significantly from comments by two reviewers from outside bea — Peter Hooper and Robert E. Lipsey. As might be expected, removing the ef- fects of changes in prices and exchange rates produces a gross product series that is gen- erally both slower growing and less volatile than the current- dollar series. In real terms, the gross product of mofa's in manufac- turing grew at an average annual rate of 2.5 percent from 1982 to 1994, a rate similar to the rate of growth in host-country industrial produc- tion. 3 Year to year, the changes ranged from -4.4 percent in 1991 to 8.4 percent in 1994 (table 1 and chart 1). In terms of current dollars, the prod- uct of mofa's grew at a 5.9-percent rate, and the year-to-year changes ranged from -4.8 percent in 1983 to 18.8 percent in 1987. Two procedures were used to prepare the estimates of real gross product — a preferred pro- cedure for 19 major host countries that account for over three-quarters of the total gross product of mofa's in manufacturing and a cruder pro- cedure for other host countries. The preferred procedure consisted of two steps: Estimates for a 3. Industrial production indexes are used for this comparison because estimates of real gross product originating in manufacturing are not available for all countries or for all years. Table 1.— Indexes of Current-Dollar and Real Gross Product of Majority-Owned Foreign Affiliates in Manufacturing, 1982-94 [1993=100] Percent change from Current- dollar Real previous year Current- dollar Real 1982 56.1 53.4 80.7 78.9 1983 -4.8 -2.2 1984 54.9 83.3 2.7 5.5 1985 55.7 85.3 1.5 2.4 1986 65.1 85.7 16.8 .5 1987 77.3 90.2 18.8 5.2 1988 89.8 97.1 16.2 7.7 1989 96.8 104.5 7.7 7.6 1990 105.5 103.5 9.0 -1.0 1991 102.4 98.9 -2.9 -4.4 1992 102.4 96.6 -.1 -2.3 1993 100.0 100.0 -2.3 3.5 1994 111.1 108.4 11.1 8.4 Addendum: Average annual rate of growth, 1982-94 5.9 2.5 REAL GROSS PRODUCT OF FOREIGN AFFILIATES 87 base year (1993) were first constructed using "pur- chasing power parity" (ppp) exchange rates rather than the market exchange rates (mer's) that are the basis of the current-dollar estimates; then estimates for other years were constructed by extrapolating the base-year estimates with chain- weighted Fisher quantity indexes similar to those used by bea to estimate changes in U.S. gross domestic product. Unlike mer's, the ppp exchange rates used to establish the base-year levels under the pre- ferred procedure approximate the number of foreign currency units required to purchase goods and services — whether or not traded internationally — equivalent to those that can be purchased in the United States with 1 U.S. dol- lar. 4 mer's, on the other hand, reflect a variety of factors, such as international capital movements and expectations of financial market conditions, that are not directly related to the prices of goods and services. As an example of how mer's may 4. ppp exchange rates are not directly observable in the marketplace, but are estimated by international organizations — such as the Organisation for Economic Co-Operation and Development, the United Nations, and the World Bank — by comparing prices for specific goods and services across countries. For additional information on ppp exchange rates see the appendix. Although more appropriate for this exercise than mer's, the ppp exchange rates used pertain to prices to the consumer rather than to the producer, which can cause some measurement error. CHART 1 Indexes of Current-Dollar and Real Gross Product of Majority-Owned Foreign Affiliates in Manufacturing and the Foreign-Currency Price of the U.S. Dollar, 1982-94 Index (1993=100) 120 110 100 90 80 70 60 50 Index (December 1980=100) 160 - Foreign currency price of U.S. dollar (right scale) 1982 83 84 85 86 87 88 89 90 91 92 93 94 NOTE- The index of the foreign currency price of the U.S. dollar Is a trade-weighted average against the currencies of the following 10 countries; Belgium, Canada, France.Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, and the United Kingdom. U.S. Department of Commerce, Bureau of Economic Analysis 150 140 130 120 110 100 90 move counter to purchasing power parity, from 1980 to 1985, the U.S. dollar price of German marks fell by nearly 40 percent even though the average rate of inflation, measured in consumer prices, was more than 2 percentage points higher in the United States than in Germany. 5 mer- based translation of a given volume of production by mofa's under these conditions would have shown a dramatic decrease, even though in fact none had occurred. For other host countries, the data needed for the preferred procedure were unavailable, and real dollar- denominated estimates were derived simply by deflating the current-dollar estimates (which had been translated at mer's) by the im- plicit price deflator for U.S. gross domestic prod- uct originating in nonpetroleum manufacturing industries. The estimates constructed using this procedure, though crude, appear to provide rea- sonable approximations of the true values of real gross product for the group even if not for each country. (See the section "Methodology" for further discussion of both procedures.) The remainder of the article comprises two parts and an appendix. The first part examines trends in the real gross product estimates and their relationship to the current-dollar estimates. The second part provides a detailed description of the methodology used to prepare the estimates. The appendix provides a brief introduction to ppp exchange rates. Trends in 1982-94 This section examines trends in the real gross product estimates for mofa's in manufactur- ing. The trends in the estimates of real gross product are then compared with those in the current-dollar estimates of gross product. All countries The real gross product of mofa's in manufactur- ing grew at an average annual rate of 2.5 percent in 1982-94 — below the 3.1-percent growth rate in real gross product originating in manufac- turing industries in the United States but above the about 2-percent growth rate in the real gross product of U.S. parents in manufacturing. 6 5. As an example of the failure of mer's to track absolute price levels of a particular good or service, the U.S.-dollar prices of a popular fast-food sand- wich in various countries have been compared under the prevailing mer's: In 1994, the sandwich cost $2.30 in the United States, $3.77 in Japan, and $1.66 in Hungary. See Michael R. Pakko and Patricia S. Pollard, "For Here or To Go? Purchasing Power Parity and the Big Mac," Review (Federal Reserve Bank of St. Louis, January/February 1996): 3-17. 6. For mofa's, the industry group "manufacturing" excludes petroleum and coal product manufacturing, mofa's (and U.S. parents) are classified 88 BEA STUDIES OF DIRECT INVESTMENT The patterns of growth in the real gross prod- uct of mofa's in manufacturing differed through- out 1982-94, but these patterns can be roughly divided into three parts: An average annual growth of 3.8 percent from 1982 to 1989, an av- erage annual decline of 2.6 percent from 1989 to 1992, and an average annual growth of 5.9 percent from 1992 to 1994. by an enterprise-based system in which all petroleum-related activities (such as oil extraction, refining, and gasoline retailing) are classified in a separate "petroleum" category. For this reason, the estimate of real gross product orig- inating in all U.S. manufacturing industries used in this comparison excludes petroleum and coal products manufacturing. For details on the industrial classification of mofa's, see "A Guide to bea Statistics on U.S. Multinational Companies," Survey 75 (March 1995): 38-55. Rough estimates of real gross product for U.S. parents in manufacturing were derived by deflating the current-dollar estimates at the broad industry level shown in table 4 by the implicit price deflators for U.S. gross domestic product originating in those industries. Changes in mo fa gross product are the net re- sult of several factors — changes in the capacity utilization of existing mo fa facilities, changes in productive capacity that result from expansion or contraction of existing affiliates, establishment oi new affiliates (or "greenfield investments"), ac- quisitions of existing foreign firms, and sell-offs, Because the direction of the changes in mo fa gross product corresponds with the direction oi the changes in economic conditions in several major host-country locations (including Europe, Canada, and Australia), growth in mofa gross product during 1982-94 probably was mostly ac- counted for by growth in existing operations, which would be expected to mirror host-country economic conditions. However, greenfield in- vestments and acquisitions also appear to have Table 2.— Current-Dollar and Real Gross Product of Majority-Owned Foreign Affiliates in Manufacturing, by Country, 1982-94 Billions of current dollars Average annual rate of growth 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1982-69 1989-92 1992-94 1982-9' All countries 99.8 76.9 4.3 94.9 75.5 3.8 97.5 78.3 4.0 99.0 79.9 3.4 115.6 95.7 3.1 137.4 115.0 3.7 159.7 133.2 5.0 172.0 141.4 6.9 187.6 155.0 6.3 182.1 149.4 5.3 181.9 143.9 5.1 177.7 135.7 5.0 197.5 152.7 5.7 8.1 9.1 6.9 1.9 .6 -9.2 4.2 3.0 5.8 5. 19 OECD countries 5. Australia 2. Austria .2 .4 .4 .4 .5 .4 .5 .7 .7 .8 .9 .9 1.3 16.0 9.3 18.8 14. Belgium 2.4 2.7 2.8 2.9 3.8 4.2 4.8 5.0 5.5 5.4 5.9 5.6 6.8 11.0 5.9 7.4 9. Canada 16.4 18.0 20.2 20.1 20.7 21.9 25.8 28.9 27.4 23.8 21.6 22.0 25.0 8.4 -9.1 7.6 3. Denmark .2 .2 .2 .2 .3 .4 .4 .4 .4 .5 .5 .5 .6 6.7 7.9 12.7 8. Finland (') (') ('} (*) (') n .1 .1 .1 .1 .1 .3 18.3 24.2 39.2 23. France 7.4 6.5 6.5 6.6 8.1 10.5 11.0 11.8 14.0 13.8 14.2 14.1 16.3 6.8 6.3 7.0 6. Germany 15.3 15.3 14.0 14.8 19.5 23.5 25.0 25.8 33.6 34.5 35.6 32.8 32.0 7.8 11.2 -5.1 6. Greece .1 .1 .1 .1 .1 .1 .2 .2 .2 .2 .3 .3 .3 5.3 10.5 9.1 7. Ireland 1.3 1.5 1.8 1.8 1.7 3.0 3.5 3.5 4.3 4.2 4.6 3.9 4.6 14.8 9.1 .3 10. Italy 3.9 3.8 4.2 4.3 5.7 7.0 7.5 7.8 9.2 9.3 8.9 7.1 8.2 10.2 4.6 -4.0 6. Japan 2.2 2.5 3.0 3.2 4.5 5.9 7.4 7.7 7.3 8.0 7.9 8.5 10.8 19.7 .9 17.1 14. Luxembourg .2 .2 .2 .2 .4 .5 .5 .5 .6 .6 .7 .6 .7 14.8 8.3 3.7 11. Netherlands 2.6 2.7 2.8 2.8 3.9 5.2 5.9 7.8 6.9 6.7 7.0 6.4 7.5 17.2 -3.4 3.7 9. New Zealand .3 .3 .2 .2 .3 .2 .2 .2 .3 .1 .4 .1 .3 .1 .3 .1 .2 .2 .2 .1 .2 .1 .2 .2 .4 .3 1.0 -10.3 -13.7 .3 37.1 68.6 2. Norway 2. Spain 1.9 1.8 2.0 2.3 3.3 4.3 5.3 5.7 6.4 6.4 5.8 4.8 5.4 17.5 .3 -3.4 9. Sweden .6 .6 .6 .7 .8 .8 .9 1.0 1.0 1.1 .9 .8 .8 7.0 -4.2 -5.0 2. United Kingdom 17.3 14.9 15.1 15.8 19.1 23.0 29.0 27.4 30.5 28.4 23.7 21.8 25.7 6.8 -4.7 4.3 3. All other countries 22.8 19.5 19.2 19.0 19.9 22.4 26.5 30.6 32.6 32.7 38.1 42.0 44.8 4.3 3.8 4.3 2.9 7.5 -2.6 -4.6 -10.0 8.5 5.9 5.5 4.2 5. Billions of chained (1993) dollars All countries 123.6 94.0 5.3 120.9 96.1 4.8 127.6 103.8 4.9 130.7 107.0 4.9 131.3 107.6 4.4 138.2 111.5 4.6 148.8 117.8 5.1 160.1 126.1 6.5 158.5 123.2 5.8 151.5 117.4 4.7 148.0 109.3 4.7 153.2 111.2 4.9 166.1 121.6 5.2 2. 19 OECD countries 2. Australia Austria .3 .4 .4 .5 .4 .3 .4 .6 .5 .5 .6 .6 .9 11.5 1.4 21.6 10. Belgium 3.2 3.9 4.2 4.3 4.4 4.1 4.5 4.7 4.4 4.4 4.5 4.6 5.3 5.6 -1.6 8.6 4. Canada 20.2 21.3 24.0 24.3 24.8 24.6 25.8 27.4 25.7 21.8 20.6 21.7 24.8 4.5 -9.0 9.6 1. Denmark .2 .2 .2 .2 .3 .3 .3 .3 .3 .3 .3 .3 .3 1.7 (') 15.2 3. Finland (') B a (') (*) n (*) .1 .1 .1 .1 .2 12.4 23.2 47.4 20. France 8.4 7.8 7.8 8.7 9.5 9.6 9.9 9.7 10.5 11.7 1.7 .7 10.1 2. Germany 20.1 20.8 20.6 22.0 21.4 21.1 21.7 23.3 25.5 26.3 24.9 24.1 23.0 2.1 2.3 -3.9 1. Greece .2 .2 .2 .2 .2 .2 .2 .3 .2 .3 .3 .3 .3 2.3 .9 9.5 3. Ireland 1.6 2.0 2.4 2.5 1.9 3.0 3.4 3.4 3.7 3.7 3.8 3.6 4.1 11.4 2.9 3.9 8. Italy 5.2 5.1 5.9 6.2 6.2 6.3 6.5 6.7 6.7 6.8 6.4 6.3 7.0 3.6 -1.5 4.7 2. Japan 2.4 2.6 3.2 3.4 3.5 4.1 4.6 5.0 4.9 4.9 4.6 4.4 5.2 10.9 -2.3 6.2 6. Luxembourg .2 .3 .3 .3 .4 .4 .4 .4 .5 .5 .5 .5 .5 9.8 3.2 6.1 7. Netherlands 2.9 3.1 3.6 3.6 3.9 4.5 4.8 6.5 5.1 5.1 5.1 5.0 5.7 12.6 -8.1 5.9 5. New Zealand .4 .2 .3 .2 .4 .2 .4 .2 .4 .1 .4 .1 .3 .1 .3 .1 .2 .1 .2 .1 .2 .1 .3 .1 .4 .2 -1.9 -12.8 -12.6 -5.1 31.1 77.8 (' Norway Spain 2.3 2.6 2.9 3.3 3.7 4.2 4.7 5.0 4.6 4.6 4.0 4.1 4.7 11.5 -6.5 7.3 6. Sweden .7 .7 .7 .8 .7 .6 .7 .7 .7 .7 .5 .6 .6 1.2 -9.5 4.2 -1. United Kingdom 21.6 29.2 -1.1 20.5 24.6 -.5 22.3 23.6 -.9 22.6 23.4 -.7 23.4 23.5 (') 24.1 26.5 -.1 26.4 30.8 -.6 25.7 33.9 -.2 24.9 35.3 -.2 22.4 34.0 .3 18.3 38.7 .1 19.2 42.0 21.6 44.5 2.5 2.2 -10.6 5.5 8.5 7.2 C All other countries 3. ' Less than $50 million or less than 0.05 percent. Note.— Chained (1993) dollar series were derived by extrapolating the base-year (1993) PPP-exchange-rate-based current-dollar value ol the corresponding series by a Fisher quantity index (see the text lor details). 8ecause the lormula lor the Fisher quantity indexes uses weights ol more than one period, the corresponding chained-dollar estimates are usually not additive. The residual line is the difference between the total line and the sum of the most detailed lines. Although the real estimates are denominated in dollars of 1993, the estimate for 1993 does not equal the current- dollar estimate lor that year, because the two estimates are based on different exchange rates. As explained i the text, the current-dollar estimates are based on market exchange rates and the real estimates are based oi purchasing-power-parity exchange rates. OECD Organisation for Economic Co-Operation and Development REAL GROSS PRODUCT OF FOREIGN AFFILIATES 89 contributed significantly to the growth in the gross product of mofa's in some countries. 19 oecd countries From 1982 to 1994, real gross product of mofa's in manufacturing in 19 member countries of the Organisation for Economic Co-Operation and Development (oecd) grew at an average annual rate of 2.2 percent — the same as the (weighted) average annual rate of growth in total industrial production in these countries (table 2 and chart 2)7 Even on a year-to-year basis, the move- ments in the gross product estimates generally tracked the industrial production in the host countries. 7. For this comparison, a composite index of industrial production was derived by weighting each country's index by that country's share of the cumulative dollar value of real gross product of mofa's in manufacturing in 1982-94. The concepts, coverage, and method of computation of industrial pro- duction indexes are similar to those of estimates of real gross product of mofa's in manufacturing. However, the industrial production indexes in- clude the mining, petroleum refining, and electric and gas utilities industries, and some countries' industrial production indexes are based on the changes in the total output (sales plus inventory change) in specific industries rather than on the gross product originating in them. In addition, the industry-level changes are often aggregated with fixed benchmark-year weights rather than with chained weights like those used for the real gross product estimates. CHART 2 Indexes of Real Gross Product of Majority-Owned Foreign Affiliates in Manufacturing and Host-Country Industrial Production, in 19 OECD Countries, 1982-94 Index (1993=100) 120 Real gross product of MOFA's \ 115 110 105 100 95 90 85 80 1982 83 84 85 86 87 88 89 90 91 92 93 94 MOFA Majority-owned foreign affiliate OECD Organisation for Economic Co-Operation and Development NOTES— The 1 9 OECD countries covered in this chart are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Spain, Sweden, and the United Kingdom. The composite Index of Industrial production was derived by weighting each country's index by the country's share in the cumulative dollar value of real gross product of MOFA's In manufacturing in 1982-94. U.S. Department of Commerce, Bureau of Economic Analysis From 1982 to 1989, the estimates of real gross product for mofa's in the 19 countries grew at an average annual rate of 4.3 percent, compared with a 3.1-percent growth rate for host-country indus- trial production. The growth in gross product was widespread, reflecting an extended period of economic growth in most of the oecd countries. Greenfield investments and acquisitions may have also contributed to the growth in several host countries — such as Ireland, Japan, the Nether- lands, and Spain — where mofa gross product grew much faster than the worldwide average. From 1989 to 1992, the estimates of real gross product for mofa's decreased at an average an- nual rate of 4.6 percent, compared with a growth rate of 0.1 percent for host-country industrial production. The decrease reflected falling ca- pacity utilization for mofa's (related to slow growth or recession in host-country economies) that more than offset the modest growth in the productive capacity of mofa's during this pe- riod. Among the larger host countries, Australia, Canada, and the United Kingdom had the largest decreases, perhaps because economic recessions began earlier in those countries than in most other oecd countries. From 1992 to 1994, the estimates of real gross product for mofa's increased at an average annual rate of 5.5 percent, compared with a 2.0-percent growth rate for host-country industrial produc- tion. The increases in gross product were wide- spread and mainly reflected renewed economic growth in the host countries. All other countries From 1982 to 1994, real gross product of mofa's in manufacturing in "all other countries" grew at an average annual rate of 3.6 percent. Un- like the growth in the 19 oecd countries, the growth in these countries was slowest from 1982 to 1989, partly reflecting the effects of a debt cri- sis in Latin America. From 1989 to 1994, growth accelerated, reflecting renewed economic growth in Latin America and new investments by U.S. mnc's in emerging markets worldwide. Comparison of real and current-dollar estimates All countries. — The real and current-dollar estimates of gross product present very different pictures of the level and growth of U.S. compa- nies' overseas manufacturing activities in 1982- 94. The differences can be explained largely by exchange- rate conditions rather than by changes in prices. 90 BEA STUDIES OF DIRECT INVESTMENT Unlike most real and current-dollar series, the levels of the estimates of real and current-dollar gross product do not match in the base year, 1993, of the real series; the current-dollar estimate is $177.7 billion, whereas the real estimate is $153.2 billion (table 2). The difference results from differences in the exchange rates on which the estimates are based: The current-dollar esti- mates are based on mer's, and the real estimates are based on ppp exchange rates. The lower level of the real series in 1993 reflects the higher ex- change value of the dollar under ppp exchange rates in 1993 than under mer's. Under the pre- vailing mer, one unit of currency could have purchased more, on average, in the United States than it could have abroad. During 1982-94, the year-to-year changes in the real estimates differed from those in the current- dollar estimates. Real gross product of mofa's in manufacturing grew at an average annual rate of 2.5 percent, compared with an average annual growth rate of 5.9 percent for the current-dollar estimates. Most of the divergence occurred in 1985-90 (chart 1). From 1982 to 1985, the two series moved roughly in tandem, probably be- cause changes in the mer value of the dollar were consistent with those needed to maintain pur- chasing power parity between the dollar and the currencies of the countries where U.S. mnc's were producing; the dollar appreciated at a time when U.S. inflation was generally milder than that of the major host countries (table 3). From 1985 to 1990, the real estimates grew at an average annual rate of 3.9 percent, compared with a 14.0-percent rate for the current- dollar estimates. The dif- ference in the growth rates probably reflects the depreciation of the mer value of the dollar; the dollar depreciated substantially even though U.S. inflation continued to be generally milder than that abroad. From 1990 to 1994, the differences between the two series were smaller, probably re- flecting relative stability in the mer value of the dollar. 19 oecd countries. — For most of the 19 oecd countries, the relationship between the current- Table 3.— Average Annual Change in Consumer Prices [Percent] United States . OECD Europe Canada Japan 1982-85 1985-90 1990-94 3.2 7.3 2.3 1.7 dollar and the real estimates of gross product was similar to that for all countries. In 1993, the levels of the current-dollar estimates exceeded those of the real estimates in all but two countries (Greece and New Zealand). Like the estimates for all countries, the current- dollar estimates for the 19 countries grew more than twice as fast, on average, as the estimates of real gross prod- uct. The differences in the growth rates for the largest oecd host countries were generally most pronounced between 1985 and 1988 (chart 3). All other countries. — In contrast to the levels for the 19 oecd countries, the levels of the estimates of current- dollar and real gross product for all other countries are identical in 1993, and in the other years, the differences between the two series simply reflect inflation as measured by the U.S. implicit price deflator for gross domestic prod- uct originating in nonpetroleum manufacturing industries. This relationship results from the method used to produce the real gross product estimates for these countries. Methodology This section describes the methodology for preparing the estimates of real gross prod- uct, which were derived by adjusting the current- dollar estimates. Current-dollar gross product estimates Gross product for a firm, such as a mofa, can be measured as its gross output (sales or receipts and other operating income, plus inventory change) less its purchased intermediate inputs (purchased goods and services). Alternatively, gross product can be measured as the sum of the costs in- curred (other than for intermediate inputs) and the profits earned in production. The current- dollar gross product estimates for mofa's are prepared by summing costs and profits. The data on costs and profits are collected in bea's annual and benchmark surveys of U.S. direct investment abroad and are combined with bea estimates of some items. 8 Survey respondents are asked to fol- low U.S. generally-accepted accounting principles (gaap), which require that revenues and costs de- nominated in foreign currencies be translated to U.S. dollars, using the average mer for the year. 9 Therefore, the gross product estimates that are Sources: OECD, Historical Statistics, 1960-1990 (OECD, Paris, 1992) and Main Economic Indicators (OECD, Paris, November 1995) OECD Organisation lor Economic Co-Operation and Development 8. See "Gross Product of U.S. Multinational Companies, 1977-91." 9. However, in accordance with gaap, the revenues and expenses of affil- iates operating in hyperinflationary economies are translated daily into U.S. dollars at the prevailing daily mer's; thus, the accounts for these affiliates are, in effect, kept in dollars. REAL GROSS PRODUCT OF FOREIGN AFFILIATES 91 Indexes of Current-Dollar and Real Gross Product of Majority-Owned Foreign Affiliates in Manufacturing, by Selected Country, 1982-94 Index (1993=100) 140 120 100 80 60 40 20 19 OECD COUNTRIES Reak ^-"— 5-Ci-»^_ ~^<^~~/^ S* Current-dollar — l 1982 83 84 85 86 87 88 89 90 91 92 93 94 Index (1993=100) 140 FRANCE Reak ^7 I I I I I I I 120 100 80 60 40 20 1982 83 84 85 86 87 88 89 90 91 92 93 94 Index (1993=100) 140 40 20 ITALY J I J L J I I 1982 83 84 85 86 87 88 89 90 91 92 93 94 Index (1993=100) 140 120 100 80 60 40 20 NETHERLANDS a ^/ \/X / Current-dollar I l l l l 1982 83 84 85 86 87 88 89 90 91 92 93 94 OECD Organisation for Economic Co-Operation and Development U.S. Department of Commerce, Bureau of Economic Analysis. Index (1993=100) 140 120 100 80 60 40 20 CANADA ^>^ Real^^ — "/ ^\\. / ^>r Current-dollar ^ I I I I I I I I I I I I 1982 83 84 85 86 87 88 89 90 91 92 93 94 Index (1993=100) 140 120 100 80 60 40 20 GERMANY ^^x^ R6a ^^y>yr- ^-•"■a S^~~~^ "-~-»— — ' Current-dollar I l l l I I l 1982 83 84 85 86 87 88 89 90 91 92 93 94 Index (1993=100) 140 JAPAN 1982 83 84 85 86 87 88 89 90 91 92 93 94 Index (1993=1 00) 140 UNITED KINGDOM 1982 83 84 85 86 87 88 89 90 91 92 93 94 92 BEA STUDIES OF DIRECT INVESTMENT derived from these data reflect what a U.S. buyer would pay, at the prevailing mer, to purchase the gross product of mofa's from abroad. Real gross product estimates Two procedures were used to prepare the esti- mates of real gross product. A preferred proce- dure was used for the estimates for 19 major host countries that account for over three-quarters of the total gross product of mofa's in manufac- turing. A cruder procedure was used for the estimates for other host countries, because the data needed for the preferred procedure were unavailable. 19 oecd countries. — The estimates of real gross product for the 19 oecd countries were prepared in two steps (chart 4). First, estimates for a base year, 1993, were prepared using ppp exchange rates in place of mer's. Product-specific, rather than economywide, ppp exchange rates were used because they are considered more appropriate for translating gross product for a particular group of industries, such as manufacturing industries. 10 For the 19 oecd countries, ppp exchange rates for specific final consumption and investment expenditure cate- gories were available from the oecd and were used in deriving the base-year estimates of real gross product for mofa's in these countries. 11 The estimates for the base year were derived as follows (chart 4, "Base Year"). First, the current- dollar estimates for each of the 19 oecd countries and for 7 major manufacturing indus- tries (table 4, column 1) in each country were translated back into current local currency by us- ing the average mer for the year. Second, the estimates for each industry were retranslated into U.S. dollars by using the most appropriate ppp exchange rate (table 4, column 3). Third, the industry-level estimates for each country were summed to produce the base-year estimates by 10. See, for example, Peter Hooper, "Comparing Manufacturing Out- put Levels Among the Major Industrial Countries," in Industry Productivity: International Comparison and Measurement Issues (Paris: oecd, 1996). 11. The exchange rates used in this study were published in oecd, Purchas- ing Power Parities and Real Expenditures 1993, eks Results, Volume 1 (Paris: oecd, 1995). It would have been preferable to use ppp exchange rates that were based on producers' prices rather than on consumers' prices, or that had otherwise been adjusted for differences between expenditure and output prices, but none were readily available. Some analysts, such as Hooper (1996), have attempted to make rough adjustments for some of these factors (such as cross-country differences in distribution margins and indirect taxes). Derivation of Real Gross Product of Majority-Owned Foreign Affiliates in Manufacturing in 19 OECD Countries All Years 1 . Current-dollar gross product estimates, by Industry, based on market exchange rates, from data reported on BEA surveys. \ i Base Year fiQftN 2. Multiply by average market exchange rate (foreign currency ^ per U.S. dollar) forthe year. j A 4. Multiply by average purchasing- power-parity exchange rate (U.S. dollars per foreign currency) for the year. - 5. Sum the industry-level estimates. - 6. Real gross product. ■ < 3. Current-local-currency gross product. ! \ \ uiner rears 11 »«-»*, 1 »sij quantity indexes using the industry- level current-local-currency gross product estimates and local producer price indexes. ^ * 5. Extrapolate the base-year values of real gross product using the Fisher quantity indexes. 6. Real gross product. OECD Organisation lor Economic Co-Operation and Development U.S. Department of Commerce, Bureau of Economic Analysis REAL GROSS PRODUCT OF FOREIGN AFFILIATES 93 country. Fourth, the estimates for each country were summed to produce the base-year estimate for all 19 countries. The second step in producing the real gross product estimates was to extrapolate the base- year estimates to other years (1982-92 and 1994) by using chain-weighted Fisher quantity indexes (chart 4, "Other Years"). The current-dollar es- timates at the country and industry level were first translated back into current local currency. The resulting estimates by industry were then used, along with country- and industry- specific producer price indexes (table 4, column 2), to construct a chain- weighted Fisher quantity index for each country. 12 The following Fisher quantity index (Q) was used to estimate the change in the real gross product for mofa's in a country between any two adjacent years: 13 Q = £Pil(li2 Xpi24i2 XPfl^il " Xpi24il' where the p's are prices in local currency, the q's are quantities, the Vs are industries, and 1 and 2 are adjacent years. Because the variables that represent the com- posites of prices in one period and the quantities in another (such as pn cnz) are not directly observable, the quantity indexes were actually computed using an algebraically equivalent for- mula consisting of combinations of prices and quantities of the same period (the current-local- currency estimates) and indexes of relative prices in the two periods (the ratios of producer price indexes). 14 12. The industry-specific producer price indexes are from the oecd Indicators of Industrial Activities (Paris, oecd, various quarterly issues). 13. A similar equation is used to measure changes in total U.S. gross domestic product. See, for example, "A Look at How bea Presents the National Income and Product Accounts," Survey 76 (May 1996): 36. 14. The rewritten Fisher quantity index is as follows: Q = s m Pi2 ' Pi2 in the last decade, they accounted for over 70 percent of the total affiliate trade deficit (table 2). Since 1985, wholesale trade affiliates' imports have been more than twice as large as their exports. In each year during 1985-91, about 80 percent of the imports by these affiliates were from their foreign parent groups. 2 As might be expected, wholesale trade affiliates — like most 1. The trade-weighted value of the U.S. dollar increased in every year from 1980 to 1985, then generally trended downward through 1991. 2. The foreign parent of a U.S. affiliate is the first person outside the United States in the affiliate's ownership chain that has a direct investment interest in the affiliate. The affiliate's foreign parent group consists of (1) the foreign parent, (2) any person, proceeding up the foreign parent's ownership chain, that owns more than 50 percent of the person below it, up to and including the ultimate beneficial owner (see footnote 8), and (3) any foreign Table 1.— Total U.S. Merchandise Trade and Merchandise Trade of U.S. Affiliates of Foreign Companies, 1977-91 U.S. exports U.S. imports Balance Ratio of imports to exports All U.S. U.S. Other U.S. All U.S. U.S. Other U.S. All U.S. U.S. Other U.S. All U.S. U.S. Other U.S. businesses affiliates businesses businesses affiliates businesses businesses affiliates businesses businesses affiliates businesses Millions of dollars 1977 123,182 24,858 98,324 151,534 43,896 107,638 ■ 28,352 -19,038 -9,314 1.23 1.77 1.09 1978 145,847 32,169 113,678 176,052 56,567 119,485 -30,205 -24,398 -5,807 1.21 1.76 1.05 1979 186,363 44,341 142,022 210,285 63,039 147,246 -23,922 -18,698 -5,224 1.13 1.42 1.04 1980 225,566 52,199 173,367 245,262 75,803 169,459 -19,696 -23,604 3,908 1.09 1.45 .98 1981 238,715 64,066 174,649 260,982 82,259 178,723 -22,267 -18,193 -1,074 1.09 1.28 1.02 1982 216,442 60,236 156,206 243,952 84,290 159,662 -27,510 -24,054 -3,456 1.13 1.40 1.02 1983 205,639 53,854 151,785 258,048 81,464 176,584 -52,409 -27,610 -24,799 1.25 1.51 1.16 1984 223,976 58,186 165,790 330,678 100,489 230,189 -106,702 -12,303 -64,399 1.48 1.73 1.39 1985 218,815 56,401 162,414 336,526 113,331 223,195 -117,711 -56,930 -60,781 1.54 2.01 1.37 1986 227,159 49,560 177,599 365,438 125,732 239,706 -138,279 -76,172 -62,107 1.61 2.54 1.35 1987 254,122 48,091 206,031 406,241 143,537 262,704 -152,119 -95,446 -56,673 1.60 2.98 1.28 1988 322,426 69,541 252,885 440,952 155,533 285,419 -118,526 -85.992 -32,534 1.37 2.24 1.13 1989 363,812 86,316 277,496 473,211 171,847 301,364 -109,399 -85,531 -23,868 1.30 1.99 1.09 1990 393,592 92,308 301,284 495,311 182,936 312,375 -101,719 -90,628 -11,091 1.26 1.98 1.04 1991" 421,730 98,369 323,361 487,129 179,694 307,435 -65,399 -81,325 15,926 1.16 1.83 .95 Percent of all U.S. businesses 1977 100.0 100.0 100.0 100.0 20.2 22.1 23.8 23.1 79.8 77.9 76.2 76.9 100.0 100.0 100.0 100.0 29.0 32.1 30.0 30.9 71.0 67.9 70.0 69.1 100.0 100.0 100.0 100.0 67.1 80.8 78.2 119.8 32.9 19.2 21.8 -19.8 1978 ... 1979 .... 1980 1981 100.0 100.0 26.8 27.8 73.2 72.2 100.0 100.0 31.5 34.6 68.5 65.4 100.0 100.0 81.7 87.4 18.3 12.6 1982 1983 100.0 26.2 73.8 100.0 31.6 68.4 100.0 52.7 47.3 1984 100.0 26.0 74.0 100.0 30.4 69.6 100.0 39.6 60.4 1985 100.0 1000 25.8 21 8 74.2 782 100.0 100 33.7 34 4 66.3 65 6 100.0 1000 48.4 551 51.6 44.9 1986 1987 100 189 81 1 100 35 3 64 7 100 62 7 37.3 1988 100.0 21.6 78.4 100.0 35.3 64.7 100.0 72.6 27.4 1989 100.0 100.0 100.0 23.7 23.5 23.3 76.3 76.5 76.7 100.0 100.0 100.0 36.3 36.9 36.9 63.7 63.1 63.1 100.0 100.0 100.0 78.2 89.1 124.4 21.8 10.9 -24.4 1990 1991" f Preliminary. Note.— The data on U.S. merchandise exports and imports by all U.S. businesses are from the Census Bureau. The merchandise trade figures lor other U.S. businesses were derived through subtraction. The figures shown lor all U.S. businesses differ somewhat from the Census- basis figures reported in table 2A of "U.S. International Transactions, First Quarter 1993," Survey of Current Business 73 (June 1993): 76. For exports, the major reason for the difference is that the June Survey figures do not include undocumented data on U.S. exports to Canada, which are included in the figures shown in this table. For both exports and imports, an additional reason for the difference is rounding at the commodity level. MERCHANDISE TRADE OF U.S. AFFILIATES 123 wholesalers — simply resell the goods they import: According to data from bea's last benchmark sur- vey, more than 90 percent of the imports by these affiliates in 1987 were goods for resale without any further processing, assembly, or manufacture by the affiliates. 3 Because many wholesale trade affiliates are es- tablished expressly to market the products of their parent companies, it is not surprising that they import much more than they export. In- deed, a similar pattern may be observed for the foreign wholesale trade affiliates of U.S. compa- nies, which regularly run large trade deficits with the United States: In the past decade, imports from the United States by these affiliates have generally been more than triple their exports to the United States. 4 person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it. 3. bea's benchmark surveys of foreign direct investment in the United States, which are conducted every 5 years, include many data items that are not collected annually. The last benchmark survey covered 1987. Preliminary results of the next benchmark survey, covering 1992, will be available in the summer of 1994. 4. Data on the U.S. merchandise trade of foreign affiliates of U.S. compa- nies are collected in annual and benchmark surveys of U.S. direct investment abroad. For the most recent data, see "U.S. Multinational Companies: Operations in 1991," Survey of Current Business 73 (July 1993): 52. A large part of the trade deficit of U.S. whole- sale trade affiliates is related to imports of motor vehicles. In every year during 1977-91, affiliates selling motor vehicles and equipment accounted for more than 30 percent of total imports by U.S. wholesale trade affiliates; in 1984-89, their share was more than 40 percent. Given that their exports are relatively small, these affiliates have consistently accounted for more than one-half of the trade deficit of U.S. wholesale trade affiliates and for more than 40 percent of the total affiliate deficit. U.S. affiliates in "other industries" have also had a high import/export ratio (more than 3.0 in most years since 1986), but their share of the total affiliate deficit has been much smaller than that for wholesale trade affiliates. Their high import/export ratio reflects large imports and relatively negligible exports by affiliates in petroleum. 5 In 1979-82, when world oil prices were very high, affiliates in "other industries" ac- counted for over one-third of the total affiliate deficit, but as oil prices subsequently declined, their share of the deficit also declined; by 1985, it 5. In all years except 1985 and 1986, petroleum affiliates accounted for more than 80 percent of total imports by affiliates in "other industries." Table 2.— Merchandise Trade of U.S. Affiliates of Foreign Companies, by Major Industry of Affiliate, 1977-91 Exports shipped by U.S. affiliates Imports shipped to U.S. affiliates Balance Ratio of imports to exports All industries Manu- facturing Whole- sale trade Other industries All industries Manu- facturing Whole- sale trade Other industries All industries Manu- facturing Whole- sale trade Other industries All industries Manu- facturing Whole- sale trade Other industries Millions of dollars 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991" 24,858 32,169 44,341 52,199 64,066 60,236 53,854 58,186 56,401 49,560 48,091 69,541 86,316 92,308 98,369 3,557 4,521 6,548 9,048 13,590 12,883 12,045 13,078 12,849 12,805 15,487 25,192 31,873 36,069 39,432 19,983 25,898 35,600 40,713 46,487 43,336 38,454 40,539 38,257 33,727 29,165 40,035 49,096 49,925 51,995 1,318 1,750 2,193 2,438 3,989 4,017 3,355 4,569 5,295 3,028 3,439 4,314 5,347 6,314 6,942 43,896 56,567 63,039 75,803 82,259 84,290 81,464 100,489 113,331 125,732 143,537 155,533 171,847 182,936 179,694 5,624 7,193 8,668 10,413 13,226 12,386 14,021 18,172 18,635 20,617 24,546 32,762 40,871 47,171 47,983 31,369 42,733 45,621 54,020 57,908 61,679 59,048 72,478 84,568 94,517 107,278 111,481 114,049 113,639 112,064 6,903 6,641 8,750 11,370 11,125 10,225 8,395 9,839 10,128 10,598 11,713 11,290 16,927 22,126 19,647 -19,038 -24,398 -18,698 -23,604 -18,193 -24,054 -27,610 ^12,303 -56,930 -76,172 -95,446 -85,992 -85,531 -90,628 -81,325 -2,067 -2,672 -2,120 -1,365 364 497 -1,976 -5,094 -5,786 -7,812 -9,059 -7,570 -8,998 -11,102 -8,551 -11,386 -16,835 -10,021 -13,307 -11,421 -18,343 -20,594 -31.939 —46,31 1 -60,790 -78,113 -71,446 -64,953 -63,714 -60,069 -5,585 -4,891 -6,557 -8,932 -7,136 -6,208 -5,040 -5,270 -4,833 -7,570 -8,274 -6,976 -11,580 -15,812 -12,705 1.77 1.76 1.42 1.45 1.28 1.40 1.51 1.73 2.01 2.54 2.98 2.24 1.99 1.98 1.83 1.58 1.59 1.32 1.15 .97 .96 1.16 1.39 1.45 1.61 1.58 1.30 1.28 1.31 1.22 1.57 1.65 1.28 1.33 1.25 1.42 1.54 1.79 2.21 2.80 3.68 2.78 2.32 2.28 2.16 5.24 3.79 3.99 4.66 2.79 2.55 2.50 2.15 1.91 3.50 3.41 2.62 3.17 3.50 2.83 Percent of all-industries total 1977 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 14.3 14.1 14.8 17.3 21.2 21.4 22.4 22.5 22.8 25.8 32.2 36.2 36.9 39.1 40.1 80.4 80.5 80.3 78.0 72.6 71.9 71.4 69.7 67.8 68.1 60.6 57.6 56.9 54.1 52.9 5.3 5.4 4.9 4.7 6.2 6.7 6.2 7.9 9.4 6.1 7.2 6.2 6.2 6.8 7.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 12.8 12.7 13.8 13.7 16.1 14.7 17.2 18.1 16.4 16.4 17.1 21.1 23.8 25.8 26.7 71.5 75.5 72.4 71.3 70.4 73.2 72.5 72.1 74.6 75.2 74.7 71.7 66.4 62.1 62.4 15.7 11.7 13.9 15.0 13.5 12.1 10.3 9.8 8.9 8.4 8.2 7.3 9.9 12.1 10.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 10.9 11.0 11.3 5.8 -2.0 -2.1 7.2 12.0 10.2 10.3 9.5 8.8 10.5 12.3 10.5 59.8 69.0 53.6 56.4 62.8 76.3 74.6 75.5 81.3 79.8 81.8 83.1 75.9 70.3 73.9 29.3 20.0 35.1 37.8 39.2 25.8 18.3 12.5 8.5 9.9 8.7 8.1 13.5 17.4 15.6 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991" * Preliminary. 124 BEA STUDIES OF DIRECT INVESTMENT had fallen below 10 percent. Their share of the deficit increased from 8 percent in 1988 to 14 per- cent in 1989, reflecting a large increase in imports by petroleum affiliates. U.S. affiliates in manufacturing have consis- tently accounted for less than one-eighth of the total affiliate deficit. The import/export ratio for these affiliates has generally been much lower than that for wholesale trade affiliates or for affili- ates in "other industries." In 1988-91, the imports of manufacturing affiliates exceeded their exports by less than one-third. This deficit partly reflects a reliance on imports for materials and compo- nents used in production for the U.S. market. (This topic is examined in the final section of this article.) It may also reflect wholesale trade activities by manufacturing affiliates. 6 Manufacturing affiliates' shares of both exports and imports of all U.S. affiliates have increased steadily since the late 1970 's. Their share of ex- ports rose from 14 percent in 1977 to 40 percent in 1991; the most rapid gains were during 1985- 90. Their share of imports rose from 13 percent in 1977 to 27 percent in 1991; the most rapid gains were during 1987-90. The shares of wholesale trade affiliates declined correspondingly, from 80 percent to 53 percent for exports and from 71 percent to 62 percent for imports. The recent increase in the share of U.S.-affiliate trade accounted for by manufacturing affiliates partly reflects the rapid growth in foreign di- rect investment in the United States in the late 1980's, particularly in manufacturing. From 1985 to 1990, total assets of manufacturing affiliates increased 152 percent (from $170 billion to $429 billion), whereas total assets of wholesale trade affiliates increased 109 percent (from $77 billion to $160 billion). During the same period, total sales of manufacturing affiliates increased 113 per- cent (from $186 billion to $396 billion), whereas total sales of wholesale trade affiliates increased only 56 percent (from $241 billion to $375 billion). U.S.-Affiliate Trade by Country of Ownership This section compares the merchandise trade of U.S. affiliates of the seven largest invest- ing countries: Canada, France, Germany, Japan, the Netherlands, Switzerland, and the United Kingdom. 7 In every year since 1977, affiliates with ultimate beneficial owners (ubo's) in these coun- tries have accounted for more than 80 percent of total merchandise exports and imports of U.S. af- filiates (table 3). Japanese- owned affiliates have accounted for the largest shares — about 40 per- cent of exports and 50 percent of imports in most years since the mid- 1980's. In terms of exports, French- owned affiliates have consistently ranked second to Japanese- owned affiliates, accounting for 12 percent of affiliate exports in 1991; in terms of imports, German-owned affiliates have gener- ally ranked second, accounting for 10 percent of affiliate imports in 1991. The large share of total affiliate trade accounted for by Japanese- owned affiliates far exceeds their share of U.S.-affiliate gross product (15 percent in 1991) and predates the dramatic increase in Japanese direct investment in the United States that occurred in the late 1980's. As early as 1977 (when their share of U.S.-affiliate gross product was only 7 percent), Japanese- owned affiliates ac- counted for 42 percent of U.S.-affiliate exports and 37 percent of U.S.-affiliate imports. Their export share changed little thereafter, but their import share increased significantly — from 36 percent in 1980 to a peak of 51 percent in 1985. The merchandise trade of Japanese-owned af- filiates has been dominated by wholesale trade affiliates. Through the mid-1980's, these affiliates accounted for more than 95 percent of the U.S. exports and imports of Japanese-owned affiliates. Although that share began to decline thereafter, it was still high — 84 percent — in 1991. Most of the exports by Japanese-owned affil- iates have been by wholesale trade affiliates of Japanese trading companies, whereas most of the imports have been by wholesale trade affil- iates of Japanese manufacturing companies. In 1991, wholesale trade affiliates of Japanese trad- ing companies accounted for 73 percent of the total exports by Japanese-owned affiliates but for only 27 percent of their total imports. More than three-fourths of these exports and imports were by affiliates of the sogo shosha, Japan's big general trading companies. 9 Wholesale trade affiliates of Japanese manufacturing companies accounted 6. The data collected by bea are on an enterprise basis, with all of the affiliate's activities consolidated on a single report. Because each affiliate is classified by primary industry according to the composition of its sales, an affiliate's operations in secondary industries will appear as part of the data for its primary industry. A number of affiliates whose primary activity is manufacturing are engaged in wholesale trading as a secondary activity. 7. The seven countries are the largest investors in terms of affiliate em- ployment, sales, and gross product. In 1991, affiliates of these countries together accounted for 82 percent of the employment, sales, and gross product of all U.S. affiliates. 8. An affiliate's ubo is that person, proceeding up the affiliates ownership chain, beginning with and including the foreign parent, that is not owned more than 50 percent by another person. 9. The sogo shosha have long served an important role as intermediate agents for much of Japan's trade with other countries, especially for trade in bulk commodities. See Alexander K. Young, The Sogo Shosha: Japan's Multinational Trading Companies (Boulder, Colorado: Westview Press, 1979). MERCHANDISE TRADE OF U.S. AFFILIATES 125 Table 3.— Merchandise Trade of All U.S. Affiliates and of U.S. Affiliates > in Manufacturing, by Country of UBO, 1977-91 Affiliate exports by country of UBO Affiliate imports by country of UBO All countries Can- ada France Germany ■ Japan Nether- lands Swit- zerland United King- dom Other coun- tries All countries Can- ada France Germany ' Japan Nether- lands Swit- zerland United King- dom Other coun- tries Millions of dollars Affiliates in all industries: 1977 24,858 854 6,396 682 10,396 827 2,117 1,575 2,011 43,896 3,853 3,271 2,883 16,313 4,464 1,685 5,447 5,980 1978 32,169 1,325 7,618 1,107 13,820 1,016 2,557 2,031 2,695 56,567 4,664 2,423 5,572 22,963 4,160 2,289 5,897 8,599 1979 44,341 1,763 11,222 2,893 17,347 1,364 3,320 2,252 4,180 63,039 5,194 2,605 6,915 25,370 4,933 2,854 7,312 7,856 1980 52,199 1,792 10,209 3,328 19,136 1,934 3,055 3,196 9,549 75,803 5,553 3,749 7,519 27,653 6,436 2,542 8,499 13,852 1981 64,066 4,528 11,832 5,305 22,659 2,319 3,769 3,682 9,972 82,259 8,223 4,359 8,667 33,285 5,427 2,303 8,814 11,181 1982 60,236 4,162 12,947 4,578 21,514 2,182 3,370 3,756 7,727 84,290 6,071 3,886 8,314 35,901 5,332 1,932 8,203 14,651 1983 53,854 4,290 9,253 2,684 22,816 1,532 3,053 3,291 6,935 81,464 5,995 3,575 8,722 36,568 4,309 2,125 7,961 12,209 1984 58,186 4,505 11,673 2,993 23,764 1,594 3,296 3,197 7,164 100,489 7,208 4,024 12,132 47,824 4,375 2,626 8,439 13,861 1985 56,401 4,172 11,169 3,170 22,715 1,658 2,847 3,038 7,632 113,331 6,939 3,921 12,701 58,102 4,540 2,897 9,551 14,680 1986 49,560 4,372 9,565 2,588 21,260 1,272 2,329 3,042 5,132 125,732 7,139 4,391 14,359 63,802 3,608 3,472 10,119 18,842 1987 48,091 4,963 5,422 3,636 20,413 1,485 1,937 3,735 6,500 143,537 8,033 4,330 17,264 72,564 4,268 4,269 10,622 22,187 1988 69,541 5,858 11,026 5,497 26,400 2,752 2,941 4,729 10,338 155,533 9,298 7,032 16,082 77,688 4,951 5,210 11,461 23,811 1989 86,316 6,020 13,598 6,088 34,076 2,379 4,236 6,930 12,989 171,847 10,596 7,873 16,961 84,511 6,292 4,832 12,715 28,067 1990 92,308 6,162 11,748 6,383 39,293 2,739 5,070 8,046 12,867 182,936 10,993 8,239 18,417 87,475 6,612 4,965 13,388 32,847 1 991 " 98,369 6,402 11,636 7,292 41,212 3,215 5,637 8,405 14,570 179,694 10,383 7,516 17,360 89,675 6,326 4,822 12,189 31,423 Manufacturing affiliates: 1977 3,557 533 ( D ) 377 325 311 ( D ) 815 453 5,624 1,729 599 641 281 423 395 829 727 1978 4,521 731 ( D ) 754 442 n ( D ) 910 519 7,193 2,330 836 916 411 482 493 918 807 1979 6,548 961 M 1,247 713 527 h 1,132 699 8,668 2,383 720 1,334 562 n 987 ( u ) 1,013 1980 9,048 999 1,447 1,520 761 637 700 1,628 1,356 10,413 2,809 1,446 1,670 642 556 769 1,461 1,060 1981 13,590 3,725 1,656 1,675 1,153 821 533 1,908 2,119 13,226 4,020 1,590 1,775 894 725 763 1,763 1,696 1982 12,883 3,308 n 1,705 991 803 n 1,927 2,073 12,386 2,952 1,958 1,795 997 860 626 1,843 1,355 1983 12,045 3,385 M 1,555 957 529 M 1,792 2,046 14,021 3,071 1,838 2,289 1,197 884 719 1,861 2,162 1984 13,078 3,682 1,761 948 656 n 1,833 2,273 18,172 3,982 2,034 3,329 1,739 1,193 938 2,377 2,580 1985 12,849 3,367 n 1,808 850 465 619 2,078 n 18,635 3,701 1,654 3,577 2,365 1,179 1,096 2,496 2,567 1986 12,805 3,511 1,220 1,818 911 572 724 2,009 2,040 20,617 3,691 1,932 3,830 2,751 1,556 1,292 2,759 2,806 1987 15,487 4,042 937 2,798 1,126 707 770 2,631 2,476 24,546 4,274 1,773 4,312 4,195 1,443 1,632 3,339 3,578 1988 25,192 4,807 4,136 4,480 2,033 1,696 1,068 3,456 3,516 32,762 4,625 4,036 5,325 5,887 2,324 2,230 4,457 3,878 1989 31,873 4,854 4,918 5,145 4,146 1,481 1,967 4,895 4,467 40,871 5,759 4,112 5,965 10,063 2,522 2,268 5,061 5,121 1990 36,069 5,401 5,278 5,260 5,295 1,423 2,819 5,719 4,874 47,171 5,794 4,887 6,693 14,056 2,580 2,370 5,144 5,647 1991" 39,432 5,504 5,568 5,830 6,085 1,759 3,235 6,194 5,257 47,983 5,825 4,078 6,692 13,933 2,509 2,696 5,325 6,925 Percent of all-countries total Affiliates in all industries: 1977 100.0 3.4 25.7 2.7 41.8 3.3 8.5 6.3 8.1 100.0 8.8 7.5 6.6 37.2 10.2 3.8 12.4 13.6 1978 100.0 4.1 23.7 3.4 43.0 3.2 7.9 6.3 8.4 100.0 8.2 4.3 9.9 40.6 7.4 4.0 10.4 15.2 1979 100.0 4.0 25.3 6.5 39.1 3.1 7.5 5.1 9.4 100.0 8.2 4.1 11.0 40.2 7.8 4.5 11.6 12.5 1980 100.0 3.4 19.6 6.4 36.7 3.7 5.9 6.1 18.3 100.0 7.3 4.9 9.9 36.5 8.5 3.4 11.2 18.3 1981 100.0 7.1 18.5 8.3 35.4 3.6 5.9 5.7 15.6 100.0 10.0 5.3 10.5 40.5 6.6 2.8 10.7 13.6 1982 100.0 6.9 21.5 7.6 35.7 3.6 5.6 6.2 12.8 100.0 7.2 4.6 9.9 42.6 6.3 2.3 9.7 17.4 1983 100.0 8.0 17.2 5.0 42.4 2.8 5.7 6.1 12.9 100.0 7.4 4.4 10.7 44.9 5.3 2.6 9.8 15.0 1984 100.0 7.7 20.1 5.1 40.8 2.7 5.7 5.5 12.3 100.0 7.2 4.0 12.1 47.6 4.4 2.6 8.4 13.8 1985 100.0 7.4 19.8 5.6 40.3 2.9 5.0 5.4 13.5 100.0 6.1 3.5 11.2 51.3 4.0 2.6 8.4 13.0 1986 100.0 8.8 19.3 5.2 42.9 2.6 4.7 6.1 10.4 100.0 5.7 3.5 11.4 50.7 2.9 2.8 8.0 15.0 1987 100.0 10.3 11.3 7.6 42.4 3.1 4.0 7.8 13.5 100.0 5.6 3.0 12.0 50.6 3.0 3.0 7.4 15.5 1988 100.0 8.4 15.9 7.9 38.0 4.0 4.2 6.8 14.9 100.0 6.0 4.5 10.3 49.9 3.2 3.3 7.4 15.3 1989 100.0 7.0 15.8 7.1 39.5 2.8 4.9 8.0 15.0 100.0 6.2 4.6 9.9 49.2 3.7 2.8 7.4 16.3 1990 100.0 6.7 12.7 6.9 42.6 3.0 5.5 8.7 13.9 100.0 6.0 4.5 10.1 47.8 3.6 2.7 7.3 18.0 1991" 100.0 6.5 11.8 7.4 41.9 3.3 5.7 8.5 14.8 100.0 5.8 4.2 9.7 49.9 3.5 2.7 6.8 17.5 Manufacturing affiliates: 1977 100.0 15.0 ( D ) 10.6 9.1 8.7 ( D ) 22.9 12.7 100.0 30.7 10.7 11.4 5.0 7.5 7.0 14.7 12.9 1978 100.0 16.2 n 16.7 9.8 ( D ) h 20.1 11.5 100.0 32.4 11.6 12.7 5.7 6.7 6.9 12.8 11.2 1979 100.0 14.7 h 19.0 10.9 8.0 M 17.3 10.7 100.0 27.5 8.3 15.4 6.5 f D ) 11.4 f D ) 11.7 1980 100.0 11.0 16.0 16.8 8.4 7.0 7.7 18.0 15.0 100.0 27.0 13.9 16.0 6.2 5.3 7.4 14.0 10.2 1981 100.0 27.4 12.2 12.3 8.5 6.0 3.9 14.0 15.6 100.0 30.4 12.0 13.4 6.8 5.5 5.8 13.3 12.8 1982 100.0 25.7 n 13.2 7.7 6.2 < D ) 15.0 16.1 100.0 23.8 15.8 14.5 8.0 6.9 5.1 14.9 10.9 1983 100.0 28.1 M 12.9 7.9 4.4 p 14.9 17.0 100.0 21.9 13.1 16.3 8.5 6.3 5.1 13.3 15.4 1984 100.0 28.2 M 13.5 7.2 5.0 M 14.0 17.4 100.0 21.9 11.2 18.3 9.6 6.6 5.2 13.1 14.2 1985 100.0 26.2 n 14.1 6.6 3.6 4.8 16.2 n 100.0 19.9 8.9 19.2 12.7 6.3 5.9 13.4 13.8 1986 100.0 27.4 9.5 14.2 7.1 4.5 5.7 15.7 15.9 100.0 17.9 9.4 18.6 13.3 7.5 6.3 13.4 13.6 1987 100.0 26.1 6.1 18.1 7.3 4.6 5.0 17.0 16.0 100.0 17.4 7.2 17.6 17.1 5.9 6.6 13.6 14.6 1988 100.0 19.1 16.4 17.8 8.1 6.7 4.2 13.7 14.0 100.0 14.1 12.3 16.3 18.0 7.1 6.8 13.6 11.8 1989 100.0 15.2 15.4 16.1 13.0 4.6 6.2 15.4 14.0 100.0 14.1 10.1 14.6 24.6 6.2 5.5 12.4 12.5 1990 100.0 15.0 14.6 14.6 14.7 3.9 7.8 15.9 13.5 100.0 12.3 10.4 14.2 29.8 5.5 5.0 10.9 12.0 1991" 100.0 14.0 14.1 14.8 15.4 4.5 8.2 15.7 13.3 100.0 12.1 8.5 13.9 29.0 5.2 5.6 11.1 14.4 " Preliminary. D Suppressed to avoid disclosure of data of individual companies. 1. For the years prior to 1990, includes data only tor the Federal Republic of Germany. Beginning with 1990, also includes the lormer German Democratic Republic (GDR). This change has no effect on the data because there were no U.S. affiliates of the former GDR prior to 1990. UBO Ultimate beneficial owner 126 BEA STUDIES OF DIRECT INVESTMENT for 57 percent of the total imports by Japanese- owned affiliates; more than 90 percent of the imports by these wholesale trade affiliates were by affiliates specializing in motor vehicles, electrical goods, or office equipment. For each of the other major investing countries, wholesale trade affiliates have generally accounted for a much smaller share of affiliate trade. They have, however, accounted for a large share of the exports by French-owned affiliates and of the imports by German-owned affiliates. In 1991, they accounted for about 50 percent of the ex- ports by French-owned affiliates (down from 78 percent in 1987); almost all of the exports by French- owned wholesale trade affiliates were by affiliates specializing in farm-product raw ma- terials. Wholesale trade affiliates accounted for 57 percent of the imports by German-owned af- filiates; most of the imports by German-owned wholesale trade affiliates were by affiliates of Ger- many's major automobile manufacturers. For each of the other four major investing countries, wholesale trade affiliates accounted for less than one-third of both the exports and the imports by U.S. affiliates. In manufacturing, the affiliate-trade shares among the major investing countries have been much more evenly distributed than in all indus- tries combined. For exports, affiliates with ubo's in five of the countries (the United Kingdom, Japan, Germany, France, and Canada) each ac- counted for roughly 15 percent of the total exports by manufacturing affiliates in 1991. For im- ports, Japanese-owned affiliates accounted for the largest share (29 percent), followed by German- owned affiliates (14 percent). The sizable share of Japanese-owned affiliates in manufacturing- affiliate trade is a fairly recent phenomenon: In 1987, their export share was only 7 percent (much lower than the shares for Canadian- German-, and British-owned affiliates), and their import share was 17 percent (slightly below the shares for German- and Canadian- owned affili- ates). The increase in share for Japanese- ownec affiliates after 1987 reflects the substantial increase in Japanese ownership in U.S. manufacturing in- dustries that occurred in the late 1980's. 10 The trade share for French- owned affiliates increased sharply in 1988 after a large French electron- ics company acquired the consumer electronics business of a large U.S. company. For most o the 1980's, Canadian- owned affiliates accountec for the largest share of manufacturing-affiliate exports and imports; a significant part of this trade, however, was by a large minority-ownec company. In every year since 1977, imports have exceeded exports for affiliates with ubo's in Canada, Ger- many, Japan, the Netherlands, and the Unitec Kingdom. This pattern can be traced mainly to the strong import orientation of the wholesale trade affiliates of these countries; in 1991, imports by these affiliates exceeded exports by more than 2 to 1 (table 4). In some cases, the import/ export ratio was much higher: Imports by German- owned wholesale trade affiliates exceeded exports by more than 10 to 1, and imports by Canadian- owned wholesale trade affiliates exceeded exports by more than 5 to 1. For affiliates with ubo's in 10. The share of Japanese- owned manufacturing affiliates in the gross product of all manufacturing affiliates increased every year from 1987 to 1990, from 6 percent in 1987 to 12 percent in 1990. Table 4.— Merchandise Trade of U.S. Affiliates, by Major Industry of Affiliate and Country of UBO, 1990 and 1991 [Millions of dollars] All countries Canada France Germany Japan Netherlands Switzerland United King- dom Other countries 1990 1991" 1990 1991" 1990 1991 " 1990 1991" 1990 1991" 1990 1991" 1990 1991" 1990 1991" 1990 1991" 92,308 36,069 49,925 6,314 98,369 39,432 51,995 6,942 6,162 5,401 407 354 6,402 5,504 551 347 11,748 5,278 ( D ) 11,636 5,568 ( D ) 6,383 5,260 881 242 7,292 5,830 939 523 39,293 5,295 33,687 311 41,212 6,085 34,760 367 2,739 1,423 481 835 3,215 1,759 467 989 5,070 2,819 1,629 622 5,637 3,235 1,546 856 8,046 5,719 1,063 1,264 8,405 6,194 1,205 1,006 12,867 4,874 ( D ) 14,570 5,257 ( D 182,936 47,171 113,639 22,126 179,694 47,983 112,064 19,647 10,993 5,794 3,594 1,605 10,383 5,825 2,871 1,687 8,239 4,887 2,948 404 7,516 4,078 3,059 379 18,417 6,693 11,005 719 17,360 6,692 9,860 808 87,475 14,056 73,141 278 89,675 13,933 75,426 316 6,612 2,580 1,041 2,991 6,326 2,509 1,045 2,772 4,965 2,370 1,368 1,227 4,822 2,696 1,269 857 13,388 5,144 5,277 2,967 12,189 5,325 3,970 2,894 32,847 5,647 15,265 11,935 31,423 6,925 14,564 9,934 1.98 1.31 2.28 3.50 1.83 1.22 2.16 2.83 1.78 1.07 8.83 4.53 1.62 1.06 5.21 4.86 .70 .93 h .65 .73 ( D ) 2.89 1.27 12.49 2.97 2.38 1.15 10.50 1.54 2.23 2.65 2.17 .89 2.18 2.29 2.17 .86 2.41 1.81 2.16 3.58 1.97 1.43 2.24 2.80 .98 .84 .84 1.97 .86 .83 .82 1.00 1.66 .90 4.96 2.35 1.45 .86 3.29 2.88 2.55 1.16 ( n> ( D ) 2.16 1.32 ( D ( D Exports shipped by U.S. affiliates: All industries Manufacturing Wholesale trade Other Imports shipped to U.S. affiliates: All industries Manufacturing Wholesale trade Other Ratio of imports to exports: All industries Manufacturing Wholesale trade Other p Preliminary. D Suppressed to avoid disclosure of data of individual companies. UBO Ultimate beneficial owner MERCHANDISE TRADE OF U.S. AFFILIATES 127 the Netherlands and the United Kingdom, a sub- stantial portion of the trade deficit was in "other industries," reflecting large imports and minimal exports by affiliates in petroleum. In contrast to the pattern for affiliates of the other five countries, exports have usually ex- ceeded imports for affiliates with ubo's in France and Switzerland. French-owned affiliates had trade surpluses every year during 1977-91, pri- marily because of substantial exports by a few wholesale trade affiliates in farm-product raw materials, which are major exporters of grain. Swiss-owned affiliates had surpluses prior to 1985 and again in 1990 and 1991. In manufacturing, the import/export ratio in 1991 was close to unity for affiliates of most of the major investing countries; affiliates with ubo's in France, Switzerland, and the United King- dom had moderate trade surpluses. In contrast, Japanese-owned affiliates imported more than twice as much as they exported, reflecting their reliance on imports as inputs to production (see the final section of this article). Merchandise Trade by Product, 1987 This section discusses data on U.S. -affiliate trade by broad product category, which are available from the 1987 benchmark survey. Table 5 presents the product-level data on exports and imports by all U.S. affiliates, by affiliates of the seven major investing countries, and by all U.S. businesses. Exports. — In 1987, U.S. affiliates accounted for roughly one-half or more of total U.S. exports in food, petroleum and products, and metal man- ufactures. For each of these product categories, more than three-fourths of the affiliate exports were by wholesale trade affiliates. In contrast, the affiliate shares of U.S. exports of road vehicles and of other transport equipment were very low, at less than 5 percent each. By country, Japanese-owned affiliates ac- counted for the largest share of affiliate exports in 8 of the 11 product groups — including petroleum (over 80 percent), metal manufactures (70 per- cent), crude materials (58 percent), and food (47 percent). In each of these eight product groups, Table 5.— Total U.S. Merchandise Trade and Merchandise Trade of U.S. Affiliates, by Product and by Country of UBO, 1987 [Millions of dollars] All U.S. businesses U.S. affiliates by country of UBO All countries Canada France Germany, Federal Republic of Japan Nether- lands Switzer- land United King- dom Other countries Other U.S. businesses Total Food Beverages and tobacco Crude materials Petroleum and products .... Coal and coke Chemicals Machinery Road vehicles and parts .... Other transport equipment Metal manufactures Other Total Food Beverages and tobacco Crude materials Petroleum and products .... Coal and coke Chemicals Machinery Road vehicles and parts .... Other transport equipment Metal manufactures Other 243,859 19,179 3,667 20,416 4,283 3,430 26,381 69,637 21,004 17,955 6,896 51,012 405,900 20,547 4,105 11,526 44,033 186 16,213 99,433 72,709 5,667 25,144 106,337 Exports 48,091 9,835 869 6,103 2,564 1,327 8,055 7,465 793 775 3,412 6,895 4,963 82 ( D ) 222 57 514 ( D ) 430 18 ( D ) 292 1,278 5,422 ( D ) 4 ( D ) 5 1 332 394 ft ( D ) 194 338 3,636 28 3 98 ( D ) 225 1,409 1,010 181 79 94 ( D ) 20,413 4,617 ( D ) 3,521 !n' ( D ) 1,670 2,736 163 ( D ) 2,401 ( D ) 1,485 54 ( D ) 6 ( D ) 526 ( D ) 1 11 1,937 613 ( D ) 411 n 431 111 2 21 ( D ) 3,735 408 ( D ) 188 ( D ) ( D ) 771 770 76 64 59 883 Imports 143,537 6,400 1,739 4,193 10,915 23 7,112 35,790 47,416 1,544 10,662 17,747 8,033 475 400 548 1,476 2 392 858 8 82 1,894 1,898 4,330 226 Q 460 451 ( D ) ( D ) 492 1,403 17,264 204 1 110 ( n' ( D ) 1,601 2,555 9,314 148 1,304 ( D ) 72,564 1,054 ( D ) 1,472 1,031 2 1,687 25,619 31,446 588 4,237 ( D ) 4,268 ( D ) 182 ( D ) 218 1,395 3 ( D ) 14 270 4,269 294 ( D ) ( D ) 821 990 5 127 846 10,622 2,036 748 298 ( D ) 1,132 875 300 ( D ) 490 ( D ) 6,500 ( D ) 233 821 122 118 ( D ) ( D ) 78 340 1,403 22,187 2,103 141 1,252 3,292 2 801 3,047 ( D ) 42 2,104 3,349 195,768 9,344 2,798 14,313 1,719 2,103 18,326 62,172 20,211 17,180 3,484 44,117 262,363 14,147 2,366 7,333 33,118 163 9,101 63,643 25,293 4,123 14,482 88,590 D Suppressed to avoid disclosure ol data ol individual companies. UBO Ultimate beneficial owner Note.— The data tor all U.S. businesses are from the Bureau of the Census, U.S. Exports: Schedule E Commodity Groupings by World Area and Country (FT450/1 987) and U.S. General Imports: Schedule A Commodity Groupings by World Area and Country (FT1 50/1 987). The figures for other U.S. businesses were derived through subtraction. The totals for U.S. exports and im- ports shown in this table do not agree with those shown in table 1, partly because, unlike the totals shown in table 1, the figures lor U.S. trade by Schedule A and Schedule E commodity group have not been revised since their initial publication in 1988. Also, lor U.S. exports, the Schedule E figures are only for U.S. domestic exports, whereas the revised total reported in table 1 is tor total exports including re-exports. 128 BEA STUDIES OF DIRECT INVESTMENT most of the exports by Japanese- owned affili- ates were by wholesale trade affiliates of Japanese trading companies. Among affiliates of the seven major investing countries, French-owned affiliates had the least diversified exports by product: Over one-half of their exports were of food products, shipped mostly by a few wholesale trade affiliates special- izing in grain. Affiliates of the other six countries had exports that were considerably more diver- sified. Exports by Japanese- and British-owned affiliates were the most diverse: No one prod- uct group accounted for more than one-fourth of their exports. Imports. — In 1987, U.S. affiliates accounted for al- most two-thirds of total U.S. imports of road vehicles and parts and for over 40 percent of to- tal imports of chemicals, beverages and tobacco, and metal manufactures. Wholesale trade af- filiates accounted for 97 percent of the affiliate imports of road vehicles and parts and for most of the affiliate imports of metal manufactures; manufacturing affiliates accounted for most of the affiliate imports of chemicals and of beverages and tobacco. By country, Japanese- owned affiliates ac- counted for the largest share of affiliate imports in 8 of the 11 product categories; they had ma- jority shares in machinery (72 percent) and road vehicles and parts (66 percent). German-owned affiliates also accounted for a sizable share of U.S.-affiliate imports in road vehicles and parts (20 percent). Among affiliates of the seven major investing countries, affiliates with ubo's in the Netherlands, Germany, and Japan had the least diversified imports by product. For Netherlands- owned af- filiates, petroleum and machinery made up over three-fourths of total imports. For German- owned affiliates, over one-half of the imports were of road vehicles and parts, nearly all of which were imported by wholesale trade af- filiates of German automobile manufacturers. For Japanese- owned affiliates, over three-fourths of the imports were of machinery or of road vehicles and parts, most of which were im- ported by wholesale trade affiliates of Japanese manufacturing companies. Merchandise Trade by Country of Destination and Origin, 1987 This section discusses data on the geographic des- tination and origin of U.S.-affiliate trade, which are available from the 1987 benchmark survey. Table 6 presents two summary measures of the geographic pattern of exports and imports for U.S. affiliates of the seven major investing coun- tries. The first measure is an index of the geographic diversification of affiliate exports and imports across all countries of destination or ori- gin. The index is one that has been used in studies of industrial organization to measure in- dustrial diversification within large corporations. As used here, the index reflects both the number of countries with which the affiliates of a given country engage in trade and the degree of equal- ity among the merchandise trade shares of the different countries; it may range from to 1, and the higher its value, the more geographically di- versified are the exports or imports of a country's affiliates (see footnote to table 6). The second measure is the share of affiliate trade with the country of ubo. In 1987, exports by Japanese-owned affiliates were the least geographically diversified; their di- versification index is only 0.399, reflecting the fact that more than three- fourths of their exports were shipped to Japan. In contrast, the diversifi- cation index for the exports of affiliates of each of the other six countries is higher than 0.850, partly reflecting the fact that the share of ex- ports shipped to any one country was less than one-third. Exports to the country of ubo accounted for the largest share of exports by affiliates of all of the major investing countries except France and the Netherlands. For Netherlands- owned affiliates, the share of exports shipped to the Netherlands (20 percent) was slightly lower than the share shipped to the United Kingdom (22 percent). For French-owned affiliates, the share Table 6.— Measures of Geographic Diversification of Mer- chandise Trade of U.S. Affiliates, by Country of UBO, 1987 Index of Trade with coun- geographic try of UBO as a diversification of percentage of affiliate trade ' total affiliate trade Exports Imports Exports Imports Canada 0.876 0.456 30.7 73.4 France .935 .671 6.4 55.7 Germany, Federal Republic of .863 .318 30.2 82.5 Japan .399 .132 77.3 93.1 Netherlands .882 .915 19.7 16.6 .922 .795 15.2 42.8 United Kingdom .909 .852 19.7 33.0 1 . This index is expressed as 1 - V H ' , where s j is the share of country i in the total exports or imports ol U.S. affiliates ot the given country ol UBO. The index may take on a value ranging from to 1, with values closer to 1 indicating greater diversification in the destination of exports, or in the origin of imports, across all 190 countries identified in the 1987 benchmark survey. A similar index has been employed in studies of industrial diversification. See Charles H. Berry, "Corporate Growth and Diversification," Journal ol Law and Economics 14 (October 1971): 371-83. UBO Ultimate beneficial owner MERCHANDISE TRADE OF U.S. AFFILIATES 129 of exports shipped to France (only 6 percent) was much lower than the shares shipped to Japan (17 percent) and to the Soviet Union. The data by country of destination cannot be cross- classified by product; however, it is likely that some, perhaps most, of the exports to Japan and the Soviet Union represented shipments of grain: Both countries were large grain importers, and, as noted earlier, most of the exports by French-owned affiliates consisted of food prod- ucts shipped by wholesale traders specializing in grain. Imports were considerably less geographically diversified than exports for affiliates of most of the major investing countries. Imports by Japanese-owned affiliates were the least diver- sified, with an index of 0.132; more than 90 percent of these imports originated in Japan. Im- ports from the country of ubo also accounted for the largest share of imports by affiliates of the other six countries; they accounted for a majority share of the imports by affiliates with ubo's in Germany, Canada, and France. The geographic pattern of affiliate imports was most diversified for Netherlands- owned affiliates: The share of imports received from the Netherlands was only 17 percent (which was still a higher share than that received from any other country). Petro- leum, a relatively homogeneous commodity that can easily be imported from a number of differ- ent countries, accounted for a large share of the imports by Netherlands- owned affiliates. Almost one-third of their imports were from member na- tions of the Organization of Petroleum Exporting Countries. Table 7 shows the U.S.-affiliate share of total trade between the United States and each of the seven major investing countries in 1987. It indi- cates the share of U.S. trade with each country that was accounted for by the country's U.S. af- filiates, by other countries' U.S. affiliates, and by other U.S. companies. The addenda show, for comparison, the share of U.S. trade with each country that was accounted for by U.S.-owned affiliates located in that country. Japanese- owned affiliates accounted for a dom- inant share of both U.S. exports to, and U.S. imports from, Japan — their country of ultimate ownership: These affiliates handled 56 percent of all U.S. exports to Japan and 80 percent of all U.S. imports from Japan. In contrast, for each of the other six countries, less than 10 percent of total U.S. exports to the country were shipped by U.S. affiliates with ubo's in that country; the corresponding shares for imports ranged from 52 percent for Germany to 8 percent for Canada. For each of the major investing countries ex- cept Japan, more than 25 percent of total U.S. exports to the country consisted of shipments to the country's U.S.-owned affiliates, compared with a share of less than 10 percent shipped by U.S. affiliates with ubo's in the country. The share of U.S. exports to Canada accounted for by Canadian affiliates of U.S. companies was par- ticularly large, at 57 percent. In contrast, the share of U.S. exports to Japan accounted for by Table 7.— U.S. Merchandise Trade with Major Countries Accounted for by U.S. Affiliates of Foreign Companies and by Other U.S. Companies, 1987 Zillions of dollars Total U.S. trade Trade by U.S. affiliates Total By affiliates with UBO located in partner country By affiliates with UBO located elsewhere Trade by other U.S. companies Percent of total U.S. trade Total U.S. trade Trade by U.S. affiliates Total By affiliates with UBO located in partner country By affiliates with UBO located elsewhere Trade by other U.S. companies Addenda: Trade with foreign affiliates of U.S. companies in partner country Millions of dollars Percent of total U.S. trade U.S. exports to: Canada France Germany, Federal Republic of Japan Netherlands Switzerland United Kingdom U.S. imports from: Canada France Germany, Federal Republic of Japan Netherlands Switzerland United Kingdom 59,814 7,943 11,802 28,249 8,217 3,151 14,114 71,085 10,730 27,155 84,575 3,964 4,249 17,341 4,169 826 2,164 18,983 1,181 617 2,568 7,952 3,189 16,372 69,266 1,173 2,421 4,754 1,522 348 1,099 15,773 293 294 737 5,898 2,412 14,239 67,580 707 1,825 3,506 2,647 478 1,065 3,210 888 323 1,831 2,054 777 2,133 1,686 466 596 1,248 55,645 7,117 9,638 9,266 7,036 2,534 11,546 63,133 7,541 10,783 15,309 2,791 1,828 12,587 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 7.0 10.4 18.3 67.2 14.4 19.6 18.2 11.2 29.7 60.3 81.9 29.6 57.0 27.4 2.5 4.4 9.3 55.8 3.6 9.3 5.2 8.3 22.5 52.4 79.9 17.8 43.0 20.2 4.4 6.0 9.0 11.4 10.8 10.3 13.0 2.9 7.2 7.9 2.0 11.8 14.0 7.2 93.0 89.6 81.7 32.8 85.6 80.4 81.8 88.8 70.3 39.7 18.1 70.4 43.0 72.6 34,010 2,526 3,503 4,907 3,343 926 5,292 30,670 1,475 2,158 8,739 504 298 5,288 56.9 31.8 29.7 17.4 40.7 29.4 37.5 43.1 13.7 7.9 10.3 12.7 7.0 30.5 Note— The data on total U.S. trade with each country are from the Census Bureau; the data on trade by other U.S. companies were derived through subtraction. The data in the addenda are from BEA's 1987 annual survey of U.S. direct investment abroad. Because U.S. companies with foreign affiliates may themselves be affiliates of foreign companies, these data may partly duplicate the trade data for U.S. affiliates shown in other columns. 130 BEA STUDIES OF DIRECT INVESTMENT Japanese affiliates of U.S. companies was only 17 percent. Intrafirm Merchandise Trade Much of the merchandise trade of U.S. affiliates of foreign companies, particularly on the import side, is intrafirm trade between U.S. affiliates and their foreign parent groups. In 1987-91, intrafirm trade accounted for about 40 percent of the ex- ports and 75 percent of the imports of all U.S. affiliates. By industry, intrafirm trade has accounted for a particularly large share of the trade by whole- sale trade affiliates. In 1991, the share of exports by wholesale trade affiliates that was shipped to their foreign parent groups was 55 percent, compared with shares of 26 percent for manu- facturing affiliates and 39 percent for affiliates in "other industries." The share of imports that was shipped from their foreign parent groups was 79 percent for wholesale trade affiliates, 71 percent Table 8.— Intrafirm Merchandise Trade by Country of UBO, 1977-91 [Percent] Country of UBO All countries Canada France Germany ' Japan Nether- lands Switzer- land United King- dom Other coun- tries Share of affiliate exports shipped to foreign parent groups 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991* 47.0 51.5 49.8 40.2 42.0 41.5 41.9 46.5 45.9 44.1 39.7 38.0 39.7 40.9 42.3 53.2 54.0 54.7 53.2 20.5 17.8 18.9 19.6 20.8 19.1 17.7 18.9 25.0 18.7 18.9 ( D ) 30.9 ( D ) 3.1 10.2 24.0 25.6 37.4 29.8 33.5 17.2 11.6 22.2 24.9 27.8 27.4 21.0 47.7 31.9 46.7 46.0 34.5 35.1 44.5 46.8 38.0 32.7 33.2 32.1 33.1 71.0 73.1 73.6 74.0 72.4 63.9 61.3 66.4 69.5 58.0 53.2 54.8 55.3 57.1 58.5 57.8 49.0 51.2 41.6 36.6 43.8 49.7 48.0 43.4 43.4 50.2 51.1 39.1 42.7 39.8 37.9 38.7 40.5 32.1 37.3 23.4 18.5 23.4 24.8 26.6 30.5 25.7 25.8 30.6 32.0 32.1 32.1 26.8 21.7 25.4 20.0 22.6 26.7 27.3 26.8 30.1 27.3 25.3 22.9 24.9 38.0 (D i 21.0 27.2 36.8 34.8 36.4 29.7 45.1 39.8 41.8 39.3 36.2 37.3 Share of affiliate imports shipped from foreign parent groups 1977 1978 1979 1980 1981 1982 1983 1984 70.3 69.8 71.9 62.0 63.5 61.6 67.3 70.1 72.1 74.3 75.4 76.1 75.6 75.1 74.1 85.6 83.7 84.1 82.8 66.4 69.5 72.7 67.2 68.7 70.5 71.2 74.2 67.6 66.8 62.7 90.6 82.0 76.9 72.5 64.4 71.4 74.3 69.6 67.8 66.9 75.4 63.8 65.5 57.4 61.2 88.9 87.1 88.2 88.4 84.7 76.8 81.1 76.9 82.3 88.0 86.9 86.0 84.0 80.8 80.9 84.4 84.9 86.4 79.3 78.4 75.0 77.5 80.9 82.4 81.9 79.0 82.3 83.9 83.5 80.6 41.2 39.4 37.2 36.1 20.1 38.8 28.7 30.0 31.3 40.4 39.5 45.2 40.9 43.3 46.3 49.8 45.3 38.7 45.6 53.9 55.8 55.7 57.4 62.3 60.5 76.3 73.5 73.6 78.6 78.6 37.6 39.2 40.4 32.4 34.0 40.0 40.6 41.2 38.2 37.6 46.9 48.8 49.0 50.9 48.5 59.5 49.3 63.7 35.3 46.3 35.3 55.2 61.3 1985 62.1 1986 70.1 1987 1988 1989 1990 1991" 76.4 73.8 71.6 72.6 73.2 D Suppressed to avoid disclosure of data of individual companies. r Preliminary. 1. For the years prior to 1990. includes data only lor the Federal Republic ol Germany. Beginning with 1990, also includes the former German Democratic Republic (GDR). This Change has no effect on the data because there were no U.S. affiliates of the former GDR prior to 1990. UBO Ultimate beneficial owner for manufacturing affiliates, and 55 percent for affiliates in "other industries." Among affiliates of the major investing coun- tries, Japanese- owned affiliates have shipped a majority of their exports to their foreign par- ent groups in every year since 1977 (table 8). In 1991, the share of exports by these affiliates that was shipped to their foreign parent groups was 59 percent. Most of these intrafirm exports were by wholesale trade affiliates of Japanese trad- ing companies. Netherlands-owned affiliates had the second largest intrafirm export share, at 40 percent. For nearly all of the major investing coun- tries, the share of imports received by affiliates from their foreign parent groups has consis- tently been higher than the share of exports shipped by affiliates to their foreign parent groups; the sole exception is intrafirm trade by Netherlands- owned affiliates prior to 1989. The shares of imports from foreign parent groups have been especially large for Japanese- and German-owned affiliates (more than 80 percent in most years). These sizable shares reflect the dominant role of wholesale trade affiliates as domestic distributors for their foreign par- ent companies. Imports from foreign parent groups also constituted a large share of total im- ports by Canadian-, French-, and Swiss-owned affiliates. Trade between a U.S. affiliate and its foreign parent group need not be with the country of the affiliate's ubo, because the foreign parent group may include companies located in other countries. According to data from the 1987 benchmark survey, less than one-half of exports by French-, Netherlands-, Swiss-, and British- owned affiliates to their foreign parent groups were shipped to the ubo's country. In contrast, the share of exports to foreign parent groups that was shipped to the ubo's country was 94 percent for Japanese-owned affiliates, 90 percent for Canadian- owned affiliates, and 68 percent for German- owned affiliates. U.S.-affiliate imports from their foreign par- ent groups show a greater tendency to be from the country of ubo. For U.S. affiliates of each of the seven major investing countries except the Netherlands, a majority of the 1987 imports from foreign parent groups were from the ubo's country. For Japanese-, Canadian-, and German- owned affiliates, more than 90 percent of the imports from their foreign parent groups were from the ubo's country. MERCHANDISE TRADE OF U.S. AFFILIATES 131 Import Content of Inputs Purchased by Affiliates In this section, the data on U.S. -affiliate im- ports are used in conjunction with other data from bea surveys on foreign direct investment in the United States to examine the degree to which U.S. affiliates draw on foreign, rather than domestic, sources for the inputs used in their pro- duction. The primary measure employed is the share of imports in total intermediate inputs pur- chased by U.S. affiliates, with intermediate inputs being computed as the difference between total output (sales plus inventory change) and gross product (value added in production). 11 Alterna- tively, one could look at the domestic content of affiliates' purchased inputs — one minus the import-content share — which shows the share of affiliates' purchased inputs accounted for by their purchases from other U.S. companies. A broader measure of domestic content — the do- mestic content of total output — takes account of both affiliates' purchases of intermediate inputs from other U.S. companies and their employ- ment of labor and other primary factors of production; it is measured as the share of to- tal output accounted for by affiliates' domestic purchases and gross product combined. In 1991, the import content of purchased in- puts for all U.S. affiliates was 20 percent, and the domestic content was 80 percent (table 9). For manufacturing affiliates, 17 percent of the content was accounted for by imports, and 83 percent by domestic content. The domestic content of total output was 85 percent for all affiliates and 88 per- cent for manufacturing affiliates. Although U.S. affiliates' reliance on imported goods appears to be somewhat higher than that of domestic firms, U.S. affiliates' output nonetheless largely repre- sents production in the United States by U.S. labor and other domestic inputs. Because the focus of this article is on trade, the remainder of this section focuses on the import content of purchased inputs. Table 9 shows the import-content shares for U.S. affiliates by broad industry of affiliate in 1987-91. Shown for comparison, as a proxy for the import-content share of domestically owned 11. This measure captures direct (or first-round) imports only; it excludes imports embodied in purchases from domestic distributors and manufac- turers. It also excludes any purchases of services from foreigners because the data for imports are for merchandise imports only. It should be noted that a small upward bias in the measure may exist to the extent that the numerator of the ratio includes imports of capital equipment for use in affil- iate production, which — not being an intermediate input embodied in total output — is excluded from the denominator. For most U.S. affiliates, how- ever, it is likely that only a negligible share of their total imports consisted of capital equipment. U.S. businesses, is the import-content share of U.S. parent companies of foreign affiliates in 1989. 12 In 1989, the share of imports in purchased in- puts for U.S. affiliates (20 percent) was about twice as large as the share for U.S. parent com- panies (9 percent). This difference partly reflects industry mix — in particular, the fact that com- panies in wholesale trade, which had the highest import share among the major industry divisions, accounted for 40 percent of total U.S. -affiliate purchases but for only 10 percent of total U.S.- parent-company purchases. It also reflects the higher import-content shares of U.S. affiliates relative to U.S. parent companies in some indus- tries, particularly wholesale trade, petroleum, and manufacturing. The import-content shares for U.S. affiliates and U.S. parent companies in wholesale trade were 35 percent and 17 percent, respectively. 13 The comparable shares in petroleum were 20 percent and 11 percent. 12. The share is computed from data from bea's 1989 benchmark survey of U.S. direct investment abroad. In the absence of industry-level data on im- ported inputs by all U.S. businesses, the import-content share for U.S. parent companies is the best available measure for domestically owned U.S. busi- nesses. In the petroleum and manufacturing industries, in which U.S. parent companies have accounted for a dominant share of total industry gross prod- uct, the shares for U.S. parent companies can be taken to be representative of that for large domestically owned businesses in general. 13. The share for wholesale trade affiliates is only 35 percent because this group includes some wholesale trade affiliates (such as the French-owned grain traders and the affiliates of Japanese trading companies) that export considerably more than they import. As a result, the share of imports in purchases for the industry as a whole is much lower than that for many individual affiliates. Table 9.— Share of Imports in Total Purchased Inputs of U.S. Affiliates, by Industry of Affiliate, 1987-91 [Percent] 1987 1988 1989 1990 1991' Addendum: Share for U.S. parent companies 1989 All industries 24.2 16.8 16.0 9.9 11.1 18.8 26.5 30.3 24.7 15.1 38.3 11.3 41.0 5.6 .1 1.0 3.0 22.0 14.7 16.6 8.7 12.4 14.2 28.3 21.3 33.3 16.3 42.7 11.9 37.2 4.6 4.0 2.9 20.4 20.3 16.1 7.2 12.3 13.0 27.5 22.4 32.7 17.1 42.4 10.3 35.0 3.2 1.2 2.3 19.4 20.4 16.7 6.6 12.1 14.0 30.8 31.0 30.7 16.5 36.0 11.2 32.3 3.6 1.3 2.4 19.6 19.5 17.3 8.0 13.2 14.1 29.4 30.4 28.6 18.2 39.5 12.1 33.9 3.6 (') 1.0 2.7 8.6 Petroleum Manufacturing Food and kindred products 10.9 11.3 2.8 Chemicals and allied products 8.8 Primary and fabricated metals 8.3 Machinery Machinery, except electrical 16.5 17.9 Electric and electronic equipment 14.8 Other manufacturing 13.0 Transportation equipment Other Wholesale trade 19.2 5.2 17.0 Retail trade 4.7 Finance (except banking), insurance, and real estate Services Other industries .3 .6 1.9 • Less than 0.05 percent. ' Preliminary. 132 BEA STUDIES OF DIRECT INVESTMENT In manufacturing, the difference between the import-content shares for U.S. affiliates and U.S. parent companies was more modest (16 percent, compared with 11 percent). In all manufacturing industries shown in table 9, the import-content share for U.S. affiliates was higher than that for U.S. parent companies; it was more than twice as high in three industries — food and kindred products, electric and electronic equipment, and transportation equipment. For total manufacturing and for each of the in- dustries within manufacturing shown in table 9, the import-content share for affiliates changed little in 1987-91. This result does not necessarily refute the proposition that foreign- owned man- ufacturers tend to purchase more of their inputs from domestic sources as they mature: Because there was substantial new direct investment in U.S. manufacturing industries in 1987-90, the av- erage age of U.S. manufacturing affiliates may not have increased during this period. The import-content share for U.S. affiliates in all industries shows a modest decline in 1987- 90 because of a drop in the share for affiliates Table 10.— Share of Imports in Total Purchased Inputs of U.S. Affiliates, by Industry and by Country of UBO, 1990 and 1991 [Percent] All countries 1990 1991 p Canada 1990 1991" France 1990 1991" Germany 1990 1991" Japan 1990 1991" Netherlands 1990 1991" Switzerland 1990 1991" United Kingdom 1990 1991" All industries Petroleum Petroleum and coal products manufacturing Other Manufacturing Food and kindred products Beverages Other Chemicals and allied products Industrial chemicals and synthetics Drugs Soap, cleaners, and toilet goods .... Other Primary and fabricated metals Primary metal industries Ferrous Nonferrous Fabricated metal products ... Machinery Machinery, except electrical Computer and office equipment Other Electric and electronic equipment Audio, video, and communications equip- ment Electronic components and accessories .. Other Other manufacturing Textile products and apparel Lumber, wood, furniture and fixtures .... Paper and allied products Printing and publishing Newspapers Other Rubber products Miscellaneous plastics products Stone, clay, and glass products Transportation equipment Motor vehicles and equipment Other transportation equipment, nee Instruments and related products Other Wholesale trade Retail trade Finance, except banking Insurance Real estate Services Other industries 19.4 20.4 19.1 22.2 16.7 6.6 5.6 7.0 12.1 12.9 15.4 3.0 15.7 14.0 15.2 7.9 22.4 11.1 30.8 31.0 45.5 22.7 30.7 46.6 35.2 16.5 16.5 10.5 9.4 13.0 1.7 ( D ) 18.7 18.2 8.5 36.0 40.4 16.3 14.6 17.0 32.3 3.6 19.6 19.5 17.1 22.6 17.3 8.0 6.6 8.6 13.2 14.5 17.4 2.7 14.1 14.1 16.0 10.3 22.5 10.4 29.4 30.4 45.5 22.8 28.6 43.4 31.1 18.0 18.2 10.3 7.9 13.8 2.8 ( D ) 22.1 11.7 8.1 39.5 45.1 16.7 12.8 31.9 33.9 3.6 12.7 M 38.2 15.7 15.2 ( D ) 6.0 © ( D ) ( D ) 3.6 26.7 ( D ) 8.4 ( D ) 22.7 ( D ) 5.2 17.8 ( D ) ( D ) 10.3 12.0 ( D ) 18.6 37.1 1.7 ( D ) ( D ) n n ( D ) 1.5 ( D ) 44.6 ( D ) 12.7 ( D ) ( D ) 34.6 16.5 18.6 ( D ) 9.2 39.8 2.0 (') 1.1 ( D ) 12.1 n n 17.3 7.3 ( D ) 6.8 ( D 9.6 n n n n n 6.0 M {D 1 29.0 7.3 8.8 11.6 n ( u ) h ( u ) n 21.5 49.2 n p) ( i 11.2 n n n n < D ) ( D ) 9.8 n n M 11.9 14.9 2.9 25.0 8.5 29.9 n .2 4.4 n n n.a. M n M n M 5.3 n 9.0 n 22.4 h n n n P 13.7 28.7 20.7 11.6 1.9 .7 ( D ) n 10.7 © ( D ) 16.2 7.4 ( D ) 6.7 9.5 $ ( D ) ( D ) 7.0 6.9 11.2 Q ( D ) 33.3 20.3 ( D ) 15.5 37.5 ( D ) 17.1 25.2 2.6 El ( D ) n.a. ( D ) 8 9.4 27.4 ( D ) 26.5 ( D ) 12.1 1.7 ( D ) 2.7 21.6 ( D ) ( D ) 21.4 9.6 ( D ) ( D ) 18.4 21.2 10.7 1.4 19.1 20.0 24.2 (') 16.6 18.4 37.5 25.9 .7 27.4 43.7 39.9 3.1 .1 .8 ( D ) 19.9 ( D ) ( D ) 20.9 7.4 7.4 7.0 18.5 22.5 ( D ) 1.0 ( D ) 21.4 21.9 53.2 12.8 21.2 33.5 25.5 .6 27.2 39.2 ( D ) 43.7 ( D ) 14.1 21.6 14.8 23.6 7.0 5.6 23.5 23.0 1.5 n 1.5 ( D ) F S 1S.4 17.5 n 32.5 h n M M 19.2 22.6 19.8 6.7 39.6 3.5 30.2 28.4 2.4 2.1 2.4 5.1 4.2 3.2 5.1 15.0 6.6 5.3 4.7 16.0 18.6 46.7 48.5 62.1 32.0 41.4 51.1 43.5 26.7 36.4 12.7 20.1 ( n» ( D ) ( D ) ( D ) 27.9 16.0 49.2 49.3 10.4 24.0 ( D ) 34.6 14.6 31.7 28.0 3.2 3.7 3.1 7.2 6.0 3.8 7.9 18.5 5.9 3.7 2.8 17.9 20.9 43.1 45.3 58.3 30.1 38.1 50.2 39.2 32.5 36.9 10.4 12.5 ( D ) ( D ) ij 12.6 14.2 52.7 52.8 9.4 25.9 37.9 38.3 3.2 .1 .8 .4 12.3 14.4 1.5 n.a. 1.5 3.4 O ( D ) ( D ) 4.1 n.a n.a. n.a. 4.1 ( D ) 20.8 4.9 30.2 ( D ) ( D ) 1.0 18.9 12.6 (') n.a. ( D ) ( D ) n.a. Q n n 19.0 ( D ) n.a. ( D ) 35.6 79.6 ( D ) ( D ) .4 ( D ) 11.5 to pi 14.0 1.7 n.a. 1.7 3.1 ( D ) 1.0 (°) 2.2 n.a. 2.2 ( D ) 21.8 3.1 29.8 ( D ) .9 24.4 11.4 17.7 n.a. ( D ) n.a. 1' 12.2 n.a. 35.1 74.5 19.9 3.8 n ( D ) 10.4 ( D ) ( D ) 10.5 ( D ) ( D ) 15.8 21.2 17.3 ( D ) 12.1 18.9 ( D ) n.a. 'n> ( D ) 12.2 19.3 ( D ) 15.5 ( D ) ( D ) 1.0 26.8 ( D ) n.a. ( D ) 48.3 34.2 8.9 21.5 21.5 n.a. 26.1 ( D ) 21.6 ( D ) ( D ) 10.1 ( D ) ( D ) 11.9 ( D ) 17.4 21.4 18.8 11.9 13.5 ( D ) n.a. ( D ) 13.8 21.1 ( D ) 3.3 9.9 ( D ) n.a. ( D ) 65.8 46.7 9.5 n.a. n.a n.a. 24.0 ( D ) 19.7 ( D ) 9.6 ( D ) ( D ) 9.4 8.2 ( D ) 8.7 11.6 to ( D ) 7.2 ( D ) 1.4 ( n' ( D ) 12.1 12.9 ( D ) ( D ) 11.3 12.9 20.0 6.1 7.5 4.3 1.7 ( D ) 1.8 8 2 i°i 19.7 R 9.4 15.3 3.7 1.4 9.2 <3 ( D ) 10.0 9.1 'n> (°) 13.2 ( D ) ( n» ( D ) 7.3 7.6 6.5 11.5 9.5 3 14.3 ( D ) 25.7 ( D ) 3.4 1.0 ( D ) 2.1 8 8 ( D ) 31.2 ( D ) ( D ) 6.9 12.2 5.8 .9 .7 • Less than 0.05 percent p Preliminary. D Suppressed to avoid disclosure of data of individual companies. n.a. No affiliates in cell. 1. Computed ratio in cell is distorted by the exit in 1990 of one or more affiliates that were very large in 1989. UBO Ultimate beneficial owner MERCHANDISE TRADE OF U.S. AFFILIATES 133 in wholesale trade. The drop for wholesale trade affiliates, which mirrors the drop in their import/export ratio shown in table 2, can be at- tributed mainly to a reduction in U.S. consumer demand for imports following the decline of the dollar in foreign exchange markets in the late 1980's. Table 10 presents import-content shares in more detail by industry for all affiliates and for affiliates of each of the seven major investing countries. Within manufacturing, imports gen- erally have constituted a large share of the affiliate purchases in the machinery and transportation equipment industries — industries in which pur- chased inputs consist mainly of manufactured components rather than raw materials. In con- trast, the share was quite low for affiliates in industries that intensively use raw materials sub- ject to high transportation costs. Such industries include beverages; primary ferrous metals; lum- ber, wood, furniture, and fixtures; and stone, clay, and glass products. The shares shown in table 10 are supplemented by frequency distributions for each of the seven major investing countries in table 11; the fre- quency distributions show the number of man- ufacturing industries that appear in each of six size ranges for the affiliates' import-content share. The distributions in the upper portion of the ta- ble are across the 26 most detailed manufacturing industries shown in table 10. The lower portion of the table shows distributions across the eight industries in machinery, transportation equip- ment, and instruments — industries characterized by high shares of manufactured components in total purchased inputs. Among affiliates of the major investing coun- tries, Japanese-owned affiliates had high import- content shares in the largest number of indus- tries. In 1991, the share for Japanese-owned affiliates exceeded 30 percent in 7 of the 26 industries. It was 50 percent or more in com- puter and office equipment; audio, video, and communications equipment; and motor vehicles and equipment. For motor vehicles and equip- ment, the share was somewhat lower in 1991 — 53 percent — than it had been in earlier years — 56 percent in 1989 and 63 percent in 1988. Affiliates of the other major investing countries show high import-content shares in relatively few industries. The share was less than 10 percent in more than one-half of the industries with di- rect investment activity for affiliates with ubo's in Canada, the Netherlands, and the United King- dom. For Canadian- and British-owned affiliates, the share was less than 20 percent in most of the eight industries in machinery, transporta- tion equipment, and instruments, indicating a tendency by these affiliates to purchase manu- factured components from domestic rather than foreign suppliers. £| Table 11.— U.S. Affiliates of All Countries and of Seven Major Investing Countries: Number of Manufacturing Industries Distributed by Size of Affiliate Share of Imports in Total Purchased Inputs, 1990 and 1991 [Number of industries] Share of imports in total purchased inputs (per- cent) All countries 1990 1991 p Canada 1990 1991 " France 1990 1991 ^ Germany 1990 1991" Japan 1990 1991 * Netherlands 1990 1991" Switzerland 1990 1991" United Kingdom 1990 1991" All manufacturing industries (26 industries): 0-9.9 10.0-19.9 20.0-29.9 30.0-39.9 40.0-49.9 50.0 or more Addenda: Industries with no foreign direct investment Industries for which computed ratio is not meaningful Machinery, transportation equipment and in- struments industries (8 industries): 0-9.9 10.0-19.9 20.0-29.9 30.0-39.9 40.0-49.9 50.0 or more Addendum: Industries with no foreign direct investment " Preliminary. U.S. INTRAFIRM TRADE IN GOODS 135 U.S. Intrafirm Trade in Goods By William J. Zeile This article was first published in the February 1997 Survey of Current Business. Cross-border transactions between affili- ated units of multinational companies ac- count for a major share of U.S. international trade in goods. In 1994, these transactions — commonly referred to as "intrafirm trade" — accounted for more than one-third of U.S. ex- ports of goods and for more than two-fifths of U.S. imports of goods. As an aspect of the growing integration of the world economy, intrafirm trade has attracted considerable interest in recent years, particularly in the wake of the surge in international di- rect investment in the late 1980's. 1 Intrafirm trade plays a critical role in the operations of multinational companies (mnc's): It may help an mnc to reduce the costs of distributing goods abroad or of acquiring inputs from abroad or to integrate production processes on a global scale. Intrafirm trade may respond differently than trade between unrelated parties to changes in economic conditions; for example, it may — at least in the short term — be more insulated from competitive forces in particular markets or from overall changes in prices, exchange rates, or general economic conditions. Furthermore, the prices — often termed "transfer prices" — that gov- ern intrafirm trade may have their own unique characteristics and determinants. In a previous Survey of Current Business article, bea presented aggregate estimates of U.S. intrafirm exports and imports of goods and services for 1982-93. 2 A disaggregation of the intrafirm- export and -import totals into the trade between U.S. parent companies and their foreign affiliates and the trade between foreign-owned 1. For a discussion of the worldwide surge in direct investment after 1985, see Edward M. Graham and Paul R. Krugman, "The Surge in Foreign Direct Investment in the 1980s," in Foreign Direct Investment, edited by Kenneth A. Froot (Chicago: University of Chicago Press, 1993): 13-36. For examples of the attention given to intrafirm trade by international organizations, which have shown particular interest in this phenomenon, see United Nations Con- ference on Trade and Development, Division on Transnational Corporations and Investment, World Investment Report 1995 (New York: United Nations, 1995): Chapter iv; and Marcos Bonturi and Kiichiro Fukasaku, "Globaliza- tion and Intra-firm Trade: An Empirical Note," in oecd Economic Studies 20 (Spring 1993): 145-159- 2. See "An Ownership- Based Disaggregation of the U.S. Current Account, 1982-93," Survey of Current Business 75 (October 1995): 52-61. U.S. affiliates and their foreign parent groups showed that intrafirm exports largely consisted of transactions by U.S. mnc's, whereas intrafirm im- ports largely consisted of transactions by foreign mnc's. This article presents a more detailed exami- nation of U.S. intrafirm trade in goods by U.S. mnc's and by foreign mnc's operating in the United States. 3 The intrafirm transactions are disaggregated by industry of affiliate, by country of destination or origin, and for foreign mnc's, by country of ownership. In much of the discussion, the U.S. intrafirm trade of U.S. mnc's and of foreign mnc's is ex- amined separately. This separation is warranted not only by the difference in the ownership of the investments (that is, whether it is U.S. or for- eign) but also by a fundamental difference in the role that intrafirm trade has played in the oper- ations of the mnc's: The intrafirm trade of U.S. mnc's has mainly been connected with manufac- turing production by foreign affiliates, while the U.S. intrafirm trade of foreign mnc's has mainly been connected with marketing and distribution activities. The following are highlights from the article: • The intrafirm-trade shares of U.S. exports and imports of goods have changed little over the past two decades. For U.S. exports, the intrafirm-trade shares of both U.S. mnc's and foreign mnc's have fluctuated, with no sus- tained trend. For U.S. imports, an increase in the share of foreign mnc's was offset by a decrease in the share of U.S. mnc's. • The intrafirm-trade share of the total trade of U.S. parent companies has increased markedly since 1982. However, because of a pronounced decline in the parents' share of total U.S. trade in goods, the share of U.S. goods trade accounted for by the intrafirm 3. As shown in the October 1995 article, trade in goods has consistently accounted for more than 80 percent of U.S. intrafirm exports of goods and services and for more than 90 percent of U.S. intrafirm imports of goods and services. 136 BEA STUDIES OF DIRECT INVESTMENT trade of U.S. mnc's has remained relatively flat. • Since 1982, the intrafirm trade of U.S. mnc's has mainly been with their foreign manufac- turing affiliates. However, the manufacturing affiliates' share of the intrafirm exports of U.S. mnc's has decreased somewhat, while their share of the intrafirm imports has increased. • The U.S. intrafirm trade of foreign mnc's has mainly been with their U.S. wholesale trade affiliates. The share of intrafirm trade with manufacturing affiliates has increased substantially since the mid-i98o's, but it still accounted for less than one- third of both the U.S. intrafirm exports and imports of foreign mnc's in 1994. • The intrafirm-trade shares of U.S. exports and imports of goods vary widely by trad- ing partner. Among the top six U.S. export markets in 1992, the share ranged from 70 percent for Japan to 12 percent for Taiwan. Among the top six source-countries for U.S. imports, the share ranged from 71 percent for Japan to less than 10 percent for China and Taiwan. The remainder of this article consists of three parts. The first part discusses trends in the shares of U.S. exports and imports of goods that are ac- counted for by intrafirm trade and in the shares accounted for by the intrafirm trade of U.S. mnc's and of foreign mnc's. The second part discusses industry patterns in the intrafirm trade of U.S. mnc's and foreign mnc's and examines the indus- try patterns of intrafirm trade of foreign mnc's by country of ultimate beneficial owner (ubo). 4 The final part discusses the variation in intrafirm trade shares among U.S. trading partners and ex- plores the relation between these shares and the per capita income levels of the partner countries. Trends in Intrafirm Trade Although fluctuating moderately during the past two decades, the shares of intrafirm trade — both 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. "Person" is broadly defined to include any individual, corporation, branch, partnership, associated group, association, estate, trust, or other organization and any government (in- cluding any corporation, institution, or other entity or instrumentality of a government). The foreign parent is the first foreign person in the affiliate's ownership chain. Unlike the foreign parent, the ubo of an affiliate is identi- fied to ascertain the person that ultimately owns or controls the U.S. affiliate and that, therefore, ultimately derives the benefits from owning or controlling the affiliate. by U.S. mnc's and by foreign mnc's — in U.S. ex- ports and imports of goods have changed very little. In 1977 (the earliest year for which trade data for both U.S. mnc's and foreign mnc's are available), intrafirm trade accounted for 35 per- cent of U.S. exports and 44 percent of U.S. imports. From 1982 to 1993, the share for exports fluctuated between 32 percent and 40 percent (chart 1); the share for imports — having dropped CHART 1 Shares of U.S. Exports Accounted for by Intrafirm Exports Percent 45 40 35 30 25 20 15 10 Total intrafirm exports Exports from U.S. parent companies to their foreign affiliates Exports from U.S. affiliates to their foreign parent groups \::: I I I I L 1982 83 84 85 86 87 88 89 90 91 92 93 94 U.S. Department of Commerce, Bureau of Economic Analysis CHART 2 Shares of U.S. Imports Accounted for by Intrafirm Imports Percent 30 25 20 15 10 Imports by U.S. affiliates from their foreign parent groups x ""■" — ' Imports by U.S. parent companies from their foreign affiliates J L "1982 83 84 85 86 87 88 89 90 91 92 93 94 U.S. Department of Commerce, Bureau of Economic Analysis U.S. INTRAFIRM TRADE IN GOODS 137 sharply between 1977 and 1982 — increased in most years in the 1980's (chart 2). By 1994 (the latest year for which data are available), the share for exports had risen slightly, to 36 percent, while the share for imports had declined slightly, to 43 percent (table 1, column 7). 5 For both exports and imports, intrafirm trade has mainly consisted of shipments from parents to their affiliates rather than shipments to par- ents from their affiliates. U.S. intrafirm exports have mainly been accounted for by the intrafirm trade of U.S. mnc's — that is, shipments from U.S. parent companies to their foreign affiliates; the share in most years has ranged from two-thirds to three-fourths. Since 1982, U.S. intrafirm imports have mainly been accounted for by shipments from foreign parents and other member- firms of the foreign parent group to their U.S. affiliates. 6 The share of total U.S. goods exports that is ac- counted for by the intrafirm trade of U.S. mnc's has fluctuated between 22 percent and 28 percent (table 1, column 8). The share increased substan- tially in 1982-85, decreased gradually in the late i98o's, and then increased gradually after 1990/ 5. The data for 1994 are preliminary. 6. The foreign parent group consists of (1) the foreign parent, (2) any foreign person, proceeding up the foreign parent's ownership chain, that owns more than 50 percent of the person below it, up to and including the ubo, and (3) any foreign person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it. 7. The increase in share in 1982-85, when the dollar was appreciating in world currency markets, and the subsequent decrease in share in 1985-89, when the dollar was depreciating, might suggest that intrafirm exports were less sensitive to exchange-rate changes than were "arm's-length" exports (that is, exports involving unaffiliated parties). For 1985-89, however, Subramanian Rangan and Robert Z. Lawrence have determined that the apparent insensitiv- ity at the aggregate level is due to industry-mix effects, so that once industry mix is taken into account, there is virtually no difference between the growth rates of intrafirm exports and of arm's-length exports; see "The Responses Table 1.— Total U.S. Trade in Goods and Intrafirm Trade in Goods, 1977-94 llions of dollars Total 1 (D Intrafirm trade Total (2) Between U.S. parent companies and their foreign affiliates (3) Between U.S. affiliates and their foreign parent groups (4) Other trade (5) Percent Total (6) Intrafirm trade Total (7) Between U.S. parent companies and their foreign affiliates (8) Between U.S. affiliates and their foreign parent groups 0) Other trade (10) Addenda: Intrafirm trade between U.S. parent companies and their foreign affiliates as a percentage of: Total trade of U.S. parents (11) Total U.S. trade with foreign affiliates (12) Intrafirm trade of U.S. affiliates as a percentage of their total trade (13) U.S. exports: 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 U.S. imports: 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 123,182 145,847 186,363 225,566 238,715 216,442 205,639 223,976 218,815 227,159 254,122 322,426 363,812 393,592 421,730 448,164 465,091 512,626 151,534 176,052 210,285 245,262 260,982 243,952 258,048 330,678 336,526 365,438 406,241 440,952 473,211 495,310 488,453 532,665 580,659 663,256 43,010 n.a. n.a. n.a. n.a 72,150 71,974 83,778 87,752 82,973 85,523 105,803 123,714 127,849 139,346 154,766 161,112 186,033 67,144 n.a. n.a. n.a. n.a. 91,203 98,434 123,244 135,767 148,430 168,580 187,853 204,664 217,757 215,649 231,692 247,901 283,504 31,319 n.a. n.a. n.a. n.a 47,126 49,397 56,706 61,852 61,100 66,414 79,378 89,438 90,085 97,124 105,999 113,762 134,311 36,266 n.a. n.a. n.a. n.a 39,288 43,632 52,793 54,027 55,012 60,379 69,491 74,738 80,299 83,483 93,893 97,112 119,438 11,691 16,570 22,073 20,983 26,911 25,024 22,577 27,072 25,900 21,873 19,109 26,425 34,276 37,764 42,222 48,767 47,350 51,722 30,878 39,466 45,295 47,010 52,196 51,915 54,802 70,451 81,740 93,418 108,201 118,362 129,926 137,458 132,166 137,799 150,789 164,066 80,172 n.a. n.a. n.a. n.a. 144,292 133,665 140,198 131,063 144,186 168,599 216,623 240,098 265,743 282,384 293,398 303,979 326,593 84,390 n.a. n.a. n.a. n.a. 152,749 159,614 207,434 200,759 217,008 237,661 253,099 268,547 277,553 272,804 300,973 332,758 379,752 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 34.9 n.a. n.a. n.a. n.a. 33.3 35.0 37.4 40.1 36.5 33.7 32.8 34.0 32.5 33.0 34.5 34.6 36.3 44.3 n.a. n.a. n.a. n.a. 37.4 38.1 37.3 40.3 40.6 41.5 42.6 43.3 44.0 44.1 43.5 42.7 42.7 25.4 n.a. n.a n.a n.a. 21.8 24.0 25.3 28.3 26.9 26.1 24.6 24.6 22.9 23.0 23.7 24.5 26.2 23.9 n.a n.a. n.a. n.a. 16.1 16.9 16.0 16.1 15.1 14.9 15.8 15.8 16.2 17.1 17.6 16.7 18.0 9.5 11.4 11.8 9.3 11.3 11.6 11.0 12.1 11.8 9.6 7.5 8.2 9.4 9.6 10.0 10.9 10.2 10.1 20.4 22.4 21.5 19.2 20.0 21.3 21.2 21.3 24.3 25.6 26.6 26.8 27.5 27.8 27.1 25.9 26.0 24.7 65.1 n.a. n.a. n.a. n.a. 66.7 65.0 62.6 59.9 63.5 66.3 67.2 66.0 67.5 67.0 65.5 65.4 63.7 55.7 n.a. n.a. n.a n.a. 62.6 61.9 62.7 59.7 59.4 58.5 57.4 56.7 56.0 55.9 56.5 57.3 57.3 33.9 n.a. n.a. n.a. n.a. 30.6 33.8 35.5 37.7 37.9 39.9 39.7 40.1 40.0 40.5 42.4 44.3 42.3 44.5 n.a. n.a n.a. n.a. 36.2 37.9 38.9 38.8 40.2 40.0 42.6 41.9 41.9 43.2 45.8 47.1 49.6 76.8 n.a. n.a. n.a. n.a. 83.1 85.8 85.5 88.8 86.0 84.2 83.7 87.2 84.6 84.2 86.9 86.4 87.2 87.3 n.a. n.a. n.a n.a 76.4 82.0 83.8 79.2 84.0 79.5 79.6 76.7 78.6 81.2 86.7 84.7 91.8 47.0 51.5 49.8 40.2 42.0 41.5 41.9 46.5 45.9 44.1 39.7 38.0 39.7 40.9 43.6 46.9 44.4 45.5 70.3 69.8 71.9 62.0 63.5 61.6 67.3 70.1 72.1 74.3 75.4 76.1 75.6 75.1 74.0 74.7 75.2 74.9 n.a. Not available. 1. Data are from the Bureau ol the Census. 138 BEA STUDIES OF DIRECT INVESTMENT The share of total U.S. goods imports that is accounted for by the intrafirm imports of U.S. mnc's has consistently been smaller than the cor- responding share of exports. The share dropped sharply from 24 percent in 1977 to 16 percent in 1982; the drop can be largely attributed to a reduction in intrafirm imports from petroleum affiliates, partly as a result of transfers in the own- ership of petroleum-producing assets in Middle Eastern countries to the host governments. 8 Since 1982, the import share has been quite stable (in the range of 15 to 18 percent). Because the U.S.-parent-company share of to- tal U.S. goods trade has declined since the early 1980's (chart 3), the share of U.S. goods trade ac- counted for by intrafirm trade of U.S. mnc's has not increased substantially, even though the share of total goods trade by U.S. parent companies accounted for by intrafirm trade has increased markedly. From 1982 to 1994, the share of U.S.- parent-company exports that were shipped to their foreign affiliates increased from 31 percent to 42 percent, while the share of U.S.-parent- company imports that were sourced from their of U.S. Firms to Exchange Rate Fluctuations: Piercing the Corporate Veil," Brookings Papers on Economic Activity 2 (1993): 341-379. 8. In 1977, imports from petroleum affiliates accounted for 42 percent of the total goods imported by U.S. parents from their foreign affiliates. Although total U.S. imports of petroleum and products increased $17 billion from 1977 to 1982, imports by U.S. parents from petroleum affiliates decreased from $13.8 billion to $12.6 billion, and intrafirm imports from petroleum affiliates located in the member countries of the Organization of Petroleum Exporting Countries dropped from $7.9 billion to $5.0 billion. CHART 3 Shares of U.S. Trade Accounted for by U.S. Parent Companies Percent 80 30 20 10 Share of U.S. exports _L_L I I I I I I foreign affiliates increased from 36 percent to 50 percent (chart 4 and table 1, column 11). The share of U.S. goods exports accounted for by U.S. parent companies decreased substan- tially in the late 1980's (when the U.S. dollar was depreciating in world currency markets), perhaps as a result of an increased export ori- entation on the part of smaller U.S. firms in response to new market opportunities overseas. The share of U.S. goods imports accounted for by U.S. parent companies (which include most major U.S. petroleum companies) decreased in the early 1980's, when the share of total U.S. goods imports accounted for by petroleum im- ports declined as a result of a decline in oil prices. U.S. intrafirm exports of foreign mnc's have accounted for about 10 percent of total U.S. goods exports since 1977; the share has fluctu- ated between 7 percent and 12 percent (table 1, column 9). In most years before 1986, the share exceeded 11 percent, primarily reflect- ing the longstanding, dominant role played by Japanese- owned wholesale trade affiliates (par- ticularly affiliates of Japan's largest general trad- ing companies) in handling U.S. exports to Japan. (Japanese-owned affiliates accounted for most of the U.S. intrafirm exports of for- eign mnc's throughout 1977-94.) The share dropped below 10 percent in 1986-90, despite 1982 83 84 85 86 87 88 89 90 91 92 93 94 U.S. Department of Commerce, Bureau of Economic Analysis CHART 4 Intrafirm Trade Between U.S. Parent Companies and Their Foreign Affiliates as a Share of Total Trade of U.S. Parents Percent 60 50 40 30 20 10 US. Imports ^ t y^ y^ Exports I I I I I I I I I I I I 1982 83 84 85 86 87 88 89 90 91 92 93 94 Department of Commerce, Bureau of Economic Analysts U.S. INTRAFIRM TRADE IN GOODS 139 the surge in direct investment in the United States, and it has hovered around 10 percent since then. The U.S. intrafirm imports of foreign mnc's have accounted for a much larger share of to- tal U.S. goods imports — about 20 percent or more — since 1977. The share of imports increased substantially in 1984-90 — from 21 percent to 28 percent — but has declined somewhat since. Like exports, a very large share of the U.S. intrafirm imports of foreign mnc's has been accounted for by Japanese- owned affiliates. Industry Patterns of Intrafirm Trade The U.S. intrafirm trade of U.S. mnc's and the U.S. intrafirm trade of foreign mnc's have taken fundamentally different forms and have had quite different industry compositions. The intrafirm trade of U.S. mnc's can be viewed as an aspect of the international division of man- ufacturing production between affiliated parts of the mnc: For both exports and imports, most of this trade has been between U.S. manufac- turing parents and their foreign manufacturing affiliates. The intrafirm exports to these man- ufacturing affiliates have mainly consisted of materials and components for further process- ing or assembly. 9 (Data on the intended use of U.S. imports from these foreign affiliates are not available.) In contrast, U.S. intrafirm trade of foreign mnc's has been connected largely with distribution and marketing activities: For both exports and imports, this trade has mainly been accounted for by U.S. wholesale trade af- filiates. The imports by these affiliates from their foreign parent groups have consisted almost exclusively of goods for resale by the affiliates without further manufacture. 10 (Data on the in- 9. The data on the intended use of U.S. goods exported to majority- owned foreign affiliates are collected in bea's benchmark survey of U.S. direct investment abroad. In each of the most recent benchmark survey years — 1982, 1989, and 1994 — at least three-fourths of the exports by U.S. parents to their majority-owned manufacturing affiliates were goods for further manufacture by the affiliates. In contrast, more than 90 percent of the intrafirm exports to majority-owned affiliates in wholesale trade were goods for resale without further manufacture. 10. The data on the intended use of U.S. goods imported by foreign- owned U.S. affiliates are collected in bea's benchmark surveys of foreign Table 2.— Intrafirm Trade in Goods Between U.S. Parent Companies and Their Majority-Owned Foreign Affiliates, by Major Industry of Affiliate, 1977 and 1982-94 Millions of dollars All industries Manu- facturing Wholesale trade Petroleum and other industries Percent All industries Manu- facturing Wholesale trade Petroleum and other industries Addendum: Intrafirm trade as a percentage of total U.S. trade with MOFA's All industries Manu- facturing Wholesale trade Petroleum and other industries Exports to MOFA's: 1977 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Imports from MOFA's: 1977 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 29,275 44,320 45,107 52,726 57,567 58,916 65,248 78,204 86,050 88,375 95,779 100,737 106,827 125,423 30,880 38,533 41,551 49,316 51,751 49,961 55,867 65,464 71,283 75,251 77,578 83,260 93,205 103,502 20,510 28,882 31,304 37,396 40,513 41,557 45,516 53,409 57,707 56,662 62,915 65,272 66,051 74,578 14,492 22,839 27,584 34,388 36,687 38,912 41,492 51,404 57,070 59,427 60,448 67,241 76,579 85,762 6,607 12,834 11,588 12,989 14,640 15,417 17,559 22,505 25,247 28,363 29,128 31,501 37,091 45,873 1,322 2,148 2,679 3,302 3,433 4,292 5,629 6,491 6,069 5,895 7,178 7,803 8,677 10,173 2,158 2,604 2,215 2,341 2,414 1,942 2,173 2,290 3,096 3,350 3,736 3,964 3,685 4,972 15,066 13,546 11,288 11,626 11,631 6,757 8,746 7,569 8,144 9,929 9,952 8,216 7,949 7,567 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 70.1 65.2 69.4 70.9 70.4 70.5 69.8 68.3 67.1 64.1 65.7 64.8 61.8 59.5 46.9 59.3 66.4 69.7 70.9 77.9 74.3 78.5 80.1 79.0 77.9 80.8 82.2 82.9 22.6 29.0 25.7 24.6 25.4 26.2 26.9 28.8 29.3 32.1 30.4 31.3 34.7 36.6 4.3 5.6 6.4 6.7 6.6 8.6 10.1 9.9 8.5 7.8 9.3 9.4 9.3 9.8 7.4 5.9 4.9 4.4 4.2 3.3 3.3 2.9 3.6 3.8 3.9 3.9 3.4 4.0 48.8 35.2 27.2 23.6 22.5 13.5 15.7 11.6 11.4 13.2 12.8 9.9 8.5 7.3 81.7 84.0 82.8 82.9 86.6 87.0 87.1 86.1 88.3 88.2 88.0 87.2 86.1 84.9 81.3 83.6 86.0 85.7 85.8 87.2 85.2 86.6 84.6 84.9 85.7 86.6 86.3 87.6 81.6 83.1 83.4 82.7 86.0 85.9 85.8 84.6 86.8 86.2 86.2 85.2 82.5 80.3 82.1 86.5 88.1 88.6 88.7 88.9 87.5 89.0 87.6 86.9 87.9 88.8 89.0 90.9 86.6 91.3 88.6 89.2 92.9 93.8 94.8 92.4 94.2 94.3 94.0 93.9 94.6 95.2 78.6 83.7 87.2 88.2 78.0 89.6 85.9 90.0 80.4 82.2 82.9 88.7 89.4 88.9 71.1 66.1 57.8 61.7 66.5 65.4 65.6 69.0 73.7 75.4 76.8 73.8 75.9 74.3 80.7 79.1 80.9 77.7 80.0 77.5 75.7 71.2 70.3 75.7 76.0 72.4 65.0 61.4 MOFA Majority-owned foreign affiliate 140 BEA STUDIES OF DIRECT INVESTMENT tended use of exports by these affiliates are not available.) The rest of this section presents added detail on the pattern of U.S. intrafirm trade associated with U.S. and foreign mnc's by industry of affiliate. In this section, the discussion of the intrafirm trade of U.S. mnc's is necessarily restricted to the in- trafirm trade between U.S. parent companies and their majority-owned foreign affiliates (mofa's); however, in the aggregate, intrafirm trade with mofa's accounts for a very high share of U.S. intrafirm trade with all foreign affiliates. 11 direct investment in the United States. In each of the benchmark survey years — 1980, 1987, and 1992 — more than 90 percent of the imports received by U.S. wholesale trade affiliates from their foreign parent groups were goods for resale. In contrast, goods for resale accounted for less than one-third of the intrafirm imports by manufacturing affiliates. 11. In bea's annual surveys of U.S. direct investment abroad, intrafirm- trade data by industry and by country of affiliate are collected only for mofa's. (The data on intrafirm trade with all foreign affiliates, not broken down by industry or country of affiliate, are collected on reports for U.S. parent companies.) In 1977 and 1982-94, intrafirm trade between U.S. parents and their mofa's accounted for more than 90 percent of the intrafirm exports to, and for more than 85 percent of the intrafirm imports from, all foreign affiliates. Intrafirm trade with mofa's Since 1982, mofa's in manufacturing have con- sistently accounted for a dominant share of both U.S. intrafirm exports to mofa's and U.S. in- trafirm imports from mofa's (table 2). The share of intrafirm exports to mofa's that accounted for by manufacturing affiliates has de- clined somewhat since the mid-1980's, when it exceeded 70 percent, while the share of exports to wholesale trade affiliates has increased. In contrast, the share of intrafirm imports from mofa's that is accounted for by manufacturing affiliates has increased markedly — from less than 50 percent in 1977 to more than 80 percent in 1994 — while the share of imports from petroleum affiliates has declined. Much of the intrafirm trade with manufactur- ing affiliates has consisted of trade with motor vehicle affiliates: In 1982-94, the share of total in- trafirm trade with manufacturing mofa's that was accounted for by motor vehicle affiliates rangec Table 3.— Intrafirm Trade in Goods Between U.S. Affiliates of Foreign Companies and Their Foreign Parent Groups by Major Industry of Affiliate, 1977-94 Millions of dollars All industries (1) Manu- facturing (2) Wholesale trade (3) Petroleum and other industries (4) Percent All industries (5) Manu- facturing (6) Wholesale trade (7) Petroleum and other industries (8) Addendum: Intrafirm trade of U.S. affiliates as a percentage of their total trade industries (9) Manu- facturing (10) Wholesale trade (11) Petroleum and other industries (12) Exports to foreign parent groups: 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Imports from foreign parent groups: 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 11,691 16,570 22,073 20,983 26,911 25,024 22,577 27,072 25,900 21,873 19,109 26,425 34,276 37,764 42,222 48,767 47,350 51,722 30,878 39,466 45,295 47,010 52,196 51,915 54,802 70,451 81,740 93,418 108,201 118,362 129,926 137,458 132,166 137,799 150,789 164,066 1,365 1,597 2,019 2,643 2,945 3,112 3,108 3,713 3,671 3,894 4,491 6,544 7,926 9,067 10,445 11,574 12,092 13,827 4,512 5,761 6,444 7,808 8,019 7,680 9,202 11,397 12,432 14,626 17,570 21,952 27,587 33,221 32,730 37,259 39,866 45,105 9,588 13,977 18,761 17,258 22,416 20,341 18,033 22,117 20,768 16,661 13,370 18,257 24,782 26,636 28,887 34,612 33,336 35,513 23,791 31,453 36,082 36,068 41,981 41,083 43,208 57,071 66,898 75,498 85,092 90,649 93,243 91,441 88,289 89,202 99,649 109,634 738 996 1,293 1,082 1,550 1,571 1,436 1,242 1,461 1,318 1,248 1,624 1,568 2,061 2,890 2,581 1,922 2,382 2,575 2,252 2,769 3,134 2,196 3,152 2,392 1,983 2,410 3,294 5,539 5,761 9,096 12,796 11,147 11,338 11,274 9,327 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 11.7 9.6 9.1 12.6 10.9 12.4 13.8 13.7 14.2 17.8 23.5 24.8 23.1 24.0 24.7 23.7 25.5 26.7 14.6 14.6 14.2 16.6 15.4 14.8 16.8 16.2 15.2 15.7 16.2 18.5 21.2 24.2 24.8 27.0 26.4 27.5 82.0 84.4 85.0 82.2 83.3 81.3 79.9 81.7 80.2 76.2 70.0 69.1 72.3 70.5 68.4 71.0 70.4 68.7 77.0 79.7 79.7 76.7 80.4 79.1 78.8 81.0 81.8 80.8 78.6 76.6 71.8 66.5 66.8 64.7 66.1 66.8 8.3 5.7 6.1 6.7 4.2 6.1 4.4 2.8 2.9 3.5 5.1 4.9 7.0 9.3 8.4 8.2 7.5 5.7 47.0 51.5 49.8 40.2 42.0 41.5 41.9 46.5 45.9 44.1 39.7 38.0 39.7 40.9 43.6 46.9 44.4 45.5 70.3 69.8 71.9 62.0 63.5 61.6 67.3 70.1 72.1 74.3 75.4 76.1 75.6 75.1 74.0 74.7 75.2 74.9 38.4 35.3 30.8 29.2 21.7 24.2 25.8 28.4 28.6 30.4 29.0 26.0 24.9 25.1 27.7 28.7 27.8 28.6 80.2 80.1 74.3 75.0 60.6 62.0 65.6 62.7 66.7 70.9 71.6 67.0 67.5 70.4 69.6 69.9 66.9 67.3 48.0 54.0 52.7 42.4 48.2 46.9 46.9 54.6 54.3 49.4 45.8 45.6 50.5 53.4 55.2 62.2 59.5 62.2 75.8 73.6 79.1 66.8 72.5 66.6 73.2 78.7 79.1 79.9 79.3 81.3 81.8 80.5 78.9 81.4 83.2 83.5 56.C 56.S 59.C 44.4 38.9 39.1 42.8 27.2 27.6 43.5 36.3 37.6 29.3 32.6 41.8 32.4 26.7 28./ 37.3 33.9 31 27.. 19. 30. 28. 20. 23,1 31. 47.: 51 53. 57. 56. 52. 52. 44.1 U.S. INTRAFIRM TRADE IN GOODS 141 from 38 to 48 percent for exports and from 44 to 54 percent for imports. Much of this trade was with affiliates in Canada, reflecting the large vol- ume of auto-related trade since the U.S. -Canada Automobile Agreement of 1965. Intrafirm trade with affiliates in machinery industries (industrial and electronic and other electric machinery man- ufacturing) has also been substantial, accounting for 27 to 32 percent of intrafirm exports to, and for 30 to 37 percent of intrafirm imports from, manufacturing mofa's. The share of intrafirm exports that was to mofa's in wholesale trade increased substantially in 1984-94 — from 25 percent to 37 percent. Much of this trade was in machinery products. 12 In 1977, petroleum affiliates accounted for 49 percent of total intrafirm imports from mofa's; however, by 1982, their share had dropped to 35 percent, partly as a result of the transfers in the ownership of petroleum-producing assets in Mid- dle Eastern countries to host governments. The share continued to decline in 1982-86, reflecting a fall in the U.S.-import price of crude oil. Intrafirm trade of U.S. affiliates Unlike the intrafirm trade of U.S. mnc's, which has been dominated by trade with manufacturing affiliates, the intrafirm trade of foreign mnc's — between U.S. affiliates and their foreign parent groups — has been mostly with wholesale trade affiliates. Through the mid-1980's, these affili- ates accounted for more than three-fourths of the intrafirm exports and imports of foreign-owned U.S. affiliates; in more recent years, the share has been closer to two-thirds (table 3). Until recently, the intrafirm exports by whole- sale trade affiliates largely consisted of homo- geneous commodities — such as food and crude materials — shipped by affiliates of Japan's general trading companies or by French-owned affiliates specializing in farm products. 13 The share of the intrafirm exports of wholesale trade affiliates that was accounted for by food and crude materials was 59 percent in 1980 and 50 percent in 1987 (table 4). By 1992, however, this share had de- clined to 41 percent, reflecting an increase in the importance of manufactured goods in intrafirm exports. In contrast, the intrafirm imports of wholesale trade affiliates have mainly consisted of heteroge- neous manufactured products, such as machinery products or road vehicles and parts. For such products, a local presence in the form of whole- sale trade affiliates may be required to provide specialized after-sales service or to obtain con- tinuous feedback on customer requirements and tastes. Most of these affiliates were set up by for- 13. Japan's largest general trading companies have historically handled a substantial share of Japan's imports of bulk commodities from other coun- tries. See Alexander K. Young, The Sogo Shosha: Japan's Multinational Trading Companies (Boulder, Colorado: Westview Press, 1979). 12. In each of the most recent benchmark survey years — 1982, 1989, and 1992 — machinery exports accounted for more than one-half of the intrafirm exports to mofa's in wholesale trade. (Data on U.S. trade with mofa's by product are collected only in benchmark survey years.) Table 4. — Intrafirm Trade in Goods Between U.S. Wholesale Trade Affiliates and Their Foreign Parent Groups, by Product, for Selected Years Exports, total Food Crude materials, inedible, except fuels Chemicals Machinery Road vehicles and parts ... Other transport equipment Metal manufactures Other Imports, total Food Crude materials, inedible, except fuels Chemicals Machinery Road vehicles and parts ... Other transport equipment Metal manufactures Other Ilions of dollars 1980 1987 1992 17,258 6,246 3,910 953 1,436 203 397 1,068 3,045 36,068 1,692 836 827 7,606 ( D ) 511 5,682 ( D ) 13,370 3,708 3,029 1,057 1,676 236 ( D ) 734 O 85,092 1,888 1,526 1,403 25,526 39,340 396 4,607 10,406 34,612 8,772 5,280 2,422 5,745 2,156 2,698 1,463 6,076 89,202 1,532 2,059 2,595 33,489 27,639 1,960 4,891 15,037 Percent 1980 1987 1992 100.0 36.2 22.7 5.5 8.3 1.2 2.3 6.2 17.6 100.0 4.7 2.3 2.3 21.1 ( D ) 1.4 15.8 ( D ) 100.0 27.7 22.7 7.9 12.5 1.8 ( D ) 5.5 ( D ) 100.0 2.2 1.8 1.6 30.0 46.2 0.5 5.4 12.2 100.0 25.3 15.3 7.0 16.6 6.2 7.8 4.2 17.6 100.0 1.7 2.3 2.9 37.5 31.0 2.2 5.5 16.9 CHART 5 Share of U.S. Affiliate Intrafirm Exports, Intrafirm Imports, and Gross Product Accounted for by Japanese-Owned Affiliates Percent Intrafirm exports Gross product \ I I I 1 I 1 I I I I I D Suppressed to avoid the disclosure of data ol individual companies. 1982 83 84 85 86 87 88 89 90 91 92 93 94 U.S. Department of Commerce, Bureau of Economic Analysis 142 BEA STUDIES OF DIRECT INVESTMENT eign manufacturers to facilitate the marketing of their own products; in most years, intrafirm im- ports from their foreign parents have accounted for more than three-fourths of the total imports by these affiliates (table 3, column 11). The shares of U.S.-affiliate intrafirm exports and imports accounted for by manufacturing af- filiates have increased substantially. For exports, the share increased gradually from 12 percent in 1977 to 27 percent in 1994. For imports, the in- crease largely coincided with the surge in foreign direct investment in U.S. manufacturing indus- tries in the mid-to-late 1980's; the share increased from 15 percent in 1985 to 27 percent in 1992. 14 Within manufacturing, the industry composi- tion of intrafirm trade with U.S. affiliates has been somewhat more diversified than that of intrafirm trade with mofa's; however, affiliates in chemicals and in electronic and other elec- tric equipment have generally accounted for the largest shares of intrafirm exports and imports by U.S. manufacturing affiliates. 15 By country of ubo. — Since 1977, affiliates with ubo's in Japan have accounted for a dominant share of U.S.-affiliate intrafirm exports: The 14. The share of total U.S. goods imports that was accounted for by the intrafirm imports by U.S. manufacturing affiliates also increased — from 4 percent in 1985 to 7 percent in 1992. The share of intrafirm exports by U.S. manufacturing affiliates increased from 1 percent in 1977 to 3 percent in 1994. 15. In 1977-94. the share for affiliates in chemicals remained in the range of 27 to 37 percent for exports and 18 to 22 percent for imports. The share for affiliates in electronic equipment was less stable, fluctuating in the range of 12 to 30 percent for exports and 17 to 25 percent for imports. Table 5.— Intrafirm Trade in Goods Between U.S. Affiliates and Their Foreign Parent Groups, by Major Industry of Affiliate and by Country of UBO, for Selected Years llions of dollars Exports to foreign parent groups 1984 1988 1992 1994 Imports from foreign parent groups 1984 1988 1992 1994 Percent of all-countries total Exports 1984 1988 1992 1994 Imports 1984 1988 1992 1994 All industries: All countries Canada France Germany Netherlands Sweden Switzerland United Kingdom Japan Korea, Republic of Other countries Manufacturing: All countries Canada France Germany Netherlands Sweden Switzerland United Kingdom Japan Korea, Republic of Other countries Wholesale trade: All countries Canada France Germany Netherlands Sweden Switzerland United Kingdom Japan Korea, Republic of Other countries Petroleum and other industries: All countries Canada France , Germany Netherlands Sweden Switzerland United Kingdom Japan Korea, Republic of Other countries 27,072 881 4,367 1,050 765 176 771 854 15,775 555 1,877 3,713 434 150 674 300 86 290 532 364 ( D ) 198 97 ( D ) 26,425 1,109 1,283 1,795 1,405 289 757 1,291 14,463 1,400 2,634 6,544 503 527 1,420 876 251 425 1,060 786 H 259 150 13,572 1,084 1,723 1,624 488 11 28 O Q 81 105 ( D ) o 48,767 1,569 4,219 2,471 1,546 404 1,417 2,170 29,551 1,305 4,115 11,574 1,055 1,014 1,934 911 315 1,131 1,466 2,731 £1 ( D ) 34,612 282 ( D ) 481 83 87 159 466 26,533 1,263 ( D ) 2,581 232 g 552 2 127 238 287 ( D ) 51,722 1,835 5,140 2,778 1,773 791 1,850 2,051 30,049 1,271 4,184 13,827 1,345 ( D ) 2,297 961 738 1,585 1,597 3,184 ( D ) 1,129 35,513 384 440 176 (D i 156 270 26,714 989 2,174 2,382 106 14 41 636 (D 1 109 184 151 ( D ) 70,451 4,844 2,801 9,324 1,314 2,581 1,507 3,479 38,688 1,387 4,525 11,397 2,285 1,185 2,169 721 439 780 1,230 1,327 46 1,216 57,071 2,002 1,600 7,116 176 2,125 719 1,973 37,140 1,342 2,879 1,983 557 16 39 417 17 9 276 222 430 118,362 6,899 4,486 13,835 2,237 4,168 3,829 5,594 63,903 4,542 8,869 21,952 2,962 2,107 4,034 1,167 ( D ) 1,866 2,186 5,144 ( D ) 1,680 90,649 3,178 2,287 9,749 385 3,457 1,363 2,574 58,617 4,199 4,838 5,761 759 92 52 685 ( D ) 600 835 142 ( D ) 2,350 137,799 7,125 4,673 15,422 4,297 3,798 3,877 6,804 71,152 3,857 16,794 37,259 3,706 2,427 6,513 1,734 <°i 2,532 3,883 12,315 ( D ) 2,910 89,202 2,412 1,994 8,694 1,520 2,940 1,226 2,330 58,684 3,444 5,958 11,338 1,007 252 215 1,043 ( D ) 119 591 153 ( D ) 7,926 164,066 8,237 5,368 18,840 4,095 4,288 4,830 7,446 86,674 6,563 17,725 45,105 4,670 2,806 7,192 1,961 <°i 3,043 4,945 14,488 ( D ) 4,092 109,634 2,345 2,387 11,434 1,521 2,806 ( D ) 2,030 72,038 5,765 ( D ) 9,327 1,222 175 214 613 ( D ) 336 471 148 ( D ) ( D ) 100.0 3.3 16.1 3.9 2.8 .7 2.8 3.2 58.3 2.0 6.9 100.0 11.7 4.0 18.2 8.1 2.3 7.8 14.3 9.8 ( D ) 100.0 .5 ( D ) 1.6 .3 ( D ) b .6 69.2 2.5 3.8 100.0 26.7 Q 32.3 ( D ) 16.0 7.8 ( D ) 100.0 4.2 4.9 6.8 5.3 1.1 2.9 4.9 54.7 5.3 10.0 100.0 7.7 8.1 21.7 13.4 3.8 6.5 16.2 12.0 ( D ) ( D ) 100.0 .6 4.1 1.9 $ ( D ) 1.4 .8 74.3 5.9 9.4 100.0 30.1 .7 1.7 100.0 3.2 8.7 5.1 3.2 .8 2.9 4.4 60.6 2.7 8.4 100.0 9.1 8.8 16.7 7.9 2.7 9.8 12.7 23.6 ( D ) 100.0 .8 ( D ) 1.4 .2 .3 .5 1.3 76.7 3.7 100.0 9.0 ( D ) 2.2 21.4 .1 4.9 9.2 11.1 ( D ) ( D ) 100.0 3.5 9.9 5.4 3.4 1.5 3.6 4.0 58.1 2.5 8.1 100.0 9.7 ( D ) 16.6 7.0 5.3 11.5 11.5 23.0 ( D ) 8.2 100.0 1.1 .5 ( D ) .4 .8 75.2 2.8 6.1 100.0 4.5 .6 1.7 26.7 s 7.7 6.3 ( D ) 37.0 100.0 6.9 4.0 13.2 1.9 3.7 2.1 4.9 54.9 2.0 6.4 100.0 20.0 10.4 19.0 6.3 3.9 6.8 10.8 11.6 .4 10.7 100.0 3.5 2.8 12.5 .3 3.7 1.3 3.5 65.1 2.4 5.0 100.0 28.1 .8 2.0 21.0 .9 .5 13.9 11.2 (*) 21.7 100.0 5.8 3.8 11.7 1.9 3.5 3.2 4.7 54.0 3.8 7.5 100.0 13.5 9.6 18.4 5.3 ( D ) 8.5 10.0 23.4 ( D ) 7.7 100.0 3.5 2.5 10.8 .4 3.8 1.5 2.8 64.7 4.6 5.3 100.0 13.2 1.6 .9 11.9 ( D ) 10.4 14.5 2.5 ( D ) 40.8 100.0 5.2 3.4 11.2 3.1 2.8 2.8 4.9 51.6 2.8 12.2 100.0 9.9 6.5 17.5 4.7 ( D ) 6.8 10.4 33.1 ( D ) 7.8 100.0 2.7 2.2 9.7 1.7 3.3 1.4 2.6 65.8 3.9 6.7 100.0 8.9 2.2 1.9 9.2 ( D ) 1.0 5.2 1.3 ( D ) 69.9 100.0 5.0 3.3 11.5 2.5 2.6 2.9 4.5 52.8 4.0 10.8 100.0 10.4 6.2 15.9 4.3 ( D ) 6.7 11.0 32.1 ( D ) 9.1 100.0 2.1 2.2 10.4 1.4 2.6 ( D ) 1.9 65.7 5.3 ( D ) 100.0 13.1 1.9 2.3 6.6 ( D ) ( D ) 5.0 1.6 ( D ) D Suppressed to the avoid disclosure of data of individual companies. • Less than $500,000 or less than .05 percent, as appropriate. UBO Ultimate beneficial owner U.S. INTRAFIRM TRADE IN GOODS 143 share has fluctuated in the range of 55 to 68 percent — many times larger than their share of U.S.-affiliate gross product (chart 5). Since 1982, Japanese- owned affiliates have also accounted for more than one-half of U.S.-affiliate intrafirm imports. For both exports and imports, this dominance mainly reflects trade by Japanese- owned wholesale trade affiliates, which function as intermediate agents for much of Japan's trade with the United States. Within wholesale trade, Japanese- owned af- filiates have accounted for about three-fourths of U.S.-affiliate intrafirm exports and for nearly two-thirds of U.S.-affiliate intrafirm imports (table 5). French-owned affiliates, mainly farm- product trading companies, have generally ac- counted for the second-largest share of the in- trafirm exports; German-owned affiliates, mainly wholesale trade affiliates of motor vehicle man- ufacturers, have generally accounted for the second-largest share of the intrafirm imports. In manufacturing, the shares of the intrafirm trade of affiliates have been much more evenly distributed among investing countries. Japanese- owned affiliates accounted for the largest shares of both intrafirm exports and imports in 1994, but their share of exports was less than one- fourth, and their share of imports was less than one-third. German-owned affiliates accounted for the second-largest shares — about one-sixth of both exports and imports. In the i98o's, the shares of Japanese-owned affiliates were substan- tially smaller: In 1984, their share of exports was exceeded by the shares of German-, British-, and Canadian- owned affiliates, and their share of im- ports was exceeded by the shares of Canadian- and German- owned affiliates. The increased share of Japanese-owned affiliates after 1984 re- flects the large increase in Japanese ownership in U.S. manufacturing industries in the late 1980's. 16 Geographic Patterns of Intrafirm Trade The importance of intrafirm trade in total U.S. international trade in goods varies widely by trading partner. This section examines the shares of total U.S. trade in goods with major trading- partner countries that are accounted for by total intrafirm trade, by intrafirm trade between U.S. parent companies and mofa's, and by intrafirm trade between U.S. affiliates and their foreign par- ent groups. The shares are computed for 1992, the most recent year for which geographic data on U.S.-affiliate intrafirm trade are available. 17 The presentation is in two parts. The first part discusses differences in the intrafirm-trade shares for trade with 62 major partner countries, and the second explores the relation between these shares and the income levels of the partner countries. 18 Intrafirm trade shares Exports. — In 1992, the share of U.S. exports ac- counted for by intrafirm exports varied widely across countries of destination. For example, among the top six U.S. export markets — Canada, Japan, Mexico, the United Kingdom, Germany, and Taiwan — the intrafirm share ranged from 70 percent for Japan to 12 percent for Taiwan (chart 6 and table 6, column 7). In addition, the intrafirm-trade shares were particularly high for Switzerland (74 percent) and Russia (64 percent). For 24 of the 62 countries, the intrafirm share was less than 10 percent. 17. The data for intrafirm trade of U.S. affiliates are from the 1992 bench- mark survey of foreign direct investment in the United States. Data on U.S.-affiliate trade by country of destination and by country of origin are collected in benchmark surveys, but not in annual surveys. 18. In this section, as in the previous section, total intrafirm trade is defined as the sum of the intrafirm trade between U.S. parents and mofa's and the intrafirm trade between U.S. affiliates and their foreign parent groups (see footnote 11). Text continues on page 148. CHART 6 Intrafirm Trade Shares of U.S .Trade with Selected Trading Partners, 1992 Percent 16. During 1987-90, the share of Japanese-owned manufacturing affiliates in the gross product of all manufacturing affiliates doubled — from 6 percent to 12 percent. Canada Germany United Mexico Japan Taiwan Kingdom 144 BEA STUDIES OF DIRECT INVESTMENT Table 6.— Total U.S. Trade in Goods and Intrafirm Trade in Goods by Country of Destination and Origin, 1992 Exports by country of destination illions of dollars Total ' Intrafirm exports Total By U.S. parent companies to their majority- owned foreign affiliates (3) By U.S. affiliates to their foreign parent groups (4) Other exports (5) Percent Total (6) Intrafirm exports Total (7) By U.S. parent companies to their majority- owned foreign affiliates (8) By U.S. affiliates to their foreign parent groups (9) All countries Canada Europe Austria Belgium and Luxembourg Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Poland Portugal Russia Spain Sweden Switzerland Turkey United Kingdom Other Latin America and Other Western Hemisphere Argentina Bahamas Brazil Chile Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Honduras Jamaica Mexico Netherlands Antilles Panama Peru Trinidad and Tobago Venezuela Other Africa Algeria Angola k E ,9VPt Nigeria South Africa Other Middle Easl Israel Kuwait Saudi Arabia United Arab Emirates Other Asia and Pacific Australia Bangladesh China Hong Kong India Indonesia Japan Korea, Republic of Malaysia New Zealand Pakistan Philippines Singapore Taiwan Thailand Other Unallocated 448,164 90,594 122,617 1,256 10,047 1,473 785 14,593 21,249 901 2,862 8,721 13,752 1,279 641 1,025 2,112 5,537 2,845 4,540 2,735 22,800 3,464 75,800 3,223 712 5,751 2,466 3,286 1,357 2,100 999 742 1,205 811 938 40,592 766 1,103 1,005 448 5,444 2,852 9,907 688 158 3,088 1,001 2,434 2,538 16,873 4,077 1,337 7,167 1,553 2,739 132,070 8,876 188 7,418 9,077 1,917 2,779 47,813 14,639 4.363 1,307 881 2,759 9,626 15,250 3,989 1,188 149,504 37,484 43,500 313 3,053 194 142 4,947 8,446 32 887 2,060 5,212 209 12 141 1,341 1,272 780 3,374 70 10,895 120 15,750 408 107 1,594 186 357 99 63 69 67 130 115 88 10,687 15 332 46 ( D ) 938 ( D ) 682 n 59 288 218 679 116 50,786 3,062 4 1,456 3,358 78 305 33,525 1,970 857 209 ( D ) 192 3,109 1,791 813 ( D ) 623 100,737 33,878 32,829 223 2,598 160 74 3,975 6,544 26 834 1,614 4,412 124 (') 111 1,028 604 2,539 52 7,823 14,110 368 107 1,103 155 301 94 57 52 62 123 113 80 10,096 12 169 37 ( D ) 870 ( D ) 306 ( D ) 25 44 167 ( D ) 187 36 ( D ) 14 69 ( D ) 19,365 2,788 (') 148 2,746 18 163 7,592 631 744 180 12 126 2,485 1,053 658 21 61 48,767 3,606 10,671 90 455 34 68 972 1,902 6 53 446 800 85 12 30 1,341 244 176 835 18 3,072 32 1,640 40 491 31 56 5 6 17 5 7 2 8 591 3 163 9 1 68 137 376 34 244 51 47 492 80 65 302 9 36 31,421 274 4 1,308 612 60 142 25,933 1,339 113 29 ( D ) 66 624 738 155 ( D ) 562 298,660 53,110 79,117 943 6,994 1,279 643 9,646 12,803 869 1,975 6,661 8,540 1,070 629 884 771 4,265 2,065 1,166 2,665 11,905 3,344 60,050 2,815 605 4,157 2,280 2,929 1,258 2,037 930 675 1,075 696 850 29,905 751 771 959 < D i 4,506 ( D ) 9,225 688 <°J 3,029 713 2,216 16,194 3,961 ( D ) 6,851 1,475 ( D ) 81,284 5,814 184 5,962 5,719 1,839 2,474 14,288 12,669 3,506 1,098 ( D ) 2,567 6,517 13,459 3,176 ( D ) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 33.4 41.4 35.5 24.9 30.4 13.2 18.1 33.9 39.7 3.6 31.0 23.6 37.9 16.3 1.9 13.8 63.5 23.0 27.4 74.3 2.6 47.8 3.5 20.8 12.7 15.0 27.7 7.5 10.9 7.3 3.0 6.9 9.0 10.8 14.2 9.4 26.3 2.0 30.1 4.6 A 17.2 A 6.9 A 1.9 28.8 9.0 A 4.0 2.8 A 4.4 5.0 A 38.5 34.5 2.1 19.6 37.0 4.1 11.0 70.1 13.5 19.6 16.0 A 7.0 32.3 11.7 20.4 A 22.5 37.4 26.8 17.8 25.9 10.9 9.4 27.2 30. 2.9 29.1 18.5 32.1 9.7 (2 18.6 21.2 55.9 1.9 34.3 2.5 18.6 11.4 15.0 19.2 6.3 9.2 6.9 2.7 5.2 8.4 10.2 13.9 8.5 24.9 1.6 15.3 3.7 A 16.0 A 3.1 A .8 4.4 6.9 A 1.1 .9 A .2 14.7 31.4 2.0 30.3 .9 5.9 15.9 4.3 17.1 13.8 1.4 4.6 25.8 6.9 16.5 1.8 10.9 4.0 8.7 7.2 4.5 2.3 8.7 6.7 9.0 .7 1.9 5.1 5.8 6.6 1.9 2.9 63.5 4.4 6.2 18.4 .7 13.5 .9 2.2 1.2 8.5 1.3 1.7 .4 .3 1.7 .7 .6 .2 .9 1.5 .4 14.8 .9 .2 1.2 3.8 1.1 24.4 2.1 1.9 2.9 2.0 4.9 4.2 .6 1.3 23.8 3.1 2.1 17.6 6.7 3.1 5.1 54.2 9.1 2.6 2.2 A 2.4 6.5 4.8 3.9 A See footnotes at the end of the table. U.S. INTRAFIRM TRADE IN GOODS 145 Table 6.— Total U.S. Trade n Goods and Intrafirm Trade in Goods by Country of Destination and Origin, 1992— Continued Imports by country of origin Millions of dollars Percent Intralirm imports Intrafirm imports By U.S. parent By U.S. parent Total 1 companies from By U.S. affiliates Other imports Total companies from By U.S. affiliates Other imports Total their majority- owned foreign affiliates from their foreign parent groups Total their majority- owned foreign affiliates from their foreign parent groups (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) 532,665 221,059 83,260 137,799 311,606 100.0 41.5 15.6 25.9 58.5 Canada 98,630 46,061 36,613 9,448 52,569 100.0 46.7 37.1 9.6 533 Europe 112,707 52,226 12,967 39,259 60,481 100.0 46.3 115 34.8 53.7 Austria 1,307 H ( D ) 415 P) 100.0 B A 31.8 E Belgium and Luxembourg 4,703 P) P) 1,767 P) 100.0 c A 37.6 C Denmark 1,667 565 68 497 1.102 100.0 33.9 4.1 29.8 66.1 Finland 1,185 ( D ) 1,829 354 P) 100.0 B A 29.9 E France 14,797 5,717 3,888 9,080 100.0 38.6 12.4 26.3 61.4 Germany 28.820 17,438 2,558 14,880 11,382 100.0 60.5 8.9 51.6 39.5 Greece 370 ( D ) 2 ( D ) P) 100.0 A .5 A F Ireland 2,262 1,255 1,053 202 1,007 100.0 55.5 46.6 8.9 44.5 Italy 12,314 1,907 616 1,291 10,407 100.0 15.5 5.0 10.5 84.5 Netherlands 5,300 3,421 891 2,530 1,879 100.0 64.5 16.8 47.7 35.5 Poland 1,969 402 129 273 1,567 100.0 20.4 6.6 13.9 79.6 375 20 20 355 100.0 5.3 5.3 94.7 Portugal 664 33 26 7 631 100.0 5.0 3.9 1.1 95.0 Russia 481 211 211 270 100.0 43.9 43.9 56.1 Spain 3,002 557 351 206 2,445 100.0 18.6 11.7 6.9 81.4 Sweden 4,716 3,085 157 2,928 1,631 100.0 65.4 3.3 62.1 34.6 Switzerland 5,645 4,315 316 3,999 1,330 100.0 76.4 5.6 70.8 23.6 Turkey 1,110 31 18 13 1,079 100.0 2.8 1.6 1.2 97.2 United Kingdom 20,093 9,522 4,008 5,514 10,571 100.0 47.4 19.9 27.4 52.6 Other 1,927 308 ( D ) ( D ) P) 100.0 A 2.7 A F Latin America and Other Western Hemisphere 68,755 19,992 13,960 6,032 48,763 100.0 29.1 20.3 ' 8.8 70.9 Bahamas 1,256 147 63 84 1,109 100.0 11.7 5.0 6.7 88.3 605 13 P) ( D ) 592 100.0 2.1 A A 97.9 Brazil 7,609 2,506 1,466 1,040 5,103 100.0 32.9 19.3 13.7 67.1 Chile 1,388 140 90 50 1,248 100.0 10.1 6.5 3.6 89.9 Colombia 2,837 231 153 78 2,606 100.0 8.1 5.4 2.7 91.9 Costa Rica 1,412 ( D ) 58 ( D ) P) 100.0 A 4.1 A F Dominican Republic 2,373 M 71 M P) 100.0 A 3.0 A F Ecuador 1,344 179 139 40 1,165 100.0 13.3 10.3 3.0 86.7 El Salvador 384 1,081 15 ( D ) ( D ) M ( D ) 11 369 P) 100.0 100.0 3.9 A A A A 1.0 96.1 Guatemala F Honduras 782 ( D ) 91 ( D ) P) 403 100.0 A 11.6 A F Jamaica 599 196 ( D ) ( D ) 100.0 32.7 B A 67.3 35,211 12,209 10,739 1,470 23,002 100.0 34.7 30.5 4.2 65.3 Netherlands Antilles 856 254 49 35 5 15 44 20 807 219 100.0 100.0 5.7 13.8 .6 5.9 5.1 7.9 943 Panama 86.2 Peru 738 ( D ) 14 ( D ) P) 100.0 A 1.9 A F Trinidad and Tobago 848 475 ( D ) P) 373 100.0 56.0 c A 44.0 Venezuela 8,181 ( D ) M 3,102 P) 100.0 B A 37.9 E Other 997 363 359 4 634 100.0 36.4 36.0 .4 63.6 Africa 14,346 2,922 1,957 966 11,424 100.0 20.4 13.6 6.7 79.6 Algeria 1,586 ( D ) ( D ) P> 100.0 A A F Angola 2,303 ( D ) n P) 100.0 A A F Egypt 434 2,133 < D i 1,402 2,970 100.0 A A F Nigeria 5,103 731 100.0 41.8 27.5 14.3 58.2 South Africa 1,727 131 9 122 1 596 100 76 5 71 92 4 Other 3,193 ( D ) 207 ( D ) P) 100.0 A 6.5 A F Middle East 15,726 4,329 579 3,750 11,397 100.0 27.5 3.7 23.8 72.5 Israel 3,815 803 400 403 3,012 100.0 21.0 10.5 10.6 79.0 Kuwait 281 ( D ) ( D ) P) 100.0 A A F Saudi Arabia 10,371 ( D ) 1 P) P) 100.0 B (') B E United Arab Emirates 812 P ( D ) P) P 100.0 B B A E Other 447 M H 2 P) 100.0 A A .4 F Asia and Pacific 222,502 94,802 17,185 77,617 127 700 100 42 6 77 349 57.4 Australia 3,688 1,223 546 677 2,465 100.0 33.2 14.8 18.4 66.8 831 831 100.0 100.0 China 25,728 < D i 4,823 ( D ) 502 P) 100.0 A A 2.0 F Hong Kong 9,793 3481 1 342 4 970 100 49 2 35 5 137 50 8 3,780 ( D ) ( D ) 20 P) 100.0 A A .5 F Indonesia 4,529 ( D ) ( D ) 119 P) 100.0 A A 2.6 F Japan 97,414 69,447 1,991 67,456 27,967 100.0 71.3 2.0 69.2 28.7 Korea, Republic of 16,682 3,761 264 3 497 12 921 100 225 1 6 21 775 Malaysia 8,294 2,671 2,151 520 5,623 100.0 32.2 25.9 6.3 67.8 New Zealand 1,218 262 24 238 956 100 21 5 20 195 78 5 Pakistan 866 D 866 100.0 (') 100.0 Philippines 4,355 611 337 274 3,744 3,740 100 14 77 63 86 Singapore 11,313 7,573 6,023 1,550 100.0 66.9 53.2 13.7 33.1 24,596 1,985 881 1,104 22,611 100.0 8.1 3.6 4.5 91.9 7,529 1,075 762 313 6,454 100.0 14.3 10.1 4.2 85.7 Other 1,886 15 11 5 1,871 100.0 .8 .6 .3 99.2 Unallocated 727 727 D Suppressed to avoid the disclosure of data of individual companies. * Less than $500,000 or less than 0.05 percent, as appropriate. 1. Data are from the Bureau of the Census. Notes.— The countries listed in this table are the 62 U.S. trading partners for which the sum of U.S. exports and U.S. imports was at least $1 billion in 1992. Size ranges are given in the percentage cells that are suppressed; these ranges are A— 0.01 to 19.9; B— 20.0 to 39.9; C— 10.0 to 59.9; E— 60.0 to 79.9; F— 80.0 to 100. 146 BEA STUDIES OF DIRECT INVESTMENT Table 7. — Intrafirm Trade in Goods Between U.S. Parent Companies and Their Majority-Owned Foreign Affiliates by Country of Destination or Origin and by Major Industry of Affiliate, 1992 Millions of dollars Percent All industries Manufacturing Wholesale trade Petroleum and other industries All industries Manufacturing Wholesale trade Petroleum and other industries Exports by country ol destination: 100,737 65,272 31,501 3,964 100.0 64.8 31.3 3.9 Canada 33,878 28,177 5,285 416 100.0 83.2 15.6 1.2 Europe 32,829 17,335 13,769 1,725 100.0 52.8 41.9 5.3 2,598 1,626 ( D ) ( D ) 87 100.0 62.6 B A France 3,975 1,830 2,058 100.0 46.0 51.8 2.2 Germany 6,544 4,423 1,969 152 100.0 67.6 30.1 2.3 Ireland 834 778 54 2 100.0 93.3 6.5 .2 Italy 1,614 876 716 22 100.0 54.3 44.4 1.4 Netherlands 4,412 2,115 1,939 358 100.0 47.9 43.9 8.1 Spain 1.028 495 523 10 100.0 48.2 50.9 1.0 Sweden 604 156 440 8 100.0 25.8 72.8 1.3 Switzerland 2,539 185 2,321 33 100.0 7.3 91.4 1.3 United Kingdom 7,823 4,533 2,449 841 100.0 57.9 31.3 10.8 Other 858 318 ( D ) ( D ) 100.0 37.1 C A Latin America and Other Western Hemisphere 14,110 11,700 1,487 923 100.0 82.9 10.5 65 Brazil 1,103 1,064 19 20 100.0 96.5 1.7 1.8 Mexico 10,096 9,335 672 89 100.0 92.5 6.7 .9 870 678 164 28 100.0 77.9 18.9 3.2 Other 2,041 623 632 786 100.0 30.5 31.0 38.5 Africa 306 147 67 92 100.0 48.0 21.9 30.1 Nigeria Other 44 13 8 23 100.0 29.5 18.2 52.3 262 134 59 69 100.0 51.1 22.5 26.3 Middle East 187 19,365 23 7,890 57 10,835 107 640 100.0 100.0 12.3 40.7 30.5 56.0 57.2 Asia and Pacific .... 3.3 Australia 2,788 1,186 1,549 53 100.0 42.5 55.6 1.9 2,746 581 2,102 63 100.0 21.2 76.5 2.3 Indonesia 163 26 15 122 100.0 16.0 9.2 74.8 Japan 7,592 2,408 4,929 255 100.0 31.7 64.9 3.4 Korea, Republic of 631 406 206 19 100.0 64.3 32.6 3.0 Malaysia 744 599 145 8 100.0 80.5 19.5 i Singapore 2,485 1,530 897 100.0 61.6 36.1 Taiwan 1,053 513 517 23 100.0 48.7 49.1 2.2 Thailand 658 457 187 14 100.0 69.5 28.4 2.1 Other 505 184 288 33 100.0 36.4 57.0 6.5 61 61 Imports by country of origin: All countries 83,260 67,241 7,803 8,216 100.0 80.8 9.4 9.9 Canada 36,613 31,789 1,166 3,658 100.0 86.8 3.2 10.0 Europe 12,967 9,956 2,498 513 100.0 76.8 19.3 4.0 Belgium and Luxembourg ( D ) ( D ) 109 1 100.0 F A A France 1,829 890 933 6 100.0 48.7 51.0 .3 Germany 2,558 2,431 91 36 100.0 95.0 3.6 1.4 1,053 1,037 16 100.0 98.5 1.5 Italy 616 492 ( D ) fl 100.0 79.9 A A 891 781 94 100.0 87.7 10.5 1.8 Spain 351 257 94 R 100.0 73.2 26.8 157 155 2 100.0 98.7 1.3 Switzerland 316 73 242 1 100.0 23.1 76.6 .3 United Kingdom 4,008 2,923 802 283 100.0 72.9 20.0 7.1 Other ( D ) ( D ) ( D ) ( D ) 100.0 E A B Latin America and Other Western Hemisphere 14,770 12,271 543 1,956 100.0 83.1 3.7 13.2 Brazil 1,466 1,464 n 2 100.0 99.9 .1 Mexico 10,739 10,423 266 50 100.0 97.1 2.5 .5 ( D ) 9 1 ( D ) 100.0 E A B Other ( D ) 375 276 ( D ) 100.0 A A E Africa 1,957 ( D ) n ( D ) 1,402 100.0 A A F Nigeria Other 1,402 100.0 100.0 554 ( D ) ( D ) ( D ) 100.0 A A F Middle East 579 ( D ) ( D ) ( D ) 100.0 E A B Asia and Pacific 17,185 546 12,776 363 3,576 2,609 833 ( D ) 100.0 100.0 74.3 66.5 20.8 B 4.8 Australia A Hong Kong 3,481 ( D ) 867 5 5 ( D ) 100.0 100.0 24.9 A 74.9 .1 F Japan 1,991 1,447 n < D 2 100.0 72.7 B A 264 ( D ) < D ) 100.0 F A Malaysia 2,151 2,150 1 100.0 100.0 (') Singapore 6,023 5,777 ( D ) '1 100.0 95.9 A A 881 829 50 100.0 94.1 5.7 .2 Thailand 762 ( D ) ( D ) 405 1 1 B 100.0 100.0 F F .1 A A Other A D Suppressed to avoid the disclosure of data of individual companies. ■ Less than $500,000 or less than .05 percent, as appropriate. Notes— The countries listed in this table are the U.S. trading partners in table 6 for which intrafirm U.S. exports to or imports from majority-owned foreign affiliates was at least $500 million in 1992. Size ranges are given in the percentage cells that are suppressed; these ranges are A— 0.1 to 19.9; B— 20.0 to 39.9; C-^10.0 to 59.9; E— 60.0 to 79.9; F— 80.0 to 100. U.S. INTRAFIRM TRADE IN GOODS H7 Table 8. — Intrafirm Trade in Goods Between U.S. Affiliates and Their Foreign Parent Groups by Country of Destination or Origin and by Major Industry of Affiliate, 1992 Millions jf dollars Percent Addendum: Percent- age of U.S.-affiliate intrafirm trade with All industries Manufacturing Wholesale trade Petroleum and other industries All industries Manufacturing Wholesale trade Petroleum and other industries country accounted for by affiliates with U80S in the country 48,767 3,606 11,574 2,166 34,612 1,130 2,581 310 100.0 23.7 71.0 5.3 100.0 60.1 31.3 8.6 38.9 10,671 4,934 5,136 601 100.0 46.2 48.1 5.6 455 301 101 53 100.0 66.2 22.2 11.6 202 972 728 153 91 100.0 74.9 15.7 9.4 64,4 1,902 1,286 499 117 100.0 67.6 26.2 6.2 66.8 446 187 189 70 100.0 41.9 42.4 15.7 62.8 800 463 301 36 100.0 57.9 37.6 4.5 48.9 1,341 1 1,341 100.0 .1 100.0 176 125 36 15 100.0 71.0 20.5 85 68.2 835 655 166 14 100.0 78.4 19.9 1.7 73.1 3,072 874 2,049 149 100.0 28.5 66.7 4.9 30.9 672 314 301 56 100.0 46.7 44.8 8.3 1,640 491 477 81 721 ( D ) 442 ( D ) 100.0 100.0 29.1 16.5 44.0 A 27.0 E E 591 259 311 21 100.0 43.8 52.6 3.6 34.0 68 35 < D i 346 3 100.0 51.5 A B A 490 102 100.0 20.8 70.6 8.6 376 244 123 n 80 173 ( D ) 100.0 100.0 32.7 B 21.3 46.0 E 132 492 302 28 20 2 80 124 ( D ) 24 348 ( D ) 100.0 100.0 100.0 21.2 4.1 .7 60.6 25.2 A 182 70.7 F F 190 18 121 51 100.0 9.5 63.7 26.8 31,421 3,489 27,262 670 100.0 11.1 86.8 2.1 274 182 59 33 100.0 66.4 21.5 12.0 18.6 1,308 38 1,242 28 100.0 2.9 95.0 2.1 C 612 374 203 35 100.0 61.1 33.2 5.7 4.7 25,933 2,350 23,240 343 100.0 9.1 89.6 1.3 97.6 1,339 38 1,203 98 100.0 2.8 89.8 7.3 72.4 113 45 68 100.0 39.8 60.2 A 624 197 367 60 100.0 31.6 58.8 9.6 2.6 738 198 510 30 100.0 26.8 69.1 4.1 27.8 480 67 370 43 100.0 14.0 77.1 9.0 562 364 158 40 137,799 37,259 89,202 11,338 100.0 27.0 64.7 8.2 9,448 4,311 3,538 1,599 100.0 45.6 37.4 16.9 70.0 39,259 17,417 20,248 1,594 100.0 44.4 51.6 4.1 1,767 598 1,077 92 100.0 33.8 61.0 52 31.6 3,888 2,085 1,592 211 100.0 53.6 40.9 5.4 79.4 14,880 6,069 8,542 269 100.0 40.8 57.4 1.8 93.7 1,291 457 653 181 100.0 35.4 50.6 14.0 77.4 2,530 1,038 1,451 41 100.0 41.0 57.4 1.6 822 211 ( D ) '3 100.0 F A F 2,928 599 2,291 100.0 20.5 78.2 1.3 95.7 3,999 3,006 975 18 100.0 75.2 24.4 .5 75.1 5,514 2,455 2,402 657 100.0 44.5 43.6 11.9 80.0 2,251 1,110 1,056 85 100.0 49.3 46.9 3.8 6,032 605 1,814 3,613 100.0 10.0 30.1 59.9 1,040 217 <°1 1,099 ( 2 100.0 20.9 B C 66.8 1,470 342 100.0 23.3 74.8 2.0 38.7 3,102 ( D ) 750 ( D ) 100.0 A F F 420 966 731 46 129 308 87 ( D ) 100.0 100.0 100.0 11.0 13.4 73.3 9.0 A 15.7 77.6 F 235 3,750 129 68 79 207 27 3,475 100.0 100.0 54.9 1.8 33.6 5.5 11.5 92.7 3,331 3,331 100.0 100.0 100.0 419 77,617 68 14,394 207 62,929 144 294 100.0 100.0 16.2 18.5 49.4 81.1 34.4 .4 677 117 523 37 100.0 17.3 77.3 5.5 43.1 502 68 419 15 100.0 13.5 835 3.0 E 1,342 218 1,086 38 100.0 16.2 80.9 2.8 30.2 67,456 12,149 55,153 154 100.0 18.0 81.8 2 99.5 3,497 507 2,968 22 100.0 14.5 84.9 .6 92.6 520 283 237 100.0 54.4 45.6 1,550 310 1,239 1 100.0 20.0 79.9 .1 2.6 1,104 331 761 12 100.0 30.0 68.9 1.1 62.6 969 411 543 15 100.0 42.4 56.0 1.5 727 336 ( D ) ( D ) Exports by country ol destination: All countries Canada Europe Belgium and Luxembourg France Germany Italy Netherlands Russia Sweden Switzerland United Kingdom Other Latin America and Other Western Hemisphere Brazil Mexico Venezuela Other Africa Nigeria Other Middle East Saudi Arabia Other Asia and Paclllc Australia China Hong Kong Japan Korea, Republic of Malaysia Singapore Taiwan Other Unallocated Imports by country ol origin: All countries Canada Europe Belgium and Luxembourg France Germany Italy Netherlands Russia Sweden Switzerland United Kingdom Other Latin America and Other Western Hemisphere Brazil Mexico Venezuela Other Africa Nigeria Other Middle East Saudi Arabia Other Asia and Pacific Australia China Hong Kong Japan Korea, Republic of Malaysia Singapore Taiwan Other Unallocated D Suppressed to avoid the disclosure of data of individual companies. ' Less than $500,000 or less than .05 percent, as appropriate. Notes.— The countries listed in this table are the U.S. trading partners in table 6 for which intrafirm exports or imports by U.S. affiliates was at least $500 million in 1992. Size ranges are given in the percentage cells that are suppressed; these ranges are A — i to 19.9; B— 20 to 39.9; C—40.0 to 59.9; E-60.0 to 79.9; T— 80.0 to 100. 148 BEA STUDIES OF DIRECT INVESTMENT Text continues from page 143. For most countries, U.S. intrafirm exports con- sisted mainly of exports by U.S. parent companies to their mofa's rather than exports by U.S. af- filiates to their foreign parent groups. Intrafirm exports to mofa's accounted for more than 20 percent of total U.S. exports to 13 countries, many of which were among the largest U.S. export markets (table 6, column 8). The shares were highest for Switzerland (56 percent), Canada (37 percent), and the United Kingdom (34 percent). The intrafirm exports to mofa's in Switzer- land were mainly shipped to wholesale trade affiliates (table 7). Exports to manufacturing affiliates accounted for a dominant share of in- trafirm exports to mofa's in most other countries, including Canada and the United Kingdom. For all but a few countries, the share of U.S. exports accounted for by intrafirm exports by foreign-owned U.S. affiliates was small — less than 10 percent (table 6, column 9). However, for Japan, the second largest U.S. export market in 1992, the share was 54 percent. The large share for Japan underscores the importance of wholesale trade affiliates in handling Japanese trade with the United States: About 90 percent of total Un- affiliate intrafirm exports to Japan was accounted for by Japanese- owned wholesale trade affiliates (table 8). Intrafirm exports by U.S. affiliates also accounted for a majority of U.S. exports to Rus- sia and for about one-fourth of U.S. exports to Nigeria; however, these exports were all shipped by affiliates with owners in other countries. 19 The exports to Russia were mainly by French-owned wholesale trade affiliates, and the exports to Nige- ria were mainly by European-owned affiliates in the petroleum industry. 20 Imports. — The intrafirm-trade share of U.S. im- ports also varied substantially across coun- tries. Among the top six source-countries for U.S. imports — Canada, Japan, Mexico, Germany, China, and Taiwan — the share ranged from 71 percent for Japan to less than 10 percent for China and Taiwan (table 6, column 7). For Germany, the share was 61 percent. In addition to Japan and Germany, intrafirm trade accounted for a majority of U.S. imports from seven other coun- tries; the share was highest for Switzerland (76 percent). In addition to China and Taiwan, in- trafirm trade accounted for less than 10 percent of U.S. imports from 19 other countries. For slightly more than one-half of the coun- tries shown in table 6, imports by U.S. affiliates from their foreign parent groups accounted for a majority of U.S. intrafirm imports. The share of total U.S. imports that was accounted for by U.S.-affiliate intrafirm imports (26 percent) was much higher than the share accounted for by U.S. intrafirm imports from mofa's (16 per- cent). This difference in shares reflects the large U.S.-affiliate shares for a few countries, includ- ing some of the largest source-countries for U.S. imports: Intrafirm imports by U.S. affiliates ac- counted for 69 percent of U.S. imports from Japan and 52 percent of U.S. imports from Ger- many (table 6, column 9). The shares were also very large for Switzerland (71 percent), Sweden (62 percent), and the Netherlands (48 percent). The imports from Switzerland were mainly by manufacturing affiliates (particularly affiliates in the pharmaceutical industry), and the imports from Japan, Germany, Sweden, and the Nether- lands were mainly by wholesale trade affiliates (table 8). 21 For Germany and Sweden, a large share of the imports were by wholesale trade affil- iates of motor vehicle companies headquartered in those countries. Intrafirm imports from mofa's accounted for a substantial share of U.S. imports from a num- ber of major trading partners, including Canada, Mexico, and three rapidly industrializing coun- tries in Southeast Asia — Singapore, Hong Kong, and Malaysia (table 6, column 8). The shares were particularly high for Singapore (53 per- cent) and Canada (37 percent). Most of the intrafirm imports from Canada and Mexico were from manufacturing affiliates, particularly affil- iates in the motor vehicle industry (table 7). Manufacturing affiliates also accounted for virtu- ally all of the intrafirm imports from Singapore and Malaysia; most of these imports were from mofa's in the computer and electronic com- ponents industries. In contrast, the intrafirm imports from Hong Kong were mainly from mofa's in wholesale trade. 19. Intrafirm trade between a U.S. affiliate and its foreign parent group need not be trade with the country of the affiliate's ubo, because some member firms of the foreign parent group may be located in other countries. 20. Exports to France accounted for only 15 percent of the intrafirm exports by French-owned affiliates. 21. As shown in the addendum to table 8, the U.S.-affiliate intrafirm im- ports from these five countries were predominantly by affiliates with ubo's in those countries. In addition, imports originating in the ubo country ac- counted for a dominant share of the intrafirm imports by affiliates with ubo's in all of the countries except the Netherlands: Imports from the ubo country accounted for more than 90 percent of the intrafirm imports by Japanese- and German-owned affiliates and for more than 70 percent of the intrafirm imports by Swiss- and Swedish-owned affiliates. U.S. INTRAFIRM TRADE IN GOODS 149 Relation to trading-partner income levels Intrafirm transactions — particularly shipments flowing from parent companies to their affiliates — tend to be relatively more important in U.S. trade with higher income countries. Among 59 major trading partners, there is a pronounced tendency for the shares of both U.S.-mnc intrafirm exports in total U.S. exports and foreign- mnc intrafirm imports in total U.S. imports to increase as the per capita gross national product (gnp) of the trading partners increases (table 9). For U.S.- mnc intrafirm trade, the average share of U.S. exports increases from 4 percent for the 11 trad- ing partners with a per capita gnp of less than $1,000 to 23 percent for the 14 trading partners with a per capita gnp of at least $20,000. For foreign-MNC intrafirm trade, the average share of U.S. imports increases from less than 3 percent for the 11 countries with the lowest per capita gnp to 35 percent for the 14 countries with the highest per capita gnp. The positive relation between the intrafirm- trade snares and trading-partner income levels partly reflects shipments by parent firms to their wholesale trade affiliates: The shares in trade of both exports by U.S. parent companies to their wholesale trade mofa's and imports by U.S. wholesale trade affiliates from their foreign par- ent groups are strongly correlated with the per capita gnp of U.S. trading partners (table 10). A local presence in overseas markets through the establishment of wholesale trade affiliates — and the associated replacement of arm's-length trans- Table 9.— Average Intrafirm Shares of U.S. Trade in Goods with Trading Partners Grouped by Per Capita GNP, 1992 All countries GNP per capita (U.S. dollars): 20,000 or more 10,000 to 19,999 2,000 to 9,999 1,000 to 1,999 Less than 1,000 Num- ber of coun- tries 59 Intrafirm trade of U.S. MNC's As a per- cent- age of U.S. exports to country 13.0 22.6 22.1 9.6 5.9 4.3 As a per- cent- age of U.S. imports from country 10.1 10.7 21.7 10.5 6.8 6.1 Intrafirm trade of foreign MNC's As a As a per- cent- per- cent- age of U.S. age of U.S. exports to imports from country country 6.2 14.5 35.1 13.4 12.9 2.3 2.6 Notes.— Countries are grouped by their per capita GNP. The average intratirm-trade shares shown are unweighted averages lor all countries in a given size group. The 59 countries consist of all of the trading partners shown in table 6 except the Nether- lands Antilles, Angola, and Kuwait (countries lor which 1992 data on per capita GNP are not available). The data on GNP per capita for all of the countries except Taiwan are (rom the World Bank, World Development Report, 1994. For Taiwan, the U.S.-dollar value of GNP per capita, from Taiwan Government sources, was provided by the International Trade Administration. GNP Gross national product actions with intrafirm trade — is often required for the marketing of sophisticated, heterogeneous manufactured products (such as automobiles and advanced machinery products), which tend to be both supplied from and sold to higher income countries. 22 For U.S. mnc's, most intrafirm trade is between U.S. parents and their manufacturing mofa's. The share of U.S. exports accounted for by intrafirm exports to manufacturing mofa's is positively correlated with the per capita gnp of U.S. trading partners; however, the relation is not as strong as that for intrafirm exports to wholesale trade mofa's. The positive correlation is consistent with the fact that U.S.-mnc man- ufacturing production is largely concentrated in high- income countries: In 1992, 74 percent of the gross product of manufacturing mofa's was ac- counted for by mofa's in Canada and Europe. Among the 59 trading partners, Canada and sev- eral high- income countries in Europe had the highest shares of U.S. exports accounted for by intrafirm exports to manufacturing mofa's. The share was also sizable for a few middle-income countries (most notably Mexico and Brazil), but it was generally very small for low-income countries. 22. As mentioned earlier, these products may require the establishment of wholesale trade affiliates to monitor customer requirements or tastes and to provide on-site after-sales service. Table 10.— Cross-Country Correlations Between Per Capita GNP and the Intrafirm Share of U.S. Trade in Goods with Trading Partners Coefficient of correlation across 59 countries between per capita GNP and the percentage of U.S. exports to or imports from country accounted for by: Total intrafirm trade Intrafirm trade between U.S. parent companies and their majority-owned foreign affiliates: Affiliates in all industries Manufacturing affiliates Wholesale trade affiliates Affiliates in petroleum and other industries Intrafirm trade between U.S. affiliates and their foreign parent groups: Affiliates in all industries Manufacturing affiliates Wholesale trade affiliates Affiliates in petroleum and other industries U.S. imports from country 0.672" .122 .183 .240* -.135 .709" .716" .588" -.077 '" Statistically significant at the 99-percent confidence level. " Statistically signilicant at the 95-percent confidence level. ' Statistically significant at the 90-percent confidence level. Note— The sample of 59 countries consists of all of the trading partners shown in table 6 except the Netherlands Antilles. Angola, and Kuwait (see note to table 9). GNP Gross national product 150 BEA STUDIES OF DIRECT INVESTMENT In contrast, the share of U.S. imports ac- counted for by intrafirm imports from manu- facturing mo fa's is not significantly related to the per capita gnp of the trading partners. This result reflects the local-market orienta- tion of U.S. multinational production in most high-income countries: The intrafirm share of imports, in contrast to that of exports, is sub- stantially lower for a number of high-income countries in Europe, where affiliates produce mainly for the local market, and substantially higher for the several middle-income countries where affiliates tend to export much of their output to the United States. 23 Like intrafirm exports, intrafirm imports from manufacturing affiliates generally account for a small share of U.S. imports from the trading partners with the lowest incomes. If some U.S. companies rely extensively on low-income countries for pro- duction operations requiring low-skilled labor, it would appear that the associated trade flows commonly take the form of market transac- tions with unrelated parties rather than intrafirm trade. For foreign mnc's, the share of U.S. im- ports accounted for by intrafirm imports by 23. To illustrate this contrast, the share of U.S. goods trade with Germany that is accounted for by intrafirm trade with manufacturing mofa's is 21 percent for exports and 8 percent for imports. For U.S. trade with Malaysia, the shares are 14 percent for exports and 26 percent for imports. According to 1992 data from bea's annual survey of U.S. direct investment abroad, the share of sales that were to the United States was 3 percent for manufacturing mofa's in Germany and 56 percent for manufacturing mofa's in Malaysia. U.S. manufacturing affiliates is strongly corre- lated with the per capita gnp of U.S. trading partners, reflecting the fact that foreign di- rect investment in U.S. manufacturing has come largely from high-income countries. Much of this investment has been in advanced manu- facturing industries, such as chemicals or elec- tronic equipment, where firms might be expected to possess some proprietary technology. In such industries, the parent firms may produce specialized materials or components that they then supply to their affiliates through intrafirm trade. 24 Although the correlation for the share of in- trafirm exports by manufacturing affiliates is also positive and significant, the overall correlation for intrafirm exports by U.S. affiliates is insignificant, because of the very weak correlation for whole- sale trade affiliates (which account for the bulk of U.S.-affiliate trade). The insignificant correlation for exports by wholesale trade affiliates partly re- flects intrafirm exports to lower income countries by French-owned trading companies. [jjg£ 24. Although most foreign direct investment in the United States has taken the form of acquisitions of existing companies rather than the estab- lishment of new companies, the reliance of foreign-owned manufacturing affiliates on their foreign parents for intermediate products is considerable: In 1992, intrafirm imports accounted for 12 percent of the total purchased inputs of U.S. manufacturing affiliates. Establishment-Level Data 151 152 BEA STUDIES OF DIRECT INVESTMENT Characteristics of Foreign- Owned U.S. Manufacturing Establishments By Ned G. Howenstine and William J. Zeile This article was first published in the January 1994 Survey of Current Business. This article examines the characteristics of foreign -owned U.S. manufacturing estab- lishments on the basis of newly released data from a joint project of the Bureau of Economic Analysis (bea) and the Bureau of the Census. The data greatly expand the establishment-level information available on the manufacturing op- erations of U.S. affiliates of foreign companies. 1 Because the establishment data provide more detailed and more precise information on the in- dustrial composition of affiliates' operations than bea's enterprise data (see the box on page 35), they can significantly enhance and extend the analysis of key questions about foreign direct in- vestment in the United States (fdius), such as whether foreign-owned plants account for signif- icant shares of total U.S. production in specific manufacturing industries and whether the wage rates and productivity of foreign-owned U.S. plants differ from those of U.S.-owned plants. The new data on foreign-owned manufacturing establishments indicate the following: • The average plant size, or scale, of foreign- owned establishments is much larger than that of U.S.-owned establishments, mostly reflecting the tendency for foreign-owned es- tablishments to be larger than U.S.-owned establishments within specific industries. Less important is the tendency of foreign- owned establishments to be concentrated in industries with larger-than-average plant size. • The capital intensity of foreign-owned es- tablishments is higher than that of U.S.- 1. A U.S. affiliate is a U.S. business enterprise that is owned 10 percent or more, directly or indirectly, by a foreign person. "Person" is broadly de- fined to include 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). The data are not adjusted for percentage of foreign ownership. Thus, for example, the employment data shown here include all employees at the manufacturing establishments of each U.S. affiliate, even though the foreign investor may own as little as 10 percent of the affiliate. However, most affiliates are majority owned; based on bea data, U.S affiliates that are majority owned (that is, affiliates that are owned more than 50 percent by direct investors) accounted for 85 percent of all manufacturing employment by U.S. affiliates. owned establishments, almost entirely re- flecting foreign-owned establishments' rela- tively greater concentration in the industries that are the most capital intensive; the over- all effect of within-industry differences is negligible. In many industries, the capi- tal intensity of foreign-owned establishments differs from that of U.S.-owned establish- ments, but there is no systematic tendency for this difference to be in one direction or the other. • The hourly wages paid to production work- ers are higher for foreign- owned establish- ments than for U.S.-owned establishments, Foreign-owned establishments tend to be in higher wage industries, and their production is more concentrated in large plants, which generally have higher wage rates than small plants. Foreign ownership per se does not appear to influence wage rates. • The labor productivity of foreign-owned es- tablishments is higher than that of U.S.- owned establishments, largely reflecting the tendency for foreign- owned establishments to be concentrated in industries in which Acknowledgments The Census Bureau's Industry Division, under the direction of John P. Govoni, and the Special Surveys Branch of bea's International Investment Division, un- der the direction of Ralph Kozlow, performed the link of the two agencies' data. Programming for the link project was provided by Rohini A. Shah, of the Cen- sus Bureau's Industry Division; Robert S. Taylor, of the Census Bureau's Center for Economic Studies; and Colin B. Brown and Christopher W. Cavaney, of bea's Computer Systems and Services Division. Dale P. Shannon, of the Research Branch of bea's International Investment Division, provided statistical assistance for the article. S. Lael Brainard, of the Sloan School of Management, Massachusetts Institute of Technology, provided helpful comments on an earlier draft. CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 153 productivity is high. There are also within- industry differences in productivity, but they appear to be attributable largely to factors that have frequently been found to influence productivity — namely, plant size, capital in- tensity, and employee skill level — rather than to foreign ownership per se. The new data on foreign-owned manufactur- ing establishments, which cover 1989 and 1990, were released last fall as part of an ongoing ef- fort to augment and improve U.S. Government data on fdius. The data were obtained by linking bea enterprise, or company, data on fdius with more detailed Census Bureau establishment, or plant, data for all U.S. companies. 2 For the linked establishments (hereafter referred to as "foreign- owned establishments"), data from the Census Bureau's annual survey of manufactures (asm) were then extracted. 2. A parallel project has linked bea's fdius data to Bureau of Labor Statis- tics (bls) data on all U.S. businesses. The initial results of that link, released in 1992 by bls, provided data for 1989 and 1990 on the number, employment, and payroll of foreign-owned establishments for both manufacturing and nonmanufacturing industries. In October 1993, bls released information on the occupational structure of foreign-owned manufacturing establishments in 1989. Data from the two link projects differ, particularly at the most de- tailed industry levels, because of differences in coverage, classification, timing, and definitions. Both projects were authorized by Congress under the For- eign Direct Investment and International Financial Data Improvements Act of 1990. The new data on foreign-owned manufactur- ing establishments cover most of the asm items, including value added, shipments, employment, total employee compensation, employee benefits, hourly wage rates of production workers, cost of materials and energy used, inventories by stage of fabrication, and expenditures for new plant and equipment. Data are also included on the num- ber of foreign-owned establishments. Totals for 1989 and 1990 for each of these items are shown in table 1. The data are also available by highly detailed industry, by State, and by country of in- vestor. Summary data for 1990 appear in tables 2-13; data by detailed industry for 1990 covering selected items for foreign-owned and all U.S. es- tablishments are shown in table 14, at the end of the article. (The box on page 51 provides in- formation on the availability of the data in full detail for 1989 and 1990.) The new asm data update and extend the link project's initial results, published in 1992, which were for 1987 — a benchmark, or census, year for both bea and the Census Bureau. The 1987 data covered both manufacturing and nonman- ufacturing establishments, but presented fewer measures of their operations than are available from the new ASM-based series. 3 Later this year, 3. For summary data for 1987, see "Foreign Direct Investment in the United States: Establishment Data for 1987," Survey of Current Business Establishment and Enterprise Data for U.S. Affiliates Compared The establishment data presented in this article com- plement bea's enterprise data for U.S. affiliates, bea's enterprise data are needed for analyzing the overall sig- nificance of, and trends in, direct investment and for compiling the U.S. international transactions accounts, the international investment position of the United States, and the U.S. national income and product ac- counts. The data on positions and transactions between U.S. affiliates and their foreign parents used in compiling the national and international accounts exist only at the enterprise level. Analyses of some topics, such as profits and taxes, are meaningful only at that level. Further- more, balance sheets and income statements containing the critical, nonduplicative financial and operating data needed for examining these topics exist only at the enterprise level. The establishment data facilitate analysis of the activ- ities and importance of foreign-owned U.S. companies in specific industries because they provide more de- tailed and more precise information on the industrial composition of U.S. affiliates' operations than bea's en- terprise data. Whereas bea's enterprise data classify each company, however diversified, in a single industry, the establishment data permit each plant or location of a company to be classified separately. Furthermore, the level of industry classification can be much more detailed for individual establishments than is appropriate for con- solidated enterprises, whose operations may span many narrowly defined industries. As a result, foreign-owned establishments can be classified into 459 manufacturing industries, whereas bea's foreign-owned enterprises can be classified into only 55 manufacturing industries. The establishment data also provide more detailed State-by-industry data than are available from the enter- prise data, and the asm data introduced in this article include the first available State-level measures of man- ufacturing production (value added) by foreign-owned firms. Finally, the establishment-level data for foreign-owned and U.S.-owned companies presented in this article are closely comparable because they are from the same source. In contrast, the enterprise-level data for foreign- owned U.S. companies collected by bea are frequently not comparable, except at highly aggregated levels, with data for all U.S. companies collected by other Gov- ernment agencies. Because the other agencies' data are collected for different purposes, they often differ significantly in concept, definitions, consolidation, and industry classification from bea's data for foreign-owned companies. 154 BEA STUDIES OF DIRECT INVESTMENT bea and the Census Bureau will publish asm data for foreign-owned manufacturing establishments for 1991 and for 1988. This article analyzes the operations of foreign- owned manufacturing establishments on the ba- sis of the 1990 asm data. Although the data are for the year 1990, most of the findings proba- bly also apply to more recent years, because both the overall level and the industry and country composition of foreign direct investment in U.S. manufacturing have changed little since then. 4 72 (October 1992): 44-78. For a slightly expanded version of that article, see Office of the Chief Economist, Economics and Statistics Administration, U.S. Department of Commerce, Foreign Direct Investment in the United States: An Update (Washington, dc: U.S. Government Printing Office, June 1993). The detailed 1987 data are available in a separate volume (see inside back cover for order information). 4. Although foreign direct investment in manufacturing grew rapidly be- tween 1987 and 1990, data from bea's enterprise surveys indicate that there was little growth in the industry in 1991 and 1992. According to bea's an- nual survey of fdius, total manufacturing employment of U.S. affiliates in 1991 was almost the same as that in 1990, and changes in the composition of employment among subindustries of manufacturing and among investing countries were small. Moreover, data from bea's latest survey of U.S. busi- nesses acquired or established by foreign direct investors indicate that in 1992, new investment in manufacturing was at the lowest level in 8 years and was less than one-half that in 1991. In the May 1993 Survey, see "U.S. Affiliates Table 1.— Data for Foreign-Owned Manufacturing Establishments, 1989 and 1990 [Millions of dollars, except as noted] Number of establishments Value added by manufacture Value of shipments Employment and employee compensation: Total employment (number of employees) .... Production workers (number) Other workers (number) Production worker hours (millions of hours) .. Employee compensation, total Payroll Production worker wages Other workers Benefits Legally required Other Production worker wages per hour (dollars) .. Expenditures for new plant and equipment: Total Buildings and other structures Machinery and equipment Materials: Cost of materials, total Of which: Purchased fuels and electric energy Fuels Electric energy Quantity of electric energy used (billion kWh) Inventories: End of year, total Finished products Work-in-process Materials, supplies, fuels, etc Beginning of year, total Finished products Work-in-process Materials, supplies, fuels, etc kWh Kilowatthours 1989 10,458 161,929.2 371,911.9 1,815,311 1,082,983 732,328 2,203.2 67,769.1 55,562.5 26,616.4 28,946.1 12,206.6 4,751.2 7,455.4 12.08 16,070.6 2,799.6 13,271.0 211,706.8 8,993.6 3,697.4 5,296.1 121,950.3 49,926.9 20,151.9 12,954.2 16,820.9 47,212.3 18,701.2 12,424.6 16,077.4 1990 11,934 177,360.7 417,539.4 2,004,235 1,188,140 816,095 2,411.7 78,128.8 63,495.9 30,304.8 33,191.1 14,632.9 5,591.4 9,041.5 12.57 19,748.4 3,246.5 16,502.0 241,548.4 10,106.3 4,238.1 5,868.2 135,204.9 55,487.3 23,167.3 13,650.3 18,669.7 53,768.3 21,736.4 13,635.7 18,396.2 The remainder of this article consists of two sections and a technical note. The first sec- tion provides an overview of the operations of foreign-owned manufacturing establishments by industry, country, and State. The second com- pares the following key aspects of the operations of foreign-owned establishments with those of U.S.-owned establishments: Plant size, capital intensity, employee compensation, hourly wage rates of production workers, and labor produc- tivity. The technical note describes the statistical decomposition method used in the article to sep- arate industry-mix effects from within-industry differences and discusses how the estimation of data for foreign-owned establishments and the inclusion of residual industries, which cover es- tablishments not elsewhere classified, affect the findings of the article. Overview of Operations In 1990, there were 11,900 foreign-owned man- ufacturing establishments in the United States. They employed 2 million workers and had ship- ments of $418 billion. Their value added, an approximate measure of production, was $177 bil- lion, 13 percent of the value added by all U.S. manufacturing establishments (table 2). 5 More than one-half of the value added by foreign-owned manufacturing establishments in 1990 was accounted for by four Standard In- dustrial Classification (sic) two-digit industries: Chemicals and allied products ($49 billion), food and kindred products ($20 billion), electronic and other electric equipment ($17 billion), and industrial machinery and equipment ($14 bil- lion). Production in the chemicals industry alone accounted for more than one-fourth of the value added by foreign-owned manufacturing establishments. Among sic two-digit industries, the share of total U.S. production accounted for by foreign- owned establishments was largest in chemicals (32 percent), followed by stone, clay, and glass prod- ucts (25 percent) and primary metals (19 percent). The share was less than 5 percent in four indus- tries: Apparel and other textile products, lumber and wood products, furniture and fixtures, and transportation equipment. of Foreign Companies: Operations in 1991" and "U.S. Business Enterprises Acquired or Established by Foreign Direct Investors in 1992." 5. Value added measured by the Census Bureau's asm differs from bea's national income and product accounts measure of gross product because it includes purchased services but excludes indirect taxes and because it reflects inventory change valued at book value rather than at replacement cost. CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 155 Within a given two-digit industry, the shares for the component subindustries may vary con- siderably. In transportation equipment, for example, where foreign-owned establishments' share of value added was just under 5 percent, shares for sic three-digit subindustries ranged from less than 1 percent for "guided missiles, space vehicles, and parts" to 12 percent for rail- road equipment. The share for motor vehicles and equipment was 8 percent. At the sic four-digit level, foreign-owned es- tablishments had operations in 429 of the 459 manufacturing industries. They accounted for less than 5 percent of total industry production in 149 industries and for more than 30 percent in 45 industries (table 3). Of the latter group, 13 industries were in chemicals, 6 in stone, clay, and glass products, and 6 in electronic and other electric equipment. In nine industries, foreign-owned establish- ments accounted for more than one-half of total U.S. production. Their shares were highest in three chemicals industries: Inorganic pigments (71 percent), biological products except diag- nostic (69 percent), and noncellulosic organic fibers (67 percent) (table 14). Among the indus- tries outside chemicals, the share was highest in hydraulic cement (62 percent). By country In 1990, more than 80 percent of the employ- ment, shipments, and value added by all foreign- owned manufacturing establishments were ac- counted for by establishments with ultimate beneficial owners (ubo's) in seven countries: Canada, France, Germany, Japan, the Nether- lands, Switzerland, and the United Kingdom (table 4). 6 The establishments of these seven countries accounted for 86 percent of the value added by all foreign- owned manufacturing estab- lishments and for 11 percent of the value added by all U.S. manufacturing establishments. 6. The ubo is lhat person, proceeding up a U.S. affiliates 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 and that, therefore, ultimately derives the benefits from owning or controlling the U.S. affiliate. Table 3.— Distribution of Manufacturing Industries According to Foreign-Owned Establishments' Share of Value Added, 1990 Percentage of an industry's value added accounted for by foreign-owned establishments Number of industries 1 30 Less than 5.0 2 119 5.0-9.9 89 10.0-14.9 73 15.0-19.9 43 20.0-24.9 33 25.0-29.9 27 30.0-34.9 10 35.0-39.9 13 40.0-44.9 6 45.0-49.9 7 50.0 or more 9 1. Industries with no foreign-owned establishments. 2. Includes three industries for which value added by loreign-owned establishments was negative in 1990. Note.— The distribution is across the 459 industries defined at the four-digit level of the Standard Industrial Classification. Table 2.— Selected Data for Foreign-Owned Manufacturing Establishments, by Industry, 1990 sic code Industry Foreign-owned establishments Number of estab- lishments Number of employees Dions of dollars Value added Shipments Foreign-owned establishments as a percentage of all U.S. establish- ments Employ- ment Value added Ship- ments Manufacturing Food and kindred products Tobacco products Textile mill products Apparel and other textile products Lumber and wood products Furniture and fixtures Paper and allied products Printing and publishing Chemicals and allied products Petroleum and coal products Rubber and miscellaneous plastics products Leather and leather products Stone, clay, and glass products Primary metal industries Fabricated metal products Industrial machinery and equipment Electronic and other electric equipment Transportation equipment , Instruments and related products Miscellaneous manufacturing industries Administrative and auxiliary 11,934 983 5 183 116 184 83 328 834 1,520 319 658 29 1,421 402 593 945 760 274 467 128 1,702 2,004,235 159,386 H 47,363 23,085 17,043 J 48,644 103,983 242,392 25,638 120,951 6,362 105,578 119,087 93,300 191,440 228,237 104,147 121,520 26,087 200,064 177,360.7 19,501.2 ( D ) 2,283.1 850.2 842.5 ( D ) 4,709.2 10,408.8 48,835.7 4,106.8 8,757.9 287.3 8,450.2 10,297.6 6,350.2 13,561.7 16,703.2 7,170.6 9,722.1 1,929.3 n.a. 417,539.4 46,842.8 ( D ) 5,693.6 1,727.5 2,304.0 ( D ) 11,395.2 16,499.9 87,678.9 46,372.6 17,790.6 608.1 16,407.5 31,902.9 13,973.6 31,010.6 34,601.8 28,834.9 15,840.7 3,553.2 n.a. 10.6 10.8 ( D ) 7.5 2.3 2.5 ( D ) 7.7 6.8 28.4 22.9 13.9 5.4 20.7 16.7 6.5 10.2 15.2 5.9 12.8 6.8 15.9 13.4 13.8 ( D ) 8.6 2.6 2.9 ( D ) 7.9 10.1 31.9 15.1 17.6 6.3 24.8 19.3 7.9 10.3 15.6 4.9 11.9 9.6 n.a. 14.5 12.2 ( D ) 8.6 2.7 3.1 B 10.5 30.4 26.9 17.5 6.2 25.9 21.8 8.6 12.1 17.8 7.8 12.8 9.6 n.a. D Suppressed to avoid disclosure of data ol individual companies. n.a. Not available. Note.— Size ranges are given in employment cells that are suppressed. The size ranges are: A-0 to 19; B— 20 to 99; C— 100 to 249; E— 250 to 499; F-500 to 999; G— 1.000 to 2.499; H-2,500 to 4,999; 1-5.000 to 9,999; J— 10.000 to 24,999; K-25.000 to 49,999; L-60.000 to 99,999; M— 100,000 or more. SIC Standard Industrial Classification 156 BEA STUDIES OF DIRECT INVESTMENT Among establishments of individual invest- ing countries, British-owned establishments ac- counted for the largest share of production by foreign-owned manufacturing establishments (23 percent), followed by Canadian-owned es- tablishments (15 percent) and Japanese-owned establishments (13 percent). The share of total U.S. manufacturing production accounted for by British-owned establishments was 3 percent. British-owned establishments also accounted for the largest share of production by foreign- owned establishments in 10 of the 20 sic two- digit manufacturing industries. Among these 10 industries, their share of total U.S. manufactur- ing production was largest in tobacco products, petroleum and coal products, food and kindred products, and instruments and related products (table 5). Japanese-owned establishments accounted for the largest share of production by foreign-owned establishments in four industries: Primary met- als, industrial machinery and equipment, elec- tronic and other electric equipment, and trans- portation equipment. Their share of total U.S. Table 4.— Selected Data for Foreign-Owned Manufacturing Establishments, by Country of UBO, 1990 Country Number of establish- ments Number of employees Millions of dollars Value added Value of shipments Share of all-countries total (percent) Number of estab- lishments Number of em- ployees Value added Value of ship- ments All countries . Canada Europe . Austria ... Belgium .. Denmark Finland ... France ... Germany Ireland Italy Liechtenstein Luxembourg .. Netherlands .. Norway Spain Sweden Switzerland United Kingdom Other Latin America and Other Western Hemisphere South and Central America Brazil Mexico Panama Venezuela Other Other Western Hemisphere Africa Middle East Asia and Pacific Australia Hong Kong Japan Korea, Republic of Malaysia New Zealand Philippines Singapore Taiwan Other United States Addenda: European Communities (12) ' OPEC 2 11,934 1,538 8,007 27 95 39 123 1,217 1,045 243 141 9 25 618 53 20 347 697 3,291 17 238 143 9 64 35 31 4 95 46 67 2,005 497 3 1,356 20 1 51 13 8 37 19 33 6,735 77 2,004,235 269,362 1,297,424 5,035 14,633 7,159 18,112 178,324 229,007 26,534 17,307 917 5,003 123,424 5,771 399 73,818 133,934 456,618 1,429 56,017 38,737 358 J J 6,684 174 17,280 6,869 I 362,948 36,448 C 291,415 3,988 C 17,489 H 1,184 5,840 G H 177,360.7 26,869.2 115,466.1 417.1 1,626.7 377.4 1,194.5 15,390.3 20,442.5 2,090.1 1,260.1 50.9 307.2 11,648.1 463.9 26.5 4,969.9 14,829.4 40,325.9 45.5 4,624.6 3,614.5 22.9 ( n> ( D ) 1,123.1 15.5 1,010.1 475.1 ( D ) 29,384.5 3,785.0 ( D ) 22,814.6 253.8 ( D ) 1,352.6 ( D ) 106.1 501.1 ( D ) ( D ) ( D ) 417,539.4 58,983.3 251,039.0 816.2 4,975.5 916.6 2,891.2 36,168.0 40,568.9 5,227.6 3,755.4 120.7 664.3 34,800.9 933.8 65.7 10,760.5 27,440.4 80,610.2 323.0 14,068.4 11,999.7 77.3 n 7,532.0 27.4 2,068.7 1,374.4 ( D ) 83,833.6 10,446.8 ( D ) 65,760.0 1,145.0 ( D ) 3,549.5 ( D ) 283.2 1,327.6 ( D ) ( D ) ( D ) n 100.0 12.9 67.1 .2 .8 .3 1.0 10.2 2.0 1.2 .1 .2 5.2 .4 .2 2.9 5.8 27.6 .1 2.0 1.2 .1 .5 .3 .3 .6 16.8 4.2 (') 11.4 .2 (') .4 .1 .1 .3 .2 .3 56.4 .6 100.0 13.4 64.7 .3 .7 .4 .9 8.9 11.4 1.3 .9 (') .2 6.2 .3 (*) 3.7 6.7 22.8 .1 2.8 1.9 (*) .5-1.2 .5-1.2 .3 (*) .9 .3 .2-.5 18.1 1.8 (*) 14.5 .2 (*) .9 .1-.2 .1 .3 0-.1 .2 2.5-5.0 .5-1.2 100.0 15.1 65.1 .2 .9 .2 .7 8.7 11.5 1.2 .7 (') .2 6.6 .3 (') 2.8 8.4 22.7 2.6 2.0 § ( D ) 446.1 ( D ) 2,216.8 1,505.0 962.3 4,084.0 ( D ) ( n> ( D ) 577.4 Percent of all U.S. establishments 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 13.4 13.8 ( D ) 8.6 2.6 2.9 ( D ) 7.9 10.1 31.9 15.1 17.6 6.3 24.8 19.3 7.9 10.3 15.6 4.9 11.9 9.6 2.0 1.5 1.9 ( D ) p ( D ) 1.3 3.0 ( D ) 3.8 2.0 ( D ) .5 2.9 1.1 .4 2.2 .5 1.7 .3 1.2 .7 ( D ) .1 ( D ) .2 .5 1.9 ( D > 4.3 n 6.6 2.5 ( D ) .6 .8 .5 .5 1.4 1.5 .3 ( D ) 1.0 .4 .2 ( D ) .2 1.2 6.1 ( D ) 2.3 1.8 1.2 .9 1.3 2.1 .2 1.6 ( D ) 0.9 2.1 .1 O n' ( D ) ( n' ( D ) 3.3 ( D ) .9 ( D ) .5 .1 ( D ) .1 ( D ) § ( D ) 1.1 2.8 .2 ( D ) ( D ) .1 ( D ) 4.2 ( D ) .2 ( D ) 1.5 .7 .3 .5 .7 ( D ) 1.3 ( D ) 3.0 4.1 ( D ) 2.6 .6 1.0 ( D ) 1.5 2.8 5.7 7.2 3.5 ( D ) 5.1 1.8 2.4 2.0 2.4 .8 4.1 3.0 1.7 ( D ) .3 ( D ) .8 .4 1.6 ( D ) 3.5 2.3 7.3 .5 2.2 4.1 2.2 1.0 1.2 1,149,001.0 121,471.6 ( D ) 24,258.5 32,183.8 27,754.7 ( D ) 55,114.1 92,770.2 104,196.7 23,107.3 41,131.1 4,299.3 25,690.0 43,069.0 73,601.7 118,604.1 90,280.7 139,745.7 71,943.5 18,166.3 1.9 1.6 1.1 ( D ) ( D ) ( n> ( D ) 1.6 ( D ) ( D ) .9 ( D ) 6.5 2.8 1.2 3.1 ( D ) b M 2.9 86.6 86.2 ( D ) 91.4 97.4 97.1 ( D ) 92.1 89.9 68.1 84.9 82.4 93.7 75.2 80.7 92.1 89.7 84.4 95.1 88.1 90.4 • Less than 0.05 percent. D Suppressed to avoid disclosure ol data of individual companies. UBO Ultimate beneficial owner SIC Standard Industrial Classification 158 BEA STUDIES OF DIRECT INVESTMENT Japanese-owned establishments in rubber prod- ucts was 2.0, indicating a relatively high intensity of investment in the industry. In the table, France stands out because of the relatively high intensity of its investment in stone, clay, and glass products: In 1990, French- owned establishments' share of U.S. pro- duction in this industry was nearly six times as large as their share in total manufacturing. France also shows relatively intense investment in the rubber products industry, where French- owned establishments' share of production was nearly four times as large as their share in total manufacturing. Japan shows relatively intense investment in the primary metals industry; Japanese- owned estab- lishments' share of production in this industry was more than four times as large as that in total manufacturing. In contrast, their share of production in transportation equipment was only slightly higher than their share in total manufacturing. Germany shows relatively intense investment in chemicals, as do Switzerland and the Nether- lands. The establishments of each of these three countries had shares of production in chemicals that were nearly four times as large as their shares in total manufacturing. By State The States with the largest production by foreign- owned manufacturing establishments were Cali- fornia, Texas, New Jersey, North Carolina, Ohio, and New York (table 7). These six States ac- counted for 41 percent of the total production by foreign-owned manufacturing establishments in the United States. By two-digit industry, Califor- nia accounted for a particularly large share of the production in electronic and other electric equip- ment (23 percent), and New York accounted for a very large share in printing and publishing (26 percent) (table 8). Texas, New Jersey, and North Carolina together accounted for nearly 40 percent of the production by foreign-owned establish- ments in chemicals, and Ohio accounted for nearly 20 percent in transportation equipment. Among two-digit industries, chemicals ac- counted for the largest share of production by foreign-owned manufacturing establishments in 20 States, and food products accounted for the largest share in 11 States. The chemicals industry accounted for more than one-half of foreign- owned production in five States: Delaware, West Virginia, New Jersey, Texas, and Virginia. The States in which foreign-owned establish- ments accounted for the largest share of manu- facturing production were Delaware (37 percent), West Virginia (36 percent), New Jersey (24 per- cent), Georgia (19 percent), South Carolina (19 percent), and North Carolina (19 percent). In several of these States, foreign-owned establish- ments accounted for very large shares of chem- icals production — 74 percent in Delaware, 56 percent in West Virginia, 47 percent in New Jer- sey, and 60 percent in North Carolina (table 9). In North Carolina, foreign- owned establishments also accounted for large shares of production Table 6.— Index of Relative Intensity of Production in Manufacturing for All Foreign-Owned Establishments and for Establishments of Major Investing Countries, 1990 sic code Industry All countries Canada France Ger- many Nether- lands Switzer- land United Kingdom Japan Other coun- tries 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.034 .738 .719 .205 2.382 2.483 1.358 .324 .865 ( D ) ( D ) ( D ) .643 .944 .634 .648 .162 .162 .859 .541 .578 .192 ( D ) ( D ) .254 ( D ) .186 ( D ) ( D ) .220 ( D ) .054 .141 ( D ) ( D ) .323 .155 ( D ) ( D ) ( D ) ( D ) ( D ) ( D ) p ( D ) ( D ) M .589 .619 .187 .129 ( D ) .103 .487 .464 ( D ) .754 1.504 .389 .785 3.746 (D i 3.786 .910 .218 .858 2.386 ( D ) 1.658 3.950 1.883 .926 ( D ) 1.129 1.872 ( D ) ( D ) ( D ) ( D ) 2.360 ( D ) ( D ) 1.313 .986 3.720 1.463 1.062 .211 1.142 2.007 .474 .468 ( D ) ( D ) ( D ) n ( D ) < D i 1.851 .223 5.697 1.160 .581 1.350 1.683 1.319 3.439 1.443 1.408 2.168 .797 .134 .634 .590 4.220 1.494 .594 .541 ( D ) .557 ( D ) .258 .789 .310 .638 .767 .187 .521 .854 .162 .467 .650 1.297 1.637 1.168 1.107 .727 1.379 ( D ) .598 .784 2.355 ( D ) .365 .269 .424 .146 .021 ( D ) .253 1.260 h .890 .819 .412 1.010 ( D ) 1.170 1.335 .555 ( D ) .718 .159 1.199 ( D ) ( D ) ( D ) 1.002 .680 1.522 Manufacturing Food and kindred products Tobacco products Textile mill products Apparel and other textile products Lumber and wood products Furniture and fixtures Paper and allied products Printing and publishing Chemicals and allied products Petroleum and coal products Rubber and miscellaneous plastics products . Leather and leather products Stone, clay, and glass products , Primary metal industries Fabricated metal products Industrial machinery and equipment Electronic and other electric equipment Transportation equipment Instruments and related products Miscellaneous manufacturing industries D Suppressed to avoid disclosure of data of individual companies. Note.— The index is the share of total U.S. value added in the given manufacturing industry accounted lor by establishments of the given UBO country divided by the share of total U.S. value added in total manufacturing accounted for by establishments of the UBO country. This index is similar in form to the export index of revealed comparative advantage introduced in Bela Balassa, "Trade Liberalization and 'Revealed' Comparative Advantage," Manchester School 33 {May 1965): 99-123. SIC Standard Industrial Classification CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 159 in both the electronics and the instruments industries (40 percent in each). In South Car- olina, foreign-owned establishments accounted for more than 50 percent of the State's production in the rubber products industry. Comparison of Foreign-Owned and U.S.-Owned Establishments This section compares the operations of foreign- owned manufacturing establishments with those of U.S. -owned ones in terms of plant size (or scale), capital intensity, compensation per em- ployee, production-worker wage rates, and labor productivity. 7 The section also examines whether differences between the hourly wage rates of production workers in foreign-owned and U.S.- owned establishments reflect differences in their 7. The analysis in this section is based on data for operating estab- lishments only. Data for administrative and auxiliary establishments are not available by detailed industry for either foreign-owned or all U.S. establishments. Table 7.— Selected Data for Foreign-Owned Manufacturing Establishments, by State, 1990 State Foreign-owned establishments Foreign-owned establishments as a percentage of all U.S. establishments Number of establish- ments Number of em- ployees Millions of dollars Number of employees Value added Value added Shipments Shipments 11,934 2,004,235 177,360.7 417,539.4 10.6 13.4 14.5 185 33,678 3,019.5 6,661.1 9.2 14.1 13.7 24 3,092 182.8 658.6 22.7 13.1 17.9 115 10,998 747.2 2,002.9 6.1 6.3 8.8 106 17,881 1,225.5 3,262.6 8.2 9.8 10.7 1,361 205,024 18,533.9 42,051.9 9.7 12.4 14.3 119 10,964 1,019.5 2,342.8 6.1 7.4 8.5 194 34,571 2,650.5 4,407.9 10.0 11.1 11.0 69 30,386 1,658.0 4,339.9 46.2 36.7 33.6 13 215 17.4 37.4 1.5 1.1 1.7 504 44,688 3,091.7 7,342.6 9.0 10.4 12.1 491 70,347 6,926.8 13,730.2 12.5 19.2 16.3 30 2,087 275.7 1,218.0 10.1 17.7 29.0 25 3,414 269.4 509.8 5.6 6.9 5.6 649 110,468 8,684.1 25,260.4 11.0 12.3 16.1 317 86,378 7,683.9 16,766.2 14.0 17.1 17.0 106 22,359 1,863.0 3,631.8 9.7 9.6 7.9 89 13,547 1,144.2 2,902.8 7.1 8.8 8.0 184 42,508 3,790.1 10,006.8 15.2 16.0 18.6 127 17,136 4,179.7 18,892.9 10.0 18.5 28.7 59 7,384 554.9 1,406.8 7.2 9.4 11.3 196 27,941 2,232.4 4,859.0 13.2 14.2 15.8 313 57,078 4,900.7 8,828.3 10.8 14.0 13.8 396 70,914 5,300.0 14,368.9 7.8 8.2 9.4 174 31,983 1,813.5 4,009.6 8.1 7.0 7.3 110 13,706 1,109.5 2,582.0 5.9 8.7 8.5 268 36,928 3,635.1 7,388.7 8.7 12.0 11.0 15 943 77.3 794.4 4.7 6.5 19.7 54 8,022 956.7 1,960.4 8.1 12.8 9.6 27 1,501 123.6 244.7 5.9 8.4 8.4 91 11,915 690.1 1,375.0 12.9 12.4 14.1 590 98,905 11,023.0 19,989.2 15.8 24.4 22.8 34 2,640 183.6 369.7 6.6 8.2 6.7 650 104,499 9,528.6 18,845.2 9.1 11.1 12.2 483 110,447 10,682.9 21,147.8 13.3 18.5 18.2 7 F ( D ) ( D ) n ( D ) ( D ) 644 118,364 9,888.5 26,449.0 10.9 12.3 14.9 103 15,842 1,339.5 4,256.8 9.5 11.3 15.2 119 15,269 1,071.7 3,313.9 7.1 8.1 10.7 667 119,688 9,511.1 20,216.7 11.9 14.8 14.8 51 6,628 390.4 909.7 6.6 7.6 9.3 229 59,626 3,996.1 9,724.6 16.2 19.0 20.8 21 2,947 141.6 338.2 9.9 8.7 7.5 308 72,779 5,252.6 14,102.1 14.4 17.4 20.9 783 101,890 12,849.7 35,184.0 10.8 15.4 16.7 51 7,049 588.7 1,302.2 6.9 9.6 9.3 26 3,657 224.7 490.1 8.3 7.0 8.8 242 47,873 4,555.3 8,465.5 11.3 14.0 13.9 197 22,979 1,867.1 5,454.6 6.3 7.5 8.1 61 18,047 2,291.7 4,489.5 22.0 36.1 34.7 249 46,016 3,551.0 8,520.9 8.4 9.6 10.3 8 C ( D ) ( D ) ( D ) ( D ) ( D ) Total Alabama . Alaska Arizona ... Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii ... Idaho .... Illinois ... Indiana . Iowa Kansas ... Kentucky . Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico .... New York North Carolina North Dakota ... Ohio Oklahoma Oregon Pennsylvania ... Rhode Island ... South Carolina South Dakota .. Tennessee Texas Utah Vermont Virginia Washington .. West Virginia Wisconsin Wyoming " Suppressed to avoid disclosure ot data ol individual companies. Notes.— The columns lor number of establishments and for number ol employees cover both operating establishments and administrative and auxiliary establishments; the other columns cover operating establishments only. Size ranges are given in employment cells that are suppressed. The sue ranges are: A— to 19; S— 20 to 99; C— 100 to 249; E-250 to 499; r^-500 to 999; G-1.000 to 2.499; H- 2,500 to 4,999; 1-5,000 to 9,999; J— 10.000 to 24.999; K-25.000 to 49,999; L-50.000 to 99,999; M— 100,000 or more. i6o BEA STUDIES OF DIRECT INVESTMENT Table 8.— Value Added by Foreign-Owned Manufacturing Establishments, State by Selected Industry, 1990 [Millions of dollars) State Total Selected industries Food and kindred products Textile mill products Paper and allied products Printing and publishing Chemi- cals and allied products Petroleum and coal products Rubber and miscel- laneous plastics products Stone, clay, and glass products Primary metal industries Fab- ricated metal products Industrial machinery and equip- ment Electronic and other electric equip- ment Transpor- tation equip- ment SIC code 20 22 26 27 28 29 30 32 33 34 35 36 37 Total Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wsconsin Wyoming 177,360.7 3,019.5 182.8 747.2 1,225.5 18,533.9 1,019.5 2,650.5 1,658.0 17.4 3,091.7 6,926.8 275.7 269.4 8,684.1 7,683.9 1,863.0 1,144.2 3,790.1 4,179.7 554.9 2,232.4 4,900.7 5,300.0 1,813.5 1,109.5 3,635.1 77.3 956.7 123.6 690.1 11,023.0 183.6 9,528.6 10,682.9 ( D ) 9,888.5 1,339.5 1,071.7 9,511.1 390.4 3,996.1 141.6 5,252.6 12,849.7 588.7 224.7 4,555.3 1,867.1 2,291.7 3,551.0 ( D ) 19,501.2 ( D ) U 43.2 170.1 2,471.0 210.3 163.2 ( D ) 645.4 550.3 ( D ) 125.4 1,435.7 1,025.4 360.3 195.6 527.9 261.2 95.8 460.3 218.3 550.5 421.1 39.4 900.9 ( D ) 363.8 43.3 35.7 1,156.4 ( D ) 1,069.9 290.1 ( D ) 1,148.6 89.0 169.8 1,065.3 ( D ) 273.7 73.7 228.0 509.1 25.1 ( D ) 281.1 406.1 1,038.2 ( D ) 2,283.1 103.1 ( D ) 32.3 ( D ) ( D ) ( D ) ( D ) ( D ) 111.9 ( D ) ( D ) ( D ) ( D ) 52.9 489.5 ( D ) ( D ) 95.7 ( D ) 328.7 155.0 ( D ) ( D ) ( D ) ( D ) 4,709.2 348.4 ( D ) 36.1 344.6 ( D ) 15.8 ( D ) 355.5 ( D ) 220.8 ( D ) 42.2 B ( D ) < D i 265.6 ( D ) 141.1 83.6 ( n> ( D ) 102.5 ( D ) 40.1 177.1 182.0 141.4 229.1 n 388.4 ( D ) 88.5 40.0 ( D ) ( D ) 250.1 n 379.1 10,408.8 18.6 ( D ) P 936.4 140.5 141.4 ( D ) 164.5 144.0 ( D ) 801.2 330.3 125.9 172.6 95.3 (3 ( D ) 220.0 501.6 255.7 179.1 ( D ) 81.9 ( D ) 46.7 419.8 ( D ) 2,707.7 160.2 ( D ) 395.3 47.6 ( D ) 794.3 45.5 37.5 ( D ) 144.3 303.0 ( D ) 173.0 31.9 ( D ) 262.0 48,835.7 896.6 ( D ) 20.6 81.8 3,430.1 107.8 973.5 1,316.3 225.5 1,026.2 ( D ) 6.3 1,660.1 893.5 209.7 128.3 739.1 1,855.7 570.2 446.5 837.1 91.5 363.7 1,108.7 ( D ) 401.1 6,726.3 ( D ) 1,813.4 4,886.5 1,609.1 195.5 117.5 1,505.4 ( D ) 1,017.6 ( D ) 1,585.5 7,594.0 20.2 38.8 2,361.0 134.3 1,435.2 243.5 4,106.8 ( D ) ( D ) ( D ) 10.6 ( D ) ( D ) ( D ) 149.7 3.6 ( D ) (°) W ( D ) ( D ) ( D ) (°) ( D ) (°) 76.6 <3 ( D ) ( D ) ( n' Q ( n' (°) (°) ( D ) 458.5 ( n> ( D ) 8,757.9 634.0 52.7 ( D ) 376.5 ( D ) 18.8 M 72.0 145.6 ( D ) 645.5 534.8 371.9 !3 ( D ) 10.7 43.7 89.6 151.1 261.8 86.7 115.4 63.3 ( D ) ( n' ( D ) 96.7 209.6 ( D ) 495.7 562.4 541.0 430.0 10.7 214.4 38.4 771.1 ( D ) 375.2 315.0 ( D ) 304.8 47.6 ( D ) 165.5 ( D ) 8,450.2 183.4 159.0 48.7 1,008.0 85.1 80.2 ( D ) 400.2 407.3 ( D ) ( D ) 327.5 76.0 124.6 168.8 38.3 ( D ) 183.1 ( D ) 231.1 70.7 95.7 187.3 ( D ) ( D ) 32.6 27.9 232.3 18.4 293.1 295.7 479.2 123.6 36.4 511.8 ( D ) 174.3 ( D ) 227.7 625.4 24.1 ( D ) 192.5 153.7 84.9 ( D ) ( D ) 10,297.6 ( D ) 147.6 56.7 475.7 ( D ) 207.4 ( D ) 84.3 208.1 ( D ) 572.8 1,758.2 ( D ) 814.6 ( D ) ( D ) 201.0 690.9 ( D ) 35.0 307.2 ( D ) ( D ) 19.5 ( D ) 255.2 373.8 160.9 1,035.5 ( D ) 84.7 526.7 ( D ) ( D ) 213.6 505.3 ( D ) ( D ) ( D ) 71.3 485.6 136.3 6,350.2 ( D ) i°> 68.1 149.7 608.6 ( D ) 122.7 ( D ) 78.8 111.8 310.4 335.8 ( D ) 13.3 146.0 ( D ) 12.2 44.8 276.5 368.9 ( D ) 133.4 200.8 ( D ) ( D ) 178.3 332.1 235.7 491.1 102.3 ( D ) 510.7 15.9 85.8 ( D ) 267.4 330.6 ( D ) 33.0 ( D ) 109.8 166.4 13,561.7 96.1 107.2 214.8 1,880.0 100.6 206.6 ( D ) 300.4 241.2 fi 880.2 780.9 254.0 87.9 189.1 ( D ) 23.8 99.1 827.5 649.1 213.7 ( D ) 161.3 ( D ) 209.8 340.5 ( D ) 595.3 525.6 617.0 87.4 203.6 971.0 21.7 558.6 32.1 551.9 477.2 ( D ) 30.4 295.8 23.8 ( D ) 579.0 16,703.2 248.3 ( D ) 214.5 3,920.9 64.1 102.0 497.4 823.1 ( D ) 790.5 634.5 ( D ) 85.4 ( n> ( D ) 195.4 530.2 292.1 266.1 ( D ) 149.5 ( D ) 64.5 357.5 ( D ) 798.2 1,894.0 619.0 i D) 168.7 765.4 46.8 389.1 ( D ) 392.7 1,114.6 32.6 ( D ) 282.2 177.2 ( D ) 236.1 7,170.6 ( D ) ( D ) 54.6 880.1 ( D ) 147.3 10.1 ( D ) ( D ) 224.8 ( D ) 'n' ( D ) ( D ) 78.0 713.5 ( D ) ( D ) ( D ) ( D ) 33.8 136.2 191.3 ( D ) 1,338.6 ( D ) 12.2 5.4 1.8 ( D ) ( D ) 13.6 ( D ) 7.8 n.a. 10.1 2.7 Q n 7.9 9.5 8.8 n 4.8 8.2 ( D ) ( D ) 11.0 16.2 10.0 9.4 6.4 ( D ) ( D ) 12.1 13.6 8.9 6.3 ( D ) 3.6 ( D ) 8.4 9.4 ( D ) 16.3 11.6 ( D ) 9.4 7.7 (D i 13.5 13.4 7.1 ( D ) 7.5 7.5 ( D ) ( D ) 8.0 3.0 ( D ) 10.5 31.9 43.6 % 11.3 49.8 41.4 41.7 74.4 34.9 ( D ) 1.2 20.4 13.5 10.5 9.1 29.2 19.8 ( D ) 28.3 29.4 17.5 9.0 35.6 25.5 (D 1 72.3 © 46.7 ( D ) 24.5 59.2 21.6 42.7 37.5 21.0 ( D ) 22.3 ( D ) 31.0 36.9 9.1 ( D ) 54.3 8.8 55.9 15.1 ( D ) 15.1 ( D ) (°) (°) ( D ) (°) n.a. ( D ) 15.2 0.6 ( D ) ( n» ( D ) ( D ) ( D ) 'n' ID\ ( D ) (°) n 10.4 ( D ) O ( D ) R n < D ) 5.3 ( d > p> 17.6 52.5 23.5 ( D ) 8.2 'I, 13.0 ( D ) 18.3 22.9 43.7 ( D > 5.1 18.6 20.1 9.9 9.4 10.6 18.1 7.8 < D ) < D > 27.2 12.6 ( D ) 25.7 23.8 12.6 37.2 3.7 9.9 16.6 52.0 <°i 22.4 11.2 ( D ) 23.3 12.3 ( D ) 12.5 ( D ) 24.8 39.4 45.3 20.8 27.2 23.0 25.3 35.2 37.4 !n» ( D ) 25.0 ( D ) 21.4 30.9 28.7 17.4 ( D ) 45.1 ( D ) 17.8 8.0 30.6 25.1 ( D ) 24.4 20.5 19.2 16.0 19.3 21.0 16.1 18.3 14.9 18.0 ( D ) 23.7 ( D ) 27.4 30.4 14.9 ( D ) 28.0 29.2 19.1 P) 19.3 ( D ) 22.1 13.0 23.5 ( D ) 26.4 ( D ) 31.5 17.4 n 17.2 28.3 ( D ) ( D ) 57.8 ( D ) <°i 22.5 24.7 ( D ) 9.6 36.1 ( D ) ( D ) 7.7 9.6 14.1 5.8 10.3 ( D ) 9.9 2.5 ( D ) 15.2 8.8 ( D ) 3.5 ( D ) 30.7 5.3 10.3 7.2 13.3 23.2 10.1 6.3 7.3 n 19.6 16.0 ( D ) 8.4 19.7 6.4 6.7 8.4 ( D ) 10.5 10.6 16.0 8.4 4.8 ( D ) 9.9 ( D ) 24.3 13.2 ( D ) 7.5 11.6 6.4 4.4 15.9 16.4 8.1 27.0 10.7 22.6 7.4 ( D ) 15.4 20.3 1.7 ( D ) 8.0 15.6 26.1 ( D ) 21.1 21.6 7.0 5.8 11.1 32.8 ( D ) 11.4 19.7 ( n' ( D ) 4.8 ( D ) ( D ) 27.3 10.5 22.1 15.0 ( D ) 8.2 ( D ) 10.2 12.5 n 10.6 41.1 10.5 ( D ) 20.2 15.8 11.3 32.6 ( D ) 21.7 14.4 10.5 n 17.3 31.1 ( D ) 8.0 4.9 ( D ) <°i 10.2 3.8 ( D ) 6.3 0.2 ( D ) ( D ) 3.5 ( D ) ( n' ( D ) ( D ) ( D ) 4.6 3.3 ( D ) ( D ) ( D ) ( D ) 4.6 2.8 14.9 ( D ) 9.2 ( D ) n 16.8 29.3 1.4 ( D ) ( D ) 6.6 <°i ( D ) 11.9 n ( D ) 12.9 2.4 11.8 4.4 41.1 20.1 36.8 5.5 8.7 15.2 4.8 44.7 18.1 ( D ) ( D ) 8.3 22.3 <°i 3.1 45.7 28.5 10.7 (D i 30.6 15.0 26.2 9.0 ( D ) 4.8 ( n' ( D ) 11.4 D Suppressed to avoid disclosure of data ol individual companies, n.a. Not applicable. Note.— Administrative and auxiliary establishments are excluded. SIC Standard Industrial Classification 162 BEA STUDIES OF DIRECT INVESTMENT plant scale and capital intensity or whether they can be attributed to foreign ownership per se. Fi- nally, it examines whether differences between the productivity of foreign-owned and U.S. -owned establishments reflect differences in their plant scale, capital intensity, or employee skill levels or whether they can be attributed to foreign ownership per se. Plant scale For total manufacturing, average plant scale (measured as value added per establishment) of foreign-owned establishments was much larger than that of U.S.-owned establishments — $17.3 million, compared with $3.2 million, or a differ- ence of $14.1 million. 8 A statistical decomposition of the difference indicated that 60 percent of it was attributable to a tendency in some in- dustries for the plant scale of foreign-owned establishments to be larger than that of U.S.- owned establishments, while only 27 percent was attributable to a tendency for foreign-owned es- tablishments to be concentrated in industries with above-average plant scale. 9 (The method used to decompose the difference in plant scale is described in the technical note.) The importance of the within- industry differ- ences can be seen by examining the distribution of industries on the basis of the relative plant scale of foreign-owned and U.S.-owned estab- lishments. As the following tabulation indicates, the average plant scale of foreign-owned estab- lishments was more than 10 percent larger than that of U.S.-owned establishments in 277 of the 312 industries with 6 or more foreign-owned es- tablishments (hereafter referred to as "the 312 industries"). In 98 of these 277 industries, plant scale of foreign-owned establishments was more than four times as large. Moreover, there were only 20 industries in which the average plant scale of foreign-owned establishments was more than 10 percent smaller than that of U.S.-owned establishments. 10 8. Because the number of manufacturing establishments is not shown in the Census Bureau's asm publications, average plant scale for U.S.-owned es- tablishments was computed using the total value added from the asm and the number of U.S. manufacturing establishments shown in the Census Bureau's County Business Patterns, 1990: United States (Washington dc: U.S. Govern- ment Printing Office, 1992). Because the County Business Patterns and asm data are closely comparable, use of County Business Patterns establishment counts is unlikely to have significantly affected the findings of the article. 9. The remaining difference was attributable to the interaction of the within-industry differences and industry-mix effects. In industries with only a few foreign-owned establishments, value added per establishment and the other measures for foreign-owned establishments discussed in this section may be so affected by the special circumstances of individual establishments that they are not representative of foreign-owned establishments generally. Because of this possibility, the decomposition was limited to the 312 four-digit industries with at least 6 foreign-owned es- tablishments. For these industries, value added per establishment was $17.3 million for foreign-owned establishments and $3.6 million for U.S.-owned establishments, a difference of $13.7 million. Plant scale of foreign-owned establishments relative to that of U.S.-owned establishments Number of industries All industries 312 8 At least 30 percent smaller Between 10 and 30 percent smaller 12 Within 10 percent smaller or larger 15 12 Between 10 and 30 percent larger At least 30 percent larger 265 Plant scale of foreign-owned establishments may be larger, on average, than that of U.S.- owned establishments at least partly because the income and other benefits that normally accrue to large plants may be sought out to offset the inherent disadvantages foreign investors tend to face when investing in the United States and when subsequently operating their U.S. busi- nesses. Foreign investors may be unfamiliar with the language and the general business environ- ment in the United States, and their investments must, at least to some extent, be managed from a distance. Many of the added costs a foreign investor incurs when making a new U.S. invest- ment and subsequently operating a business here tend to be fixed, and foreign investors may tend to concentrate their investments in relatively large establishments as a means of spreading these costs over a larger volume of output. In some cases, such a strategy may also benefit foreign direct investors by simplifying the organizational structure, reducing the number of units that must be managed, and lowering the number of lo- cal business environments to which they must become acclimated. Most industries with direct investment have both large foreign-owned and large U.S.-owned plants. However, in many of these industries, there are substantial numbers of small U.S.- owned plants but relatively few small foreign- owned plants. This pattern can be seen in "motor vehicles and car bodies" manufacturing (sic 3711), which includes both car and truck manufacturing. In 1990, the average plant scale of foreign-owned establishments in the industry was over 60 percent larger than that of U.S.- owned establishments. Of the 406 plants in the industry, 385 were U.S. owned and 21 were for- eign owned. Both groups had a number of large plants: 52 of the U.S.-owned plants and 11 10. Across the 312 industries, the mean difference between the foreign- owned and U.S.-owned plant scale measures was $11.0 million. Unlike the differences cited in the text and in footnote 9, which were computed using a method that gave heavier weight to the larger industries, this figure was computed without regard to industry size; a statistical test indicated that it was statistically significant at the l-percent confidence level. CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 163 of the foreign-owned plants had at least 1,000 employees. However, there were many small U.S. -owned plants but few small foreign-owned plants in the industry: Over three-fourths of the U.S.-owned plants, but less than one-fifth of the foreign- owned plants, had fewer than 100 employees. Capital intensity For total manufacturing, capital intensity (indirectly measured as the non-employee- compensation share of value added) was higher for foreign- owned establishments than for U.S.- owned establishments — 61 percent, compared with 55 percent. 11 Virtually all of this differ- ence was attributable to industry-mix effects; within-industry differences were negligible. 12 Although the capital intensity of foreign-owned establishments was not systematically higher or lower than that of U.S.-owned establishments within specific industries, 13 in a large number of industries, as the following tabulation in- dicates, the capital intensity of foreign-owned establishments differed substantially from that of U.S.-owned establishments. On the one hand, the capital intensity of foreign-owned establish- ments was more than 10 percent higher than that of U.S.-owned establishments in 98 of the 312 in- dustries. On the other hand, it was more than 10 percent lower in 85 industries. to industry-mix effects, and 30 percent within-industry differences. 14 to Capital intensity of foreign-owned establishments relative to that of U.S.-owned establishments Number of industries All industries 312 26 At least 30 percent lower Between 10 and 30 percent lower 59 129 67 Within 10 percent lower or higher Between 10 and 30 percent higher At least 30 percent higher 31 Compensation per employee For total manufacturing, compensation per em- ployee of foreign- owned establishments was $5,300 higher than that of U.S.-owned establish- ments — $38,300, compared with $33,000. About 60 percent of this difference was attributable 11. The data needed to measure capital intensity directly are not available. 12. This statement is based on a decomposition similar to that used for plant scale (see technical note). The decomposition was based on data for the 312 industries. For these industries, the capital intensity measures for both foreign-owned and U.S.-owned establishments were almost the same as the corresponding measures for manufacturing as a whole. 13. Across the 312 industries, the mean difference between the foreign- owned and U.S.-owned capital-intensity measures was negligible. Although industry- mix effects dominate, with- in-industry differences are nonetheless signifi- cant. The positive contribution of these differ- ences can be seen from the following tabulation. It shows that compensation per employee of foreign-owned establishments was more than 10 percent higher than that of U.S.-owned estab- lishments in 131 of the 312 industries, whereas it was more than 10 percent lower in only 28 industries. 15 Compensation per employee of foreign-owned establishments relative to that of U.S.-owned establishments Number of industries At least 30 percent lower Between 10 and 30 percent lower Within 10 percent lower or higher Between 10 and 30 percent higher 312 3 25 153 107 24 Compensation per employee may have been higher for foreign-owned establishments than for other establishments in the same indus- try because the occupational mix was weighted more heavily toward relatively high-skilled occu- pations, perhaps reflecting the use of different technologies. 16 In addition, foreign- owned es- tablishments may have paid higher wage rates at a given skill level than U.S.-owned establish- ments because, for example, they have a greater tendency to be located in high-wage areas. 14. The remaining difference was attributable to the interaction of the within-industry differences and industry-mix effects. The decomposition was based on data for the 312 industries. For these industries, the difference in compensation per employee was $4,600, somewhat smaller than the difference for manufacturing as a whole. In "fdius: Establishment Data for 1987," differences between foreign- owned and U.S.-owned establishments were examined using payroll per employee, which is a somewhat narrower measure than total employee com- pensation. (Payroll excludes employee benefits, whereas total employee compensation includes them.) Data on total employee compensation were not available from the 1987 link data. Within-industry differences were somewhat less important in explaining the overall difference in compensation per employee in the 1990 data than in explaining the overall difference in payroll per employee in the 1987 data. This result appears to largely reflect a narrowing of within-industry differences in payroll per employee between 1987 and 1990. In light of the 1990 data, within-industry differences in benefits per employee appear to be larger than within-industry differences in payroll per employee. 15. Across the 312 industries, the mean difference between foreign-owned and U.S.-owned establishments' compensation per employee was $2,500. A statistical test indicated that this difference was significant at the l-percent confidence level. 16. As noted in footnote 2, bls has released information on the occu- pational structure of foreign-owned manufacturing establishments for 1989. Based on this information, bls concluded that while the distribution of occu- pations in foreign-owned manufacturing establishments in the United States was little different from that in all U.S. manufacturing establishments at the overall manufacturing level, there were major differences in the distribution of occupations within individual industries, at least at the sic two-digit level. 164 BEA STUDIES OF DIRECT INVESTMENT Table 10.— Relative Plant Scale and Capital Intensity: Aver- ages for Industries Grouped by the Wage Rates of For- eign-Owned Establishments Relative to Those of U.S.- Owned Establishments, 1990 Range of relative wage rates (percent) ' All industries At least 30 percent lower Between 10 and 30 percent lower .. Within 10 percent lower or higher ... Between 10 and 30 percent higher . At least 30 percent higher Addendum: Coefficient of correlation between the measure in the column and the relative wage rate ratio for the 312 industries Number of industries 312 2 41 156 88 25 Percent Relative plant scale 2 376 118 226 336 448 634 .336* Relative capital inten- sity 3 102 147 95 102 104 103 .0348 'Statistically significant at the 1 -percent confidence level. 1. Relative wage rates are foreign-owned establishments' wage rates divided by U.S.-owned establishments' wage rates times 100. 2. Relative plant scale is foreign-owned establishments' value added per establishment di- vided by the corresponding measure for U.S.-owned establishments times 100. This column shows the unweighted averages of the relative scale measure for industries in the groups de- fined by the relative wage rates shown in the stub. 3. Relative capital intensity is foreign-owned establishments' non-employee-compensation share of value added divided by the corresponding measure for U.S.-owned establishments times 100. This column shows the unweighted averages of the relative capital intensity meas- ure for industries in the groups defined Oy the relative wage rates shown in the stub. Production-worker wage rates In examining differences in employee compen- sation between foreign- owned and U.S.-owned establishments, differences in occupational mix can be partly controlled for by comparing the wages of production workers only. Restricting the comparison in this way eliminates variations in the ratio of production workers to other work- ers as a source of differences in rates of pay; in addition, production workers probably constitute a more homogeneous group than other workers, who may represent a wide variety of occupational groups (for example, sales and clerical as well as professional and managerial employees). For total manufacturing, the average hourly wage rate (excluding benefits) of production workers was $12.57 for foreign-owned estab- lishments and $11.04 for U.S.-owned establish- ments, a difference of $1.53. About 70 percent of this difference was attributable to industry- Table 11.— Production Worker Hourly Wage Rates for Foreign-Owned and U.S.-Owned Establishments, Selected Industries in Which Wage Rates of Foreign-Owned Establishments Were Relatively Low or High, 1990 sic code Industry Wages per hour (dollars) Foreign-owned establishments U.S.-owned establishments Relative wage rate (percent) ' Addendum: Relative plant scale (percent) 2 3647 3694 3721 2711 3714 3624 3592 2431 3711 3661 3663 2095 2631 2296 3255 3531 3951 3532 2064 3251 3082 2851 3398 2045 2836 2325 3651 2833 3087 2085 3295 3965 2816 3291 3645 3596 3088 Industries in which foreign-owned establishments had relatively low hourly wage rates: Vehicular lighting equipment Engine electrical equipment Aircraft Newspapers Motor vehicle parts and accessories Carbon and graphite products Carburetors, pistons, rings, valves Millwork Motor vehicles and car bodies Telephone and telegraph apparatus Radio and television communications equipment Roasted coffee Paperboard mills Tire cord and fabrics Clay refractories Construction machinery Pens and mechanical pencils Industries in which foreign-owned establishments had relatively high hourly wage rates: Mining machinery Candy and other confectionery products Brick and structural clay tile Unsupported plastics profile shapes Paints and allied products Metal heat treating Prepared flour mixes and doughs Biological products except diagnostic Men's and boys' trousers and slacks Household audio and video equipment Medicinals and botanicals Custom compound purchased resins Distilled and blended liquors Minerals, ground or treated Fasteners, buttons, needles, and pins Inorganic pigments Abrasive products Residential lighting fixtures Scales and balances, except laboratory Plastics plumbing fixtures 10.38 8.30 12.07 8.93 11.60 10.53 11.56 7.96 16.74 12.07 9.94 10.76 14.03 8.43 10.70 12.88 8.32 13.05 12.00 10.40 11.87 14.35 13.73 13.48 10.21 8.27 10.40 21.43 12.24 15.89 13.59 9.63 17.01 14.84 10.49 11.25 13.10 15.85 11.86 17.17 12.52 16.14 14.27 14.83 9.92 20.84 14.93 12.10 13.01 16.88 10.12 12.77 15.26 9.86 10.39 9.54 8.22 9.36 11.27 10.75 10.55 7.98 6.39 7.97 16.41 9.31 11.92 10.16 7.15 12.54 10.70 7.51 7.87 7.53 126 126 127 127 127 128 128 128 130 130 131 131 133 134 135 136 139 140 143 174 109 127 26 96 148 113 170 385 161 297 175 162 76 39 225 219 222 360 357 165 439 416 431 503 1,026 120 1,474 98 187 187 324 831 703 817 606 686 1,032 1. Hourly wage rate tor foreign-owned establishments divided by hourly wage rate for U.S.- owned establishments times 100. 2. Value added per establishment for foreign-owned establishments divided by value added per establishment for U.S.-owned establishments times 100. Note— The list of industries in this table excludes industries for which the data for foreign- owned establishments are suppressed. It also excludes residual industries, which cover establish- ments not elsewhere classified. SIC Standard Industrial Classification CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 165 mix effects, and 20 percent was attributable to within-industry differences. 17 Although industry-mix effects dominate, the first two columns of table 10 show that within- industry differences are nonetheless significant. Hourly wages of production workers were more than 10 percent higher in foreign- owned estab- lishments than in U.S.-owned establishments in 113 of the 312 industries, whereas they were at least 10 percent lower in only 43 industries. 18 Data for selected industries in which the wage rates of foreign-owned establishments differed substantially from those of U.S.-owned establish- ments are shown in table 11. Five of the industries in which wage rates of foreign-owned estab- lishments were substantially lower than those of U.S.-owned establishments are motor-vehicle related: Vehicular lighting equipment; engine electrical equipment; motor vehicle parts and ac- cessories; carburetors, pistons, rings, and valves; and motor vehicles and car bodies. The lower wage rates in these industries may have resulted because many of the foreign-owned establish- ments were established recently — within the last decade — and thus have a workforce with less accumulated job tenure than is typical of U.S.- owned establishments. They may also reflect lower rates of unionization among foreign-owned establishments and differences in plant location. Plant scale. — The within-industry differences in wage rates partly reflect differences in plant scale. Across the 312 industries, the ratio of the wage rates of foreign-owned establishments to those of U.S.-owned establishments is significantly cor- related with the ratio of their average plant scales. In table 10, the relative plant-scale ratio for foreign- and U.S.-owned establishments in- creases steadily as the ratio of their wage rates increases: The average ratio is 118 percent for the 2 industries in which the wage rates are at least 30 percent lower for foreign-owned estab- lishments than for U.S.-owned establishments, and it is 634 percent for the 25 industries in which the wage rates are at least 30 percent higher for foreign-owned establishments. This pattern is consistent with other research that shows that 17. The remaining difference was attributable to the interaction of the within-industry differences and industry-mix effects. The decomposition was based on data for the 312 industries. For these industries, the hourly wage rate for foreign-owned establishments was $1.26 higher than that for U.S.-owned establishments — $12.69, compared with $11.43. 18. Across the 312 industries, the mean difference between foreign-owned and U.S.-owned establishments' hourly wage rates was $0.63. A statistical test indicated that this difference was significant at the 1-percent confidence level. production-worker wages tend to be higher at larger plants. 19 This pattern is further illustrated in table 11. Average plant scale of foreign- owned establish- ments was more than three times higher than that of U.S.-owned establishments in 15 of the 20 industries in which wage rates of foreign- owned establishments were substantially higher than those of U.S.-owned establishments. In contrast, it was more than three times that of U.S.-owned establishments in only 1 of the 17 industries in which wage rates of foreign- owned establishments were substantially lower than those of U.S.-owned establishments; in 4 of the 17 industries, average plant scale of foreign- owned establishments was smaller than that of U.S.-owned establishments. Capital intensity. — Differences between the hourly wage rates of foreign-owned and U.S.-owned es- tablishments were not associated with differences in their capital intensity. In table 10, no discern- able relationship between the relative wage and capital- intensity measures is evident. Further- more, a statistical test indicated that the relative wage and capital-intensity measures were not significantly correlated. Effect of foreign-ownership. — Differences between the hourly wage rates of foreign- owned and U.S.- owned establishments do not appear to be the result of foreign ownership per se. A regres- sion that controlled for the effects of plant scale and capital intensity on wage rates and that incorporated a variable for foreign ownership in- dicated that there is no statistically significant relationship between foreign ownership and wage rates. 20 19. See, for example, Steve J. Davis and John Haltiwanger, "Wage Disper- sion Between and Within U.S. Manufacturing Plants, 1963-1986," Brookings Papers on Economic Activity, Special Issue (1991): 115-80. 20. A linear regression equation was estimated in which there were 624 observations (consisting of separate observations for foreign-owned and U.S.- owned establishments for each of the 312 industries). This estimation yielded the following: W = 10.42 + 0.07SC + 0.59C7 (11.35) (0.90) R 2 = 0.21, F = 54.7 0.09FDMY (-0.43) where W is hourly wages, SC is plant scale, CI is capital intensity, and FDMY is a dummy variable for foreign ownership. The t-statistics for the independent variables, which appear in parentheses, indicate that the coefficient of the scale variable was significant at the l-percent confidence level and that the coefficients of both the capital intensity variable and the foreign-ownership dummy variable were insignificant. 166 BEA STUDIES OF DIRECT INVESTMENT Labor productivity For total manufacturing, labor productivity (measured as value added per production- worker hour) of foreign-owned establishments was significantly higher than that of U.S.-owned establishments — $74 per hour, compared with $52 per hour. 21 About 70 percent of the difference was attributable to industry-mix effects, and 20 percent to within- industry differences. 22 Examination of the distribution of industries on the basis of the relative productivity of foreign- and U.S.-owned establishments confirms that, although industry-mix effects dominate, within-industry differences are nonetheless im- 21. Productivity can be measured in a variety of ways; the measure used here — value added per production-worker hour — is a commonly used meas- ure of labor productivity and can be easily calculated from the data. Studies of productivity sometimes use total output (shipments plus inventory change) instead of value added in the numerator. However, when total output is used as a measure of production, the inputs to which output is related typically include not only labor employed within the establishment but also capital and the inputs that the establishment purchases from others (for example, materials or business services); data on some of these inputs are not available from the asm. Furthermore, in attempting to determine whether foreign- owned establishments differ from U.S.-owned establishments, value added may be the preferred measure because it reflects only the production by the establishments themselves, whereas total output reflects, in addition to the establishments' own production, the value of inputs purchased from others. 22. The remaining difference was attributable to the interaction of the industry-mix effects and within-industry differences. The decomposition was performed for the 312 industries. For these industries, value added per production-worker hour was $75 for foreign-owned establishments and $55 for U.S.-owned establishments. Table 12.— Relative Plant Scale, Capital Intensity, and Em- ployee Skill Level: Averages for Industries Grouped by the Productivity of Foreign-Owned Establishments Rel- ative to That of U.S.-Owned Establishments, 1990 Number of industries Percent Range of relative productivity (percent) ' Relative plant scale 2 Relative capital inten- sity 3 Relative em- ployee skill level 4 All industries 312 18 52 89 61 92 376 136 208 288 373 604 .50* 102 58 85 96 108 121 .64* 109 At least 30 percent lower 103 Between 10 and 30 percent lower Within 10 percent lower or higher Between 10 and 30 percent higher At least 30 percent higher Addendum: Coefficient of correlation between the measure in the column and the rel- ative productivity ratio for the 312 industries 98 106 111 118 .39' • Statistically significant at the 1 -percent confidence level. 1. Relative productivity is loreign-owned establishments' value added per production worker hour divided by the corresponding measure for U.S.-owned establishments times 100. 2. Relative plant scale is foreign-owned establishments' value added per establishment di- vided by the corresponding measure for U.S.-owned establishments times 100. This column shows the unweighted averages of the relative scale measure for industries in the groups de- fined by the relative productivity measure shown in the stub. 3. Relative capital intensity is foreign-owned establishments' non-employee-compensation share ol value added divided by the corresponding measure for U.S.-owned establishments times 100. This column shows the unweighted averages of the relative capital intensity meas- ure for industries in the groups defined by the relative productivity measure shown in the stub. 4. Relative employee skill level is foreign-owned establishments' compensation per employee divided by the corresponding measure for U.S.-owned establishments times 100. This column shows the unweighted averages ol the relative employee skill level measure for industries in the groups defined by the relative productivity measure shown in the stub. portant. In a significant number of industries, the productivity of foreign-owned establishments was higher than that of U.S.-owned establish- ments: It was more than 10 percent higher in 153 of the 312 industries (table 12). In considerably fewer industries, the productivity of foreign- owned establishments was relatively low: It was at least 10 percent lower in only 70 industries. 23 In 89 industries, foreign-owned establishments' productivity was roughly equal to (within 10 percent of) that of U.S.-owned establishments. Studies of productivity frequently indicate that plant scale, capital intensity, and employee skill level strongly influence productivity. The fol- lowing discussion examines the extent to which these conventional factors explain the differences between the productivity of foreign-owned and U.S.-owned establishments. Plant scale. — Differences between the productiv- ity of foreign-owned and U.S.-owned establish- ments were highly correlated across industries with differences in plant scale (table 12). This pattern can be seen by comparing the industries in which foreign-owned establishments' produc- tivity was relatively low with the industries in which it was relatively high. In the 18 "lower productivity" industries, the average plant scale of foreign-owned establishments was only about 36 percent larger than that of U.S.-owned es- tablishments. In contrast, in the 92 "higher productivity" industries, the average plant scale of foreign-owned establishments was more than six times that of U.S.-owned establishments. This pattern is further illustrated in table 13, which shows selected lower and higher produc- tivity industries. In 7 of the 11 lower productivity industries, the average plant scale of foreign- owned establishments was smaller than that of U.S.-owned establishments. In contrast, in all but 2 of the 23 higher productivity industries, the av- erage plant scale of foreign- owned establishments was at least twice as large as that of U.S.-owned establishments. Capital intensity. — As discussed earlier, even though the capital intensity of foreign- owned establishments was not systematically higher or lower than that of U.S.-owned establishments within individual industries, the differences in the capital intensity of the two groups of es- tablishments were sizable in a large number 23. Across the 312 industries, the mean difference between the foreign- owned and U.S.-owned productivity measures was $8.19 per hour. A statistical test indicated that this difference was significant at the 1-percent confidence level. CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 16 7 of industries. As table 12 indicates, these dif- ferences are highly correlated with differences in productivity. Like the case of plant scale, as the productivity of foreign-owned establish- ments increases in relation to that of U.S. -owned establishments, the relative capital intensity of foreign-owned establishments also increases. The correlation between capital intensity and produc- tivity reflects the tendency for additional capital to allow increased production when combined with a given amount of labor. The correlation between differences in pro- ductivity and differences in capital intensity of foreign-owned and U.S. -owned establishments is particularly evident when the capital intensities of the two groups of establishments in lower and higher productivity industries are compared. In the lower productivity industries, the aver- age capital intensity of foreign-owned establish- ments was only 58 percent of that of U.S.-owned establishments. In contrast, in the higher pro- ductivity industries, the average capital intensity of foreign-owned establishments exceeded that of U.S.-owned establishments by 21 percent. The data shown in table 13 for selected lower and higher productivity industries further illustrate this pattern. In all of the lower productivity in- dustries, foreign-owned establishments were less capital intensive than U.S.-owned establishments, whereas in all but one of the higher productiv- ity industries, foreign-owned establishments were more capital intensive. Employee skill level. — Differences in productivity of foreign-owned and U.S.-owned establishments were correlated with differences in the skill level of their employees (measured as compensation per employee); however, the correlation was not as high as the correlation for plant scale and Table 13.— Productivity, Plant Scale, Capital Intensity, and Employee Skill Level of Foreign-Owned and U.S.-Owned Establishments, Selected Industries in Which the Productivity of Foreign-Owned Establishments Was Relatively Low or High, 1990 sic code Industry Foreign-owned establishments Productiv- ity (dollars) ' Plant scale (millions of dollars) 2 Capital in- tensity (percent) 3 Employee skill level (dollars) 4 U.S.-owned establishments Productiv- ity , (dollars) ' Plant scale (millions of dollars) 2 Capital in- tensity (percent) 3 Employee skill level (dollars) 4 Foreign-owned establishments relative to U.S.-owned establishments (percent) Produc- tivity Plant scale Capital intensity Em- ployee skill level 2296 3721 3844 2911 3295 2833 3724 3692 3711 3643 3524 3555 2033 3291 3563 2096 3594 3567 2035 2041 2834 3873 3398 2034 2241 2836 2032 2045 2731 3088 3821 3743 2816 2411 Industries in which foreign-owned establishments had relatively low productivity: Tire cord and fabrics Aircraft X-ray apparatus and tubes Petroleum refining Minerals, ground or treated Medicinals and botanicals Aircraft engines and engine parts Primary batteries, dry and wet Motor vehicles and car bodies Current-carrying wiring devices Lawn and garden equipment Industries in which foreign-owned establishments had relatively high productivity: Printing trades machinery Canned fruits and vegetables Abrasive products Air and gas compressors Potato chips and similar snacks Fluid power pumps and motors Industrial furnaces and ovens Pickles, sauces, and salad dressings Flour and other grain mill products Pharmaceutical preparations Watches, clocks, watchcases, and parts Metal heat treating Dehydrated fruits, vegetables, soups Narrow fabric mills Biological products except diagnostic Canned specialties Prepared flour mixes and doughs Book publishing Plastics plumbing fixtures Laboratory apparatus and furniture Railroad equipment Inorganic pigments Logging 20.1 30.8 56.3 123.8 37.8 105.6 43.7 28.8 62.0 29.1 43.8 92.2 82.7 85.0 104.0 114.0 86.9 66.8 163.0 107.6 417.4 75.5 74.4 84.1 42.0 129.2 161.2 144.0 689.4 88.6 134.0 112.6 257.2 87.1 13.4 30.5 15.6 61.0 6.6 10.4 10.9 7.2 151.6 10.8 48.6 23.8 35.5 28.0 17.0 32.1 15.1 4.4 35.7 17.8 153.6 17.6 7.8 33.5 12.9 23.3 30.5 37.0 34.4 22.8 25.6 25.1 54.8 8.0 23,786 43,176 45,010 56,727 49,584 48,543 41,474 26,222 47,037 30,621 24,195 34,815 27,591 48,695 45,572 36,432 40,044 39,474 35,742 42,475 54,215 30,140 40,478 30,788 25,025 37,209 31,089 36,583 36,563 35,482 45,506 37,331 49,606 33,712 66.2 76.8 119.8 248.2 75.0 200.4 82.7 51.4 104.3 43.7 63.7 59.5 52.3 53.1 62.9 66.0 49.4 37.0 89.7 57.5 220.7 38.9 38.0 42.0 20.9 64.3 80.1 68.5 291.4 35.1 52.8 41.4 93.9 31.5 34.3 115.6 18.7 69.5 2.0 10.6 27.9 9.8 94.3 6.2 9.7 3.3 9.1 3.4 7.3 8.0 5.6 2.4 7.4 3.0 33.7 2.8 1.8 6.2 2.3 2.3 15.7 7.4 3.8 2.2 3.7 9.2 7.8 .3 28,535 48,834 44,245 55,053 26,492 46,583 47,121 30,728 60,373 28,840 29,451 41,234 26,491 34,351 39,642 26,683 39,663 32,519 28,091 35,627 43,629 28,879 33,270 27,299 21,377 36,677 30,766 31,615 37,424 23,809 34,375 39,208 39,586 24,895 155 158 160 165 173 176 180 182 187 189 194 196 200 201 201 201 210 237 252 254 272 274 276 39 26 83 88 324 98 39 73 161 173 502 722 389 817 234 400 269 181 483 585 456 625 431 542 562 1,026 194 503 912 1,032 692 274 703 2,352 188 113 107 125 110 149 153 109 123 98 125 118 132 161 120 112 123 110 140 128 182 119 156 83 88 102 103 187 104 88 85 78 106 82 84 104 142 115 137 101 121 127 119 124 104 122 113 117 101 101 116 98 149 132 95 125 135 1. Value added per production worker hour. 2. Value added per establishment. 3. Non-employee-compensation share of value added. 4. Compensation per employee. Note.— The industries with relatively low productivity lor foreign-owned establishments shown in this table are the industries in which the productivity of foreign-owned establishments was at least 30 percent lower than that of U.S.-owned establishments and that (1) had at least six foreign-owned establishments, (2) were not suppressed for foreign-owned establishments, and (3) were not residual industries (see "Technical Note" in the article). The industries with relatively high productivity for foreign-owned establishments shown in this table are the industries in which the productivity of foreign-owned establishments was a least 50 percent higher than that of U.S.-owned establishments and that (1) had at least six foreign-owned establishments. (2) were not suppressed for foreign-owned establishments, and (3) were not residual industnes (see "Technical Note"). SIC Standard Industrial Classification 168 BEA STUDIES OF DIRECT INVESTMENT for capital intensity. 24 In the lower productivity industries, the employee skill level of foreign- owned and U.S.-owned establishments was about the same, whereas in the higher productivity industries, the employee skill level of foreign- owned establishments was 18 percent higher than that of U.S.-owned establishments. Table 13 further illustrates the relationship between pro- ductivity and employee skill level. In 10 of the 11 lower productivity industries, the employee skill level of foreign- owned establishments was roughly equal to, or lower than, that of U.S.- owned establishments. In contrast, in 15 of the 23 higher productivity industries, the em- ployee skill level of foreign-owned establishments was substantially higher than that of U.S.-owned establishments. Combined effects. — The prior discussion showed that, when taken separately, differences in the plant scale, capital intensity, and employee skill level of foreign-owned and U.S.-owned estab- lishments are each associated with differences in productivity. To determine whether a particu- lar factor still independently contributes to the differences in productivity once the influence of each of the other factors is taken into account, the measures of relative plant scale, capital in- tensity, and employee skill level were included as independent variables in a multiple regression equation in which the relative productivity meas- ure was the dependent variable. In addition to testing for the independent contribution of each of the three factors, the regression also provides an indication of their combined importance. The results confirmed that, even after allowing for the influence of the other measures, the relative plant scale, capital intensity, and employee skill level measures were each significantly correlated with the differences in productivity. 25 Furthermore, over 60 percent of the variation in the relative 24. The compensation-per-employee measure of employee skill level (sometimes termed "human capital intensity") reflects both occupational structure and the accumulation of skills within occupations. 25. Using the 312 industries as the observations, the estimation yielded the following: RPR = -.89 + .02RSC + .01RCI + .01RES (4.90) (15.67) (9.10) R 2 = .61, F =163.7 where RPR, RSC, RCI, and RES are the measures of relative produc- tivity, plant scale, capital intensity, and employee skill level, respectively. The t-statistics for the independent variables, which appear in parentheses, indi- cate that the coefficients for all of the variables were statistically significant at the i-percent confidence level. The coefficients of correlation between the independent variables were as follows: Plant scale and capital intensity, 0.32; plant scale and employee skill level, 0.33; capital intensity and employee skill level, 0.04. productivity measure could be accounted for by the combined variation in these three factors. Effect of foreign ownership. — One additional sta- tistical check was made to test directly whether foreign ownership per se was associated with higher productivity levels. This check involved estimating a multiple regression equation that controlled for the effects on productivity levels of plant scale, capital intensity, and employee skill level and that included a variable for for- eign ownership. The test indicated that there was no correlation between productivity and for- eign ownership per se. 26 Thus, any influence of foreign ownership on productivity appears to be mainly indirect: The plant scale, capital intensity, and employee skill level of foreign- owned establishments differ from those of U.S.- owned establishments, and it is largely because of these differences that the productivity for foreign- owned establishments is higher. Technical Note This note describes the statistical decomposition method used in the article and discusses how the findings of the article are affected by the esti- mation of data for foreign-owned establishments and by the inclusion in the sic of residual indus- tries, which cover establishments not elsewhere classified. Statistical decomposition The differences between foreign-owned and U.S.- owned establishments in average plant scale, cap- ital intensity, compensation per employee, wages per production-worker hour, and productivity were decomposed statistically into industry-mix, 26. A linear regression was estimated in which there were 624 observa- tions (there were separate observations for foreign-owned and U.S.-owned establishments for each of the 312 industries). This estimation yielded the following: PR = -133.81 + . 19SC + 219.10CI+.0024ES-.15FDMY (1.83) (19.95) (10.99) (-.04) R 2 = .54, F = 188.41 where PR, SC, CI, and ES are the measures of productivity, plant scale, capital intensity, and employee skill level, respectively, and FDMY is a dummy variable for foreign ownership. The t-statistics for the independent variables, which are shown in parentheses, indicate that the coefficients of both the capital intensity and employee skill level variables were significant at the i-percent confidence level, that the coefficient of the scale variable was significant at the 10-percent confidence level, and that the coefficient of the foreign-ownership dummy was insignificant. To rule out the possibility that the regression results were influenced by errors in the measurement of capital intensity through the use of a proxy variable, tests controlling for this potential errors-in-variables problem using "instrumental variables" were conducted; the results of the tests suggested that such errors probably were not a problem. CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 169 within-industry, and interaction effects. The de- composition for a given measure begins with expressing the measure as a weighted average of values for individual industries. For plant scale, for example, average plant scale (value added per establishment) may be expressed as a weighted average of the average plant scales in individual industries, with the weight for any given industry being the industry's share in the total number of establishments. Thus, the average plant scale for U.S.-owned establishments can be expressed as 312 p = X HPu i=l and the average plant scale of foreign-owned establishments can be expressed as 312 P a = I sfpf, i=l where p is average plant scale (value added per establishment) for the 312 industries (see footnote 9), pi is plant scale for industry i, and St is the share of the ith industry in the total number of establishments for the 312 industries. (Variables with the superscript a denote data for foreign- owned establishments, and variables without a superscript denote data for U.S.-owned establish- ments.) The difference between average plant scales of the two groups of establishments can then be decomposed algebraically as p a — p 312 312 X Piisf - s t )+ X Si(P? - Pi)+ i=l i=l 312 X(Pi-PiHsf-Si). i=l The first term on the right side of the equation measures the effects of differences in industry mix; it is the difference in plant scale that would have resulted if, in each industry, plant scale were the same for foreign-owned establishments as for U.S.-owned establishments but if the differences in the distribution of the establishments by in- dustry were as observed. The second term on the right side measures the effects of within-industry differences in plant scale; it is the difference in plant scale that would have resulted if foreign- owned establishments had the same distribution by industry as U.S.-owned establishments but if the differences in plant scale that existed in each industry were as observed. The third term reflects the interaction between these two effects. A decomposition similar to this one was carried out for each of the other measures discussed in the article. Estimation of nonsample establishments Data were estimated for foreign-owned establish- ments that were not selected for the 1990 asm, which covered only a sample of all manufacturing establishments. For manufacturing as a whole, 17 percent of the shipments of foreign-owned establishments was estimated in 1990. Data for the nonsample foreign- owned establishments were estimated using industry- average relation- ships between employment and payroll, on the one hand, and the other items covered by the asm, on the other. (Employment and payroll for all foreign-owned establishments were obtained from the Census Bureau's Standard Statistical Establishment List.) Because industry-average relationships were used as the basis for estima- tion, actual differences between foreign-owned and U.S.-owned establishments may not be the same as those observed in the data; in particular, both the total and the within-industry differences may be larger. To check this possibility, the productivity of foreign-owned and U.S.-owned establishments was compared using data only for those foreign-owned establishments that were re- ported in the asm. This comparison indicated that both the total productivity difference and the within-industry difference are larger when only these data are used than when both the reported and estimated data are used. However, the signif- icance of this result is difficult to assess because the foreign-owned establishments included in the asm sample were much larger, on average, than the nonsample establishments, and, as discussed in the previous section, productivity tends to be higher in larger establishments. Residual industries The sic includes some three- and four-digit in- dustries that cover establishments not elsewhere classified. (An sic code with the digit "9" appearing as the third or fourth digit usually designates such an industry.) These residual industries usually do not consist of homoge- neous activity groups. For example, sic 3699 ("Electrical machinery, equipment, and supplies, not elsewhere classified") includes, among other things, establishments that manufacture electric Christmas tree lights and establishments that manufacture particle accelerators. Because of this heterogeneity, the activities of foreign-owned and 170 BEA STUDIES OF DIRECT INVESTMENT U.S. -owned establishments that are classified in such industries may differ significantly. These differences could, in turn, cause the wi thin- industry differences that were observed in the data to be larger than if comparisons had been based only on industries in which activities were more homogeneous. To determine whether this was the case, the residual industries were ex- cluded from the data, and the comparisons of the hourly wage rate and the productivity of foreign-owned and U.S.-owned establishments were repeated. Two different checks were made: In the first, only the 15 three-digit residual in- dustries were excluded; in the second, both the three- and four-digit residual industries (a total of 53 industries) were excluded. In both the hourly wage rate and the productivity comparisons, ex- cluding the residual industries had little effect on the results. Specifically, both the overall dif- ferences between foreign-owned and U.S.-owned establishments and the relative importance of the industry-mix effects and within-industry differ- ences were nearly the same as those reported in the article. In addition, the distributions of foreign-owned and U.S.-owned establishments in terms of relative hourly wage rates and produc- tivity were little changed from those discussed in the article. Table 14 follows. [jg| CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 171 Table 14.— Employment, Value Added by Manufacture, and Value of Shipments of Foreign-Owned and All U.S. Establishments, by Detailed Industry, 1990 Industry Foreign-owned establishments Number ol employees Thousands ol dollars Value added by manufacture Value of shipments All U.S. establishments Number of em- ployees ' Thousands ol dollars Value added by manufacture ' Value of shipments 2 Foreign-owned establishments as a percentage of all U.S. establishments Employ- ment Value added by manufac- ture Value of shipments Manufacturing 3 Food and kindred products Tobacco products Textile mill products Apparel and other textile products Lumber and wood products Furniture and fixtures Paper and allied products Printing and publishing Chemicals and allied products Petroleum and coal products Rubber and miscellaneous plastics products Leather and leather products Stone, clay, and glass products Primary metal industries Fabricated metal products Industrial machinery and equipment Electronic and other electric equipment Transportation equipment Instruments and related products Miscellaneous manufactunng industries Administrative and auxiliary Food and kindred products Meat products Meat packing plants Sausages and other prepared meats Poultry slaughtering and processing Dairy products Creamery butter Cheese, natural and processed Dry, condensed, evaporated products Ice cream and frozen desserts Fluid milk Preserved fruits and vegetables Canned specialties Canned fruits and vegetables Dehydrated fruits, vegetables, soups Pickles, sauces, and salad dressings Frozen fruits and vegetables Frozen specialties, nee Grain mill products Flour and other grain mill products Cereal breakfast foods Rice milling Prepared flour mixes and doughs Wet corn milling Dog and cat food Prepared feeds, nee Bakery products Bread, cake, and related products Cookies and crackers Frozen bakery products, except bread Sugar and confectionery products Raw cane sugar Cane sugar refining Beet sugar Candy and other confectionery products Chocolate and cocoa products Chewing gum Salted and roasted nuts and seeds Fats and oils Cottonseed oil mills Soybean oil mills Vegetable oil mills, nee Animal and marine tats and oils Edible fats and oils, nee Beverages Malt beverages Malt Wines, brandy, and brandy spirits Distilled and blended liquors Bottled and canned soft drinks Flavoring extracts and syrups, nee Miscellaneous food and kindred products Canned and cured fish and seafoods Fresh or frozen prepared fish Roasted coflee Potato chips and similar snacks Manufactured ice Macaroni and spaghetti Food preparations, nee Tobacco products Cigarettes Cigarettes Cigars Cigars Chewing and smoking tobacco Chewing and smoking tobacco Tobacco stemming and redrying Tobacco stemming and redrying Textile mill products Broadwoven fabric mills, cotton Broadwoven fabric mills, cotton Broadwoven fabric mills, manmade liber and silk 2,004,235 159,386 H 47,363 23,085 17,043 J 48,644 103,983 242,392 25,638 120,951 6,362 105,578 119,087 93,300 191,440 228,237 104,147 121,520 26,087 200,064 159,386 16,050 3,864 2,968 9,218 18,410 B 4,804 1,420 H 8,724 27,181 931 9,641 2,345 1,525 5,768 6,971 15,180 1,312 C 2,499 H G 5,123 26,951 14,359 12,276 316 14,715 F G G 7,746 G F C 6,163 E G 184 C 3,706 14,504 G E 2,496 3,357 5,151 764 20,232 1,192 6,764 2,322 2,139 B C 7,574 H G G C c F F 47,363 G G 10,405 177,360,745 19,501,177 417,539,353 46,842,783 < D i 2,283,123 ( D ) 5,693,627 850,240 1,727,481 842,486 2,304,003 4,709,223 11,395,189 10,408,807 16,499,934 48,835,701 87,678,890 4,106,797 46,372,551 8,757,926 17,790,551 287,251 608,138 8,450,211 16,407,454 10,297,630 31,902,909 6,350,246 13,973,579 13,561,697 31,010,583 16,703,246 34,601,773 7,170,588 28,834,909 9,722,110 15,840,686 1,929,276 3,553,235 n.a. n.a. 19,501,177 642,258 172,550 199,018 270,690 2,121,659 ( D ) 390,614 468,861 ( D ) 823,911 3,362,382 213,440 1,278,306 334,656 392,483 353,619 789,878 2,877,809 231,559 ( D ) 554,763 475,527 2,769,836 1,074,725 1,676,510 18,601 1,527,756 621,196 Q 973,226 27,225 565,481 2,561,436 397,667 924,787 511,608 263,015 2,664,815 63,249 353,240 592,348 320,787 1,307,414 46,842,783 2,911,450 1,124,837 845,454 941,159 6,845,546 ( D ) 1,886,501 908,179 ( D ) 3,183,337 6,918,243 389,181 2,935,885 591,218 621,680 1,037,316 1,342,963 6,796,558 726,735 937,758 2,159,666 4,310,139 1,683,037 2,592,481 34,621 3,862,402 ( D ) 1,231,407 4,445,591 179,793 ( D ) 1,739,181 5,052,651 n 722,462 1,625,637 1,345,438 371,437 5,700,203 267,432 1,443,721 1,200,431 518,688 9,343 2,219,; 2,283,123 538,937 5,693,627 1,076,324 18,840,300 1,469,900 40,900 632,500 992,900 682,900 499,200 628,100 1,538,100 853,300 111,900 870,100 117,400 509,100 711,900 1,438,700 1,876,700 1,497,400 1,773,700 948,600 386,300 1,260,900 1,469,900 376,900 118,400 81,700 176,800 139,000 1,600 34,900 12,100 20,700 69,600 218,200 23,900 68,000 14,100 21,200 46,200 44,700 102,700 12,300 16,100 4,300 12,000 9,300 12,900 35,800 207,900 149.000 48,700 10,200 92,300 6,100 4,900 7,600 49,200 11,300 4,400 8,900 29,300 2,800 6,900 700 8,600 10,300 146,200 32,600 1,400 14,400 7,400 82,400 8,100 157,300 7,100 40,500 11,200 32,300 4,400 6,200 55,700 40,900 27,800 27,800 2,300 2,300 3.200 3,200 7,600 7,600 632,500 62,500 62,500 85,300 1,326,361,700 140,972,800 22,561,300 26,541,600 33,034,000 28,597,200 21,644,700 59,823,300 103,179,000 153,032,400 27,214,100 49,889,000 4,586,600 34,140,200 53,366,600 79,951,900 132,165,800 106,983,900 146,916,300 81,665,600 20,095,600 n.a. 140,972,800 18,434,500 6,666,500 5,315,700 6,452,300 13,233,700 207,500 2,850,600 2,670,200 1,725,500 5,779,900 20,418,900 3,272,300 6,405,200 1,124,900 2,984,500 2,921,600 3,710,400 19,294,700 1,251,300 6,325,300 592,500 1,496,700 2,867,700 3,842,200 2,919,000 15,971,100 10,475,500 4,823,100 672,400 9,474,600 502,000 659,700 828,800 4,354,900 1,418,100 725,200 985,900 4,118,200 185,000 1,519,000 98,600 715,400 1,600,300 25,033,900 8,192,800 170,800 1,810,100 1,888,300 9,075,100 3,896,900 14,993,300 303,200 1,776.900 3,581,800 2,906,300 238,000 728,700 5,458,300 22,561,300 20,628,300 20,628,300 137.000 137,000 1,105,900 1,105,900 690,000 690,000 26,541,600 2,457,000 2,457,000 3,619.300 2,873301,600 384,009,000 29,922,400 65,951,400 64,413,600 74,287,200 41,682.000 131,444,600 157,059,500 288,183,700 172,588,600 101,398,200 9,887,300 63,468,000 146,052,000 163,052,800 256,344,700 194,847,900 367,926,700 123,776,700 37,205,200 n.a. 384,009,000 90,776,500 51,069,200 18,779,700 20,927,600 50,962,400 1,307,500 16,155,800 6,135,300 4,660,200 22,703,600 44,494,500 6,322,300 14,697,900 2,453.700 5,749,800 7,473,600 7,797,000 46,538,000 5,624,700 8,704,600 1,771,700 3,155,500 6,696,400 7,015,000 13,570,200 26,121,300 17,019,200 7,803,500 1,298,600 21,044,500 1,295,600 3,075,300 2,133,900 7,991,800 3,061,300 1,113,700 2,373,000 19,499,200 850.500 10,966,300 490,400 1,776,200 5.415,800 52,198,000 15,186,200 700,400 3,657,800 3,473.500 23,847.500 5,332,500 32,374,500 998,200 6.087,700 6,622,700 6,062,100 326,700 1,229,600 11,047,600 29,922,400 25,522,400 25.522,400 229,800 229,800 1,473,800 1,473.800 2,696,500 2,696.500 65,951,400 5,324,500 5.324,500 8,577.900 10.6 10.8 ( D ) 7.5 2.3 2.5 ( D ) 7.7 6.8 28.4 22.9 13.9 5.4 20.7 16.7 6.5 10.2 15.2 5.9 12.8 6.8 15.9 10.8 4.3 3.3 3.6 5.2 13.2 ( D ) 138 11.7 12.5 12.5 3.9 14.2 16.6 7.2 12.5 15.6 14.8 10.7 ( D ) 20.8 ( D ) ( D ) 14.3 13.0 9.6 25.2 3.1 15.9 0. ® ( D ) 15.7 ( D l 21.0 26.3 36.0 9.9 ( D ) ( D ) 17.3 45.4 6.3 9.4 12.9 16.8 16.7 20.7 6.6 ( D ) 13.6 ( D ) l D ) ( D l ( D ) ( D ) ( D ) 75 n 12.2 13.4 13.8 % 2.6 2.9 ( D ) 7.9 10.1 31.9 15.1 17.6 6.3 24.8 19.3 7.9 10.3 15.6 4.9 11.9 9.6 n.a. 13.8 3.5 2.6 3.7 42 16.0 ( D ) 13.7 17.6 ( D ) 14.3 16.5 6.5 20.1 29.8 13.2 12.1 21.3 14.9 18.5 ( D ) 37.1 ( D ) 16.3 17.3 10.3 34.8 2.8 16.1 ( D ) ( D ) ( D ) 14.3 ( D ) 236 ( D ) ( D ) 27.6 ( D ) 35.3 102 (°) ( D ) 220 49.0 5.6 6.7 17.8 20.9 19.9 16.5 11.0 ( D ) ( D ) 24.0 ( D ) ( D ) ( D ) (°) ( D l ( D l 8.6 14.9 145 12.2 (°) 8.6 2.7 3.1 % 10.5 30.4 26.9 17.5 62 25.9 21.8 8.6 12.1 17.8 7.8 128 9.6 n.a. 12.2 32 22 45 45 13.4 ( D ) 11.7 14.8 ( D ) 14.0 15.5 62 20.1 24.1 10.8 13.9 17.2 14.6 12.9 ( D ) 29.7 ( D ) ( D ) 15.9 16.5 9.9 332 2.7 18.4 ( D ) 15.4 228 36.7 ( D ) 32.1 9.7 ( D ) 19.8 46.8 5.6 7.0 17.6 268 23.7 18.1 8.6 20.1 ( D ) ( D ) 8.6 12.5 See footnotes at end of table. 172 BEA STUDIES OF DIRECT INVESTMENT Table 14.— Employment, Value Added by Manufacture, and Value of Shipments of Foreign-Owned and All U.S. Establishments, by Detailed Industry, 1990— Continued SIC code Industry Foreign-owned establishments All U.S. establishments Foreign-owned establishments as a percentage of all U.S. establishments Number of employees Thousands ol dollars Number ol em- ployees ' Thousands ol dollars Employ- ment Value added by manufac- ture Value added by manufacture Value of shipments Value added by manufacture ' Value of shipments 2 Value of shipments 10,405 538,937 1,076,324 85,300 3,619,300 8,577,900 12.2 14.9 12.5 357 23,336 41,728 15,700 674,600 1,798,300 2.3 3.5 2.3 357 23,336 41,728 15,700 674,600 1,798,300 2.3 3.5 2.3 983 77,334 107,476 17,000 671,400 1,259,700 5.8 11.5 8.5 983 77,334 107,476 17,000 671,400 1,259,700 5.8 11.5 8.5 8,331 290,206 701,556 197,900 6,791,100 14,596.500 42 4.3 4.8 E ( D ) n 23,400 911,200 1,620,700 ( D ) ( D ) ( D ) G (°) ( D ) 38,600 1,062,000 2,277,900 % % H 1,378 35,918 67,356 63,600 1,783,200 3,456,400 1.9 G ( D ) 102,668 15,400 596,500 1,105,000 < D i % % 842 32,153 30,700 1,370,000 3,588,700 2.7 G ( D ) ( D ) 22,300 931,600 2,298,300 ( D ) n n 3,900 136,500 249,300 H ( D ) ( D ) 49,400 2,365,700 6,303,800 ( D ) c) n 1,341 59,665 113,369 14,900 812,300 1,594,800 9.0 7.3 7.1 E ( D ) ( D ) 22,300 1,109.700 3,400,900 < D 1 n ( D ) 1,489 74,144 189,153 12,200 443,600 1,308,100 122 16.7 14.5 3,310 179,830 661,636 51,800 2,917,300 10,038,400 6.4 6.2 6.6 3,310 179,830 661,636 51,800 2,917,300 10,038,400 6.4 62 6.6 10,800 394,793 996,732 100,700 3,753,100 10,574,600 10.7 10.5 9.4 6,693 246,816 619,148 75,000 2,654,500 7,259,200 8.9 9.3 8.5 F ( D ) < D ) 18,500 769.300 2,521,000 ( D ) ( D ) ( D ) H ( D ) ( D ) 7,100 329,300 794,500 ( D ) ( D ) ( D ) 7,828 520,049 1,524,095 52,200 3,292,000 7,477,800 15.0 15.8 20.4 E ( D ) ( D ) 8,900 578,600 1,361,800 ( D ) ( D ) ( D ) 2,849 94,050 443,174 5,100 334,300 981,600 55.9 28.1 45.1 2,329 214,792 669,364 16,900 1,306,900 2,851,000 13.8 16.4 23.5 G ( D ) ( D ) 7,000 248,800 636,900 ( D ) ( D ) < D 2 12.3 1,199 118,688 203,167 14,400 823,400 1,646,500 8.3 14.4 23,085 850,240 1,727,481 992,900 33,034,000 64,413,600 2.3 2.6 2.7 4,262 148,603 234,577 48,400 1,500,800 2,622,400 8.8 9.9 8.9 4,262 148,603 234,577 48,400 1,500,800 2,622,400 8.8 9.9 8.9 7,982 264,990 548,727 258,800 8,051,400 14,872,900 3.1 3.3 3.7 H ( D ) ( D ) 69,700 2,197,700 4,242,600 ( D ) ( D ) ( D ) G ( D ) ( D 15,300 381,700 724,900 ( D ) ( D ) ( D ) B ( D ) ( D ) 7,400 268,500 499,900 M ( D ) ( D ) 1,813 67,229 163,467 81,700 3,016,700 5,657,300 22 2.2 2.9 C ( D ) ( D ) 31,500 846,300 1,461,700 ( D ) ( D ) ( D ) F ( D ) ( D ) 53,300 1,340,600 2,286,600 ( D ) ( D ) ( D ) 1,950 60,636 111,089 318,200 10,192,400 19.338,700 .6 .6 .6 C ( D ) ( D ) 64,400 1,954,900 3,733,000 ( D ) ( D ) ( D ) F ( D ) ( D ) 106,400 3,346,800 5,914,500 ( D ) n ( D ) 1,004 36,450 77,062 45,900 1,979,000 4,162,800 12 1.8 1.9 C ( D ) ( D ) 101,500 2,911,700 5,528,400 ( D ) ( D ) ( D ) G ( D ) ( D ) 60,300 1,859,000 3,424,300 ( D ) ( D ) ( D ) G ( D ) ( D ) 48,700 1,298,400 2,337,400 ( D ) ( D ) ( D ) E ( D ) ( D ) 11,600 560,600 1,086,900 ( D ) ( D ) n 16,500 424,300 736,600 16,500 424,300 736,600 F (°) ( D ) 60,800 2,045,700 3,697,800 ( D ) n ( D ) E ( D ) ( D ) 29,000 903,800 1,724.500 ( D ) i D ) ( D ) C ( D ) < D i 31,900 1,141,900 1,973.200 5,900 172,900 309,200 ( D ) D j- h 1,586 110,416 206,322 31,100 1,376,600 2,910,300 5.1 8.0 7.1 17,043 842,486 2,304,003 682,900 28,597,200 74,287,200 25 2.9 3.1 721 119,353 382,586 83,400 4,313.200 12,229,000 .9 2.8 3.1 721 119,353 382,586 83,400 4,313.200 12,229,000 .9 2.8 3.1 2,706 143,504 431,743 170,800 7,174.500 19,934,900 1.6 2.0 22 2,071 122,196 378,485 138,900 6,184.300 17,923,000 1.5 2.0 2.1 F ( D ) ( D ) 29,300 908,800 1,800,500 ( D ) ( D ) ( D ) B ( D ) ( D ) 2,500 81,500 211,300 (J ( D ) i 7,930 339,789 777,564 229,400 9,577,600 23,245,200 3.5 3.5 3.3 3,909 168,644 375,646 90,500 3,851,600 9,524,700 4.3 4.4 3.9 G ( D ) ( D ) 62,800 2,540,100 4,610.000 ( D ) H ( D ) 1,328 59,420 135,003 18,700 706,600 2,051,700 7.1 8.4 6.6 C < D ) ( D ) 35,600 1,669,200 5,030,400 ( D ) ( D ) O F ( D ) ( D ) 21,800 810,100 2,028,400 ( D ) Q Q C ( D ) ( D ) 41,500 1,189,200 2,850,000 ( D ) n ( D ) 6,000 191.600 431,300 C ( D ) ( D ) 28,300 802,000 1,948.600 ( D ) ( D ) ( D ) 7,200 195,600 470,200 G ( D ) ( D ) 61,400 2,364,800 6,471,000 ( D ) ( D ) ( D ) B ( D ) 116,306 38,800 1,501,600 4,202,500 ( D ) ( D ) ( D ) 1,359 48,762 22,600 863,200 2,268,500 6.0 5.6 5.1 4,118 178,693 570,338 96,400 3,977,800 9,557,000 4.3 4.5 6.0 F ( D ) ( D ) 13,000 696,500 2,642,700 ( D ) n ( D ) 1,598 95,998 247,272 22.300 1,285,000 3,042,600 12 7.5 8.1 G ( D ) ( D ) 61,100 1,996,300 3.871,800 ( D ) ( D ) ( D ) J ( D ) ( D ) 499,200 21,644,700 41,682,000 ( D ) ( D ) ( D ) 2221 223 2231 224 2241 225 2251 2252 2253 2254 2257 2258 2259 226 2261 2262 2269 227 2273 228 2281 2282 2284 229 2295 2296 2297 2298 2299 23 231 2311 232 2321 2322 2323 2325 2326 2329 233 2331 2335 2337 2339 234 2341 2342 235 2353 236 2361 2369 237 2371 238 2381 2384 2385 2386 2387 2389 239 2391 2392 2393 2394 2395 2396 2397 2399 24 241 2411 242 2421 2426 2429 243 2431 2434 2435 2436 2439 244 2441 2448 2449 245 2451 2452 249 2491 2493 2499 25 Broadwoven fabric mills, manmade fiber and silk Broadwoven fabric mills, wool Broadwoven fabnc mills, wool Narrow fabric mills Narrow fabric mills Knitting mills Women's hosiery, except socks Hosiery, nee Knit outerwear mills Knit underwear mills Weft knit fabric mills Lace and warp knit fabnc mills Knitting mills, nee Textile finishing, except wool finishing plants, cotton Finishing plants, manmade Finishing plants, nee Carpets and rugs Carpets and rugs Yam and thread mills Yam spinning mills Throwing and winding mills Thread mills Miscellaneous textile goods Coated fabrics, not rubberized Tire cord and fabnes Nonwoven fabrics Cordage and twine Textile goods, nee Apparel and other textile products Men's and boys' suits and coats Men's and boys' suits and coats Men's and boys' furnishings Men's and boys' shirts Men's and boys' underwear and nightwear Men's and boys' neckwear Men's and boys' trousers and slacks Men's and boys' work clothing , Men's and boys' clothing, nee Women's and misses' outerwear , Women's and misses' blouses and shirts Women's, junior's, and misses' dresses Women's and misses' suits and coats Women's and misses' outerwear, nee Women's and children's undergarments Women's and children's underwear Bras, girdles, and allied garments Hats, caps, and millinery Hats, caps, and millinery Girls' and children's outerwear Girls' and children's dresses and blouses , Girls' and children's outerwear, nee Fur goods Fur goods Miscellaneous apparel and accessories Fabric dress and work gloves Robes and dressing gowns Waterproof outerwear Leather and sheep-lined clothing Apparel belts Apparel and accessories, nee , Miscellaneous fabricated textile products Curtains and draperies , Housefurnishings, nee Textile bags Canvas and related products Pleating and stitching Automotive and apparel trimmings Schiffli machine embroideries Fabricated textile products, nee Lumber and wood products Logging Logging Sawmills and planing mills Sawmills and planing mills, general Hardwood dimension and flooring mills Special product sawmills, nee Millwork, plywood and structural members MillworK Wood kitchen cabinets Hardwood veneer and plywood Softwood veneer and plywood Structural wood members, nee Wood containers Nailed wood boxes and shook Wood pallets and skids Wood containers, nee Wood buildings and mobile homes Mobile homes Prefabricated wood buildings Miscellaneous wood products Wood preserving Reconstituted wood products Wood products, nee Furniture and fixtures See footnotes at end of table. CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 173 Table 14.— Employment, Value Added by Manufacture, and Value of Shipments of Foreign-Owned and All U.S. Establishments, by Detailed industry, 1990— Continued sic code Industry Foreign-owned establishments Number of employees Thousands of dollars Value added by manufacture Value of shipments All U.S. establishments Number of em- ployees ' Thousands of dollars Value added by manufacture ' Value of shipments 2 Foreign-owned establishments as a percentage of all U.S. establishments Employ- ment Value added by manufac- ture Value of shipments 251 2511 2512 2514 2515 2517 2519 252 2521 2522 253 2531 254 2541 2542 259 2591 2599 26 261 2611 262 2621 263 2631 265 2652 2653 2655 2656 2657 267 2671 2672 2673 2674 2675 2676 2677 2678 2679 27 271 2711 272 2721 273 2731 2732 274 2741 275 2752 2754 2759 276 2761 277 2771 278 2782 2789 279 2791 2796 28 281 2812 2813 2816 2819 282 2821 2822 2823 2824 283 2833 2834 2835 2836 284 2841 2842 2843 2844 285 2851 286 2861 2865 2869 287 2873 2874 Household furniture Wood household furniture Upholstered household furniture Metal household furniture Mattresses and bedsprings Wood television and radio cabinets Household furniture, nee Office furniture , Wood office furniture Office furniture, except wood Public building and related furniture Public building and related furniture Partitions and fixtures Wood partitions and fixtures Partitions and fixtures, except wood Miscellaneous furniture and fixtures Drapery hardware and blinds and shades Furniture and fixtures, nee Paper and allied products Pulp mills Pulp mills Paper mills Paper mills Paperboard mills Paperboard mills Paperboard containers and boxes Setup paperboard boxes Corrugated and solid fiber boxes Fiber cans, drums and similar products ... Sanitary food containers Folding paperboard boxes Miscellaneous converted paper products Paper coated and laminated, packaging .. Paper coated and laminated, nee Bags: plastics, laminated, and coated Bags: uncoated paper and multiwall Die-cut paper and board Sanitary paper products Envelopes Stationery products Converted paper products, nee Printing and publishing Newspapers Newspapers Periodicals Periodicals Books Book publishing Book printing Miscellaneous publishing Miscellaneous publishing Commercial printing Commercial printing, lithographic Commercial printing, gravure Commercial printing, nee Manifold business forms Manifold business forms Greeting cards Greeting cards Bankbooks and bookbinding Blankbooks and looseleaf binders Bookbinding and related work Printing trade services Typesetting Platemaking services Chemicals and allied products Industrial inorganic chemicals Alkalies and chlorine Industrial gases Inorganic pigments Industrial inorganic chemicals, nee Plastics materials and synthetics Plastics materials and resins Synthetic rubber Cellulosic manmade fibers Organic fibers, noncellulosic Drugs Medicinals and botanicals Pharmaceutical preparations Diagnostic substances Biological products except diagnostic Soap, cleaners, and toilet goods Soap and other detergents Polishes and sanitation goods Surface active agents Toilet preparations Paints and allied products Paints and allied products Industrial organic chemicals Gum and wood chemicals Cyclic crudes and intermediates Industrial organic chemicals, nee Agricultural chemicals Nitrogenous fertilizers Phosphatic fertilizers 9,065 2,183 H B G 1,577 3,761 F H G G F C F G G C 48,644 E E 10,612 10,612 7,562 7,562 17,531 344 9,976 G C 5,477 J 1,404 4,579 1,101 723 G B C B 3,354 103,983 19,774 19,774 14,122 14,122 21,423 17,407 4,016 4,732 4,732 28,413 15,041 8,876 4,496 I I H H E 2,938 F G 242,392 22,882 E H 4,343 13,469 54,991 14,365 I H 29,307 65,378 2,063 51,180 3,865 8,270 22,075 5,439 H H 10,436 10,833 10,833 38,025 F I 27,762 10,186 F 1,752 276,284 85,549 33,088 277,062 ft ( D ) 4,709,223 ft ( D ) 1,458,591 1,458,591 1,119,742 1,119,742 997,570 22,552 538,037 347,908 ( D ) 80,606 443,059 84,592 34,172 ( D ) 251,711 10,408,807 798,449 798,449 1,957,867 1,957,867 3,365,885 3,167,853 198,032 551,139 551,139 2,322,445 1,274,879 732,128 315,438 ft 220,906 48,835,701 4,576,277 1,369,809 2,153,141 8,854,655 3,446,830 4,002,359 14,234,655 259,825 12,591,173 476,620 907,037 5,537,023 1,389,093 2,681,808 1,635,949 1,635,949 9,261,864 7,766,996 2,623,169 ( D ) 195,655 692,827 192,599 148,970 481,778 11,395,189 ft ( D ) 3,553,586 3,553,586 2,147,095 2,147,095 3,034,012 42,885 1,891,850 ft ( D ) 873,388 ( D ) 257,078 1,185,660 177,252 96,731 ( D ) 504,305 16,499,934 1,055,891 1,055,891 3,124,876 3,124,876 4,660,080 4,305,984 354,096 650,747 650,747 4,549,246 2,547,334 1,473,185 528,727 286,725 ft ( D ) 87,678,890 7,845,636 2,055,671 4,167,800 18,797,001 8,244,436 ft ( D ) 7,215,738 19,489,079 602,462 16,760,810 655,862 1,469,945 9.216,467 2,657,805 3,719,110 3,528,421 3,528,421 19,192,018 ( D ) ( D ) 15,432,739 4,815,384 ( D ) 701,957 274,800 130,900 83,800 26,500 24,700 3,300 5,700 74,900 28,200 46,700 26,000 26,000 72,600 40,100 32,500 50,900 19,000 31,900 628,100 16,100 16,100 130,100 130,100 53,100 53,100 200,300 8,800 110,100 13,300 17,500 50,700 228,500 16,400 35,000 37,400 16,900 16,800 39,000 26,100 10,100 30,700 1,538,100 443.400 443,400 115,200 115,200 122,200 73,500 48,700 65.200 65,200 580,400 423,300 23,900 133,200 50,300 50,300 24,600 24,600 70,200 38,500 31,700 66,500 33,600 32,900 853,300 100,900 6,800 9,000 8,500 76,600 131,600 62,400 11.400 9,700 48,100 182,900 10,900 143,800 14,900 13,300 126,100 36,300 19,600 9,100 61,100 53,900 53,900 125,800 2,500 23,000 100,300 42,800 7,500 10,500 9,878,100 4,399.000 2,809,100 1,032,400 1,331,400 132.600 173,700 4,719,500 1,100.800 3,618,700 1,147,100 1,147,100 3,409,300 1,788,500 1,620,800 2,490,600 1,005.100 1,485,600 59,823,300 3,416,400 3,416,400 16,599,800 16,599,800 8,123,000 8,123,000 11,082,100 312,900 5,901,900 750,600 1,074,400 3,042,400 20,602,000 1,133.400 3,321,000 2,625,100 877,100 1,045,700 7,896.200 1,194,900 577,900 1,930,700 103,179,000 26,559,600 26,559,600 13,847,700 13,847,700 13,320,400 10,919,500 2,400,900 6.656,200 6,656,200 29,001,300 21,230,300 1,742,000 6.029,100 4,038,100 4,038,100 2,827,500 2,827,500 3,218,700 2,182,900 1,035,800 3,709,400 1,605,700 2,103,700 153,032,400 16,099,700 1 ,449,900 1,919,200 1,930,800 10,799,800 20,511,200 12.195,300 1,706,700 679,000 5.930,200 38,244,500 2,392,200 32,744,700 1,790,100 1,317.400 25,007,800 7,971.200 3,691,400 1,241.000 12,104,200 6.765,700 6,765,700 28,813,100 340,500 3.980,100 24,492,400 8,060,000 1.213,300 1,151,100 19,912,900 8,302,900 5,815,300 2,184,100 2.904,900 246.900 458,700 8,030,100 1,998,800 6,031,400 3,112,400 3,112,400 6,193,000 3,147,200 3,045,800 4,433,600 1.886,300 2,547,300 131,444,600 6,239,100 6,239,100 35.321,800 35,321,800 15,919,300 15,919,300 30,510,400 565,100 18.572,200 1,884,900 2,518,700 6,969,400 43.454,000 3,026,700 7,077,800 5,494,600 2,750,100 2,119,000 14,709,200 2,816,600 1,332,100 4,127,900 157,059,500 34,641,700 34,641,700 20,396,700 20.396,700 19,449,900 15,317,900 4,132,000 8,874,700 8,874,700 52,903,700 38,877,400 3,635,900 10,390,400 7,807,500 7,807,500 3,720,700 3,720,700 4.549,400 3,186,100 1,363,400 4.715,200 1,957,400 2,757,800 288,183,700 26,690,800 2,709,800 3,058,100 3,203,900 17,719,000 48,419,800 31,325,800 4,210,300 1 ,456,700 11,427,100 53,719,700 4,919,400 44,182,300 2,462,200 2.155,800 41,437,900 15,373,400 5.847,900 3,168,300 17,048.400 14.238.700 14,238,700 65,695,500 642,900 10,892,600 54,160,000 18,307,400 3.113,400 4.636,200 3.3 1.7 ft ( D ) 27.7 5.0 ft ft ft ft ft ft ( D ) ( D ) 7.7 ( D ) ( D ) 8.2 8.2 14.2 14.2 88 3.9 9.1 ft ( D ) 10.8 ( D ) 8.6 13.1 2.9 4.3 ( D ) ( D ) 10.9 6.8 4.5 4.5 12.3 12.3 17.5 23.7 8.2 7.3 7.3 4.9 3.6 37.1 3.4 ( D ) ( D ) ft ( D ) 4.4 ( D ) ( D ) 28.4 22.7 ( D ) ( D ) 51.1 17.6 41.8 23.0 ( D ) ( D ) 60.9 35.7 18.9 356 25.9 62.2 17.5 15.0 ( D ) ( D ) 17.1 20.1 20.1 30 2 ( D ) ( D ) 27.7 23 8 ( D ) 16.7 2.8 1.9 ft ( D ) ( D ) 19.0 5.9 ft ( D ) ( D ) ( D ) ft ( D ) ( D ) 7.9 ( D ) ( D ) 13.8 13.8 9.0 7.2 9.1 ( D ) ( D ) 11.4 ( D ) 7.1 13.3 3.2 3.9 ( D ) ( D ) 13.0 10.1 3.0 3.0 14.1 14.1 25.3 29.0 8.2 8.3 8.3 8.0 6.0 42.0 5.2 ( D ) ( D ) ( D ) ft h 6.0 ft rt 31.9 28.4 ( D ) ( D ) 70.9 19.9 43.2 28.3 ft ( D ) 67.5 37.2 10.9 38.5 26.6 68.9 22.1 17.4 ( D ) ( D ) 22.2 242 242 32.1 ( D ) 31.7 32.5 ( D l 17.0 35 23 ( D ) ( D ) ( D ) 32.5 6.0 ft ft ( D ) ( D ) ( D ) ft ( D ) D ) ( D ) 10.1 10.1 13.5 13.5 9.9 7.6 10.2 ( D ) ( D ) 12.5 ( D ) 8.5 16.8 3.2 3.5 ( D ) ft ft (°) 12.2 105 3.0 3.0 15.3 15.3 24.0 28.1 8.6 7.3 7.3 8.6 6.6 40.5 5.1 ( D ) ( D ) ( D ) ( D ) 6.1 ft i D ) 30.4 29.4 ( D ) ( D ) 64.2 235 388 26.3 ( D ) ( D ) 63.1 36.3 12 2 37.9 266 682 22.2 17.3 ( D ) ( D ) 21.8 248 24.8 29.2 ft ( D ) 28.5 26.3 ( D ) 15.1 See footnotes at end of table. U4 BEA STUDIES OF DIRECT INVESTMENT Table 14.— Employment, Value Added by Manufacture, and Value of Shipments of Foreign-Owned and All U.S. Establishments, by Detailed Industry, 1990— Continued sic code Industry Foreign-owned establishments Number ol employees Thousands of dollars Value added by manufacture Value of shipments All U.S. establishments Number of em- ployees ' Thousands of dollars Value added by manufacture ' Value of shipments 2 Foreign-owned establishments as a percentage of all U.S. establishments Employ- ment Value added by manufac- ture 2875 2879 289 2891 2892 2893 2895 2899 29 291 2911 295 2951 2952 299 2992 2999 30 301 3011 302 3021 305 3052 3053 306 3061 3069 308 3081 3082 3083 3084 3085 3086 3087 3088 3089 31 311 3111 313 3131 314 3142 3143 3144 3149 315 3151 316 3161 317 3171 3172 319 3199 32 321 3211 322 3221 3229 323 3231 324 3241 325 3251 3253 3255 3259 326 3261 3262 3263 3264 3269 327 3271 3272 3273 3274 3275 328 3281 329 3291 3292 3295 3296 3297 3299 Fertilizers, mixing only Agricultural chemicals, nee Miscellaneous chemical products Adhesives and sealants Explosives Printing ink Carbon black Chemical preparations, nee Petroleum and coal products Petroleum refining Petroleum refining Asphalt paving and roofing materials Asphalt paving mixtures and blocks Asphalt felts and coatings Miscellaneous petroleum and coal products .. Lubricating oils and greases Petroleum and coal products, nee Rubber and miscellaneous plastics products Tires and inner tubes Tires and inner tubes Rubber and plastics footwear Rubber and plastics footwear Hose and belting and gaskets and packing .. Rubber and plastics hose and belting Gaskets, packing and sealing devices Fabricated rubber products, nee Mechanical rubber goods Fabricated rubber products, nee Miscellaneous plastics products, nee Unsupported plastics film and sheet Unsupported plastics profile shapes Laminated plastics plate and sheet Plastics pipe Plastics bottles Plastics foam products Custom compound purchased resins Plastics plumbing fixtures Plastics products, nee Leather and leather products Leather tanning and finishing Leather tanning and finishing Footwear cut stock Footwear cut stock Footwear, except rubber House slippers Men's footwear, except athletic Women's footwear, except athletic Footwear, except rubber, nee Leather gloves and mittens Leather gloves and mittens Luggage Luggage Handbags and personal leather goods Women's handbags and purses Personal leather goods, nee Leather goods, nee Leather goods, nee Stone, clay, and glass products Flat glass Flat glass Glass and glassware, pressed or blown Glass containers Pressed and blown glass, nee Products of purchased glass Products of purchased glass CemenL hydraulic Cement, hydraulic Structural clay products Brick and structural clay tile Ceramic wall and floor tile Clay refractories , Structural clay products, nee Pottery and related products Vitreous plumbing fixtures Vitreous china table and kitchenware Semivitreous table and kitchenware Porcelain electrical supplies , Pottery products, nee Concrete, gypsum, and plaster products Concrete block and brick Concrete products, nee Ready-mixed concrete Lime Gypsum products , Cut stone and stone products Cut stone and stone products Miscellaneous nonmetallic mineral products ... Abrasive products , Asbestos products Minerals, ground or treated Mineral wool , Nonclay refractories , Nonmetallic mineral products, nee B 7,778 18,022 5,339 G 3,622 E 6,810 25,638 19,702 19,702 3,469 H F 2,467 G C 120,951 35,511 35,511 789 789 10,126 2,588 7,538 15,317 4,617 10,700 59.208 9,582 3,434 3,238 2,432 1,466 6,382 2,927 1,588 28,159 6,362 G G E E 3,191 H F B B 905 905 C C 105,578 I I 21,522 16,391 5,131 6,953 6,953 10,501 10,501 7,744 4,550 G 1,546 E G C G E 33,113 2,033 10,816 15,646 1,259 3,359 C C 18,413 7,997 C 2,974 3,516 3,404 E ( D ) 2,331,159 2,112,109 600,694 ( D ) 408,164 ( D ) 863,758 4,106,797 3,418,395 3,418,395 413,016 i 275,386 ( D ) 8,757,926 3,237,878 3,237,878 37,710 37,710 450,334 154,716 295,618 970,180 273,121 697,059 4,061,824 885,377 171,737 240,299 199,298 106,544 413,715 233,343 205,501 1,606,010 287,251 98,155 ( D ) 37,599 37,599 8,450,211 ( D ) 1,645,014 1,266,761 378,253 427,734 427,734 1,353,752 1,353,752 415,096 223,697 ( D ) 89,329 o 2,227,089 140,560 626,350 1,049,622 106,599 303,958 1,749,413 922,877 204,578 303,216 274,990 3,836,117 4,794,884 1,352,921 ( D ) 131,774 ( D ) 1,786,912 46,372,551 44,134,647 44,134,647 1,073,158 1,164,746 17,790,551 5,805,548 5,805,548 66,656 66,656 863,230 323,324 539,906 2,148,422 470,427 1,677,995 8,906.695 1,948,224 377,308 448,093 598,688 200,942 1,027,385 720,485 301,540 3,284,030 608,138 ( D ) 207,045 60,148 60,148 16,407,454 2,887,318 2,250,907 636,411 907,180 907,180 2,702,922 2,702,922 717,904 365,407 195,268 H o 4,875,489 285,310 1,162,562 2,467,829 193,846 765,942 3,298,011 1,711,414 467,005 557,928 465,817 ( D ) 7,100 17,700 89,200 21,400 13,800 11,400 1,800 40,900 111,900 71,900 71,900 26,700 14,300 12,400 13,200 11,200 2,000 870,100 67,700 67,700 10,500 10,500 56,300 23,100 33,200 103,000 46,300 56,600 632,600 51,400 26,700 17,600 12,900 28,800 63,700 18,200 9,100 404,200 117,400 12,100 12,100 5,200 5,200 62,000 4,300 28,500 21,800 7,500 2,800 2,800 14,000 14,000 12,800 6,400 6,500 8,600 8,600 509,100 14,600 14,600 72,000 36,600 35,400 53,900 53,900 17,600 17,600 34,000 15,500 9,800 6,500 2,200 37,700 9,300 6,000 1,200 8,900 12,200 194,600 18,300 68,300 91,800 4,700 11,500 13,900 13,900 70,800 24,200 3,100 9,000 19,000 8,400 7,100 552,900 5,142,700 9,530,600 2,333,200 874,400 1,035,700 380,000 4,907,200 27,214,100 22,822,000 22,822,000 2,734,700 1,449,800 1,284,900 1,657,400 1,280,300 377,100 49,889,000 6,488,600 6,488,600 338,700 338,700 3,143,300 1,380,100 1,763,300 5,225,400 2,086,300 3,139,100 34,692,900 4,294,300 1,285,700 1,159,600 807,700 1,626,400 3,788,300 1,297,800 577,200 19,855,800 4,586,600 779.900 779,900 196,400 196,400 2,120,300 160,700 1,058,600 682,700 218,200 59,200 59,200 618,000 618,000 509,600 319,700 189,900 303,200 303,200 34,140,200 1,394,800 1,394,800 5,342,800 2,751,400 2,591,400 3,341,500 3,341,500 2,196,800 2,196,800 1,852,900 753.500 556,600 451,400 91,300 1,838,800 578,000 278,100 34,200 539,400 409,100 11,661,600 1,134,300 3,504,200 5,633,500 422,500 967,000 575,300 575,300 5.935,700 2,130,600 198,700 848,700 1,807,700 573,400 376,600 2,018,800 8,538,900 19,674,000 5,485,100 1,324,600 2,754,400 691,900 9,418,000 172,588,600 159,411,100 159,411,100 7,798,700 4,213,800 3,584,900 5,378,700 4,398,500 980,200 101,398,200 11,860,800 11,860,800 650,000 650,000 5,570,200 2,574,800 2,995,400 10,559,200 3,930,200 6,629,000 72,758,000 9,284,700 2,688,800 2,293,000 2,616,000 3,728,900 8,988,200 3,246,900 965,200 38,946,300 9,887,300 2,410,900 2,410,900 413,300 413,300 4,232,100 276,000 2,148,800 1,393,200 414,100 154,800 154,800 1,169,400 1,169,400 912,200 546,900 365,200 594,700 594,700 63,468,000 2,279,000 2,279,000 8,918.000 4,946.100 3,971,900 6,141,300 6,141,300 4,250,700 4,250,700 3,086,500 1,168,700 845.000 922,900 149,800 2,613,400 825,100 342,000 44,500 810,000 591,700 24,595,000 2,304,000 6,366,500 12,829,600 719,800 2.375,100 988,800 988,800 10,595,300 3,898,400 352,600 1,499,800 3,099,800 1,077,600 667,200 43.9 20.2 24.9 16.7 22.9 27.4 27.4 13.0 ( D ) 18.7 13.9 52.5 52.5 7.5 7.5 18.0 11.2 22.7 14.9 10.0 18.9 9.4 18.6 12.9 18.4 18.9 5.1 10.0 16.1 17.5 7.0 5.4 ( D ) 5.1 ( D ) 7.1 14.1 20.7 29.9 44.8 14.5 12.9 12.9 59.7 59.7 22.8 29.4 23.8 o o 17.0 11.1 15.8 17.0 26.8 29.2 26.0 33.0 ( D ) 33.0 18.5 40.5 See footnotes at end ol table. CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS 175 Table 14.— Employment, Value Added by Manufacture, and Value of Shipments of Foreign-Owned and All U.S. Establishments, by Detailed Industry, 1990— Continued Industry Foreign-owned establishments Number ol employees Thousands of dollars Value added by manufacture Value of shipments All U.S. establishments Number of em- ployees ' Thousands of dollars Value added by manufacture ' Value of shipments 2 Foreign-owned establishments as a percentage of all U.S. establishments Employ- ment Value added by manufac- ture Value of shipments Primary metal Industries Blast furnace and basic steel products Blast furnaces and steel mills Bectrometallurgical products Steel wire and related products Cold finishing of steel shapes Steel pipe and tubes Iron and steel foundries Gray and ductile iron foundries Malleable iron foundries Steel investment foundries Steel foundries, nee Primary nonferrous metals Primary copper Primary aluminum Primary nonferrous metals, nee Secondary nonferrous metals Secondary nonferrous metals Nonferrous rolling and drawing Copper rolling and drawing Aluminum sheet, plate, and foil Aluminum extruded products Aluminum rolling and drawing, nee Nonferrous rolling and drawing, nee Nonferrous wiredrawing and insulating .. Nonferrous foundries (castings) Aluminum die-castings Nonferrous die-casting except aluminum Aluminum foundries Copper foundries Nonferrous foundries, nee Miscellaneous primary metal products Metal heat treating Primary metal products, nee Fabricated metal products Metal cans and shipping containers Metal cans Metal barrels, drums, and pails Cutlery, handtools, and hardware Cutlery Hand and edge tools, nee Saw blades and handsaws Hardware, nee Plumbing and heating, except electric Metal sanitary ware Plumbing fixture fittings and trim Heating equipment, except electric Fabricated structural metal products Fabricated structural metal Metal doors, sash, and trim Fabricated plate work (boiler shops) Sheet metal work Architectural metal work Prefabricated metal buildings Miscellaneous metal work Screw machine products, bolts, etc Screw machine products Bolts, nuts, rivets, and washers Metal forgings and stampings Iron and steel forgings Nonferrous forgings Automotive stampings Crowns and closures Metal stampings, nee Metal services, nee Plating and polishing Metal coating and allied services Ordnance and accessories, nee Small arms ammunition Ammunition, except for small arms, nee Small arms Ordnance and accessories, nee Miscellaneous fabricated metal products ... Industrial valves Fluid power valves and hose fittings Steel springs, except wire Valves and pipe fittings, nee Wire springs Miscellaneous fabricated wire products . Metal foil and leaf Fabricated pipe and fittings Fabricated metal products, nee Industrial machinery and equipment Engines and turbines Turbines and turbine generator sets Internal combustion engines, nee Farm and garden machinery , Farm machinery and equipment , Lawn and garden equipment Construction and related machinery , Construction machinery Mining machinery Oil and gas field machinery Elevators and moving stairways , Conveyors and conveying equipment ..... Hoists, cranes, and monorails 119,087 60.902 45,361 2,502 5,762 3,210 4,067 10,651 3,204 I G 9,006 G H 3,956 1,369 1,369 30,029 2,948 7,405 H B 5,354 10,026 4,125 1,051 1,378 879 440 377 3,005 619 2,386 93,300 I I F 7,490 E G 199 5,804 893 C B 617 29,974 3,542 5,478 9,865 3,743 1,796 4,682 868 H F H 12,364 1,026 F 7,486 F 2,645 2,818 1,766 1,052 8,880 F 3,229 4,152 F 19,488 3,772 2,773 658 1,961 752 1,127 2,971 1,318 4,156 191,440 16,390 G J 12,375 3,120 9,255 27,880 11,704 3,171 3,705 G 5,025 F 10,297,630 5,487,240 4,215,490 225,270 338,443 343,536 364,501 650,840 160,093 1,096,651 n 500,755 127,534 127,534 2,367,427 227,006 609,787 ( D ) 28.8 16.7 5.2 3.6 10.4 3.7 4.9 7.3 8.8 3.0 17.4 65 Q ( n» ( D ) 5.4 ft ( D ) 2.3 7.4 2.1 3.4 7.4 4.3 7.6 13.0 3.8 6.0 20.5 3.8 ( n f ( D ) 5.0 3.6 % % 2.4 2.4 2.4 12.6 ( D ) 11.9 33.2 ( D ) 7.1 8.1 9.0 10.8 7.5 3.7 3.4 28.0 6.0 5.2 10.2 19.7 ( D ) ( D ) 5.7 3.7 ( D ) 7.9 % 2.6 2.7 2.4 13.2 ( D ) 11.8 362 ( D ) 8.9 9.1 8.6 14.3 9.0 4.9 4.9 24.9 8.1 7.3 10.3 15.5 ( n» ( D ) 10.5 3.4 31.5 11.5 10.8 21.1 99 ( D ) 13.4 ( D ) 21.8 24.1 24.1 45.8 19.9 23.7 22.7 9.7 4.7 33.0 ( D ) 612 9.5 9.5 22.8 14.3 33.9 ( D ) ( D ) 32.8 19.6 5.8 3.9 10.5 4.4 6.5 7.9 18 3.8 32.3 8.6 ( D ) ( n' (J 6.0 ( D ) ft 2.1 7.6 1.6 ft ( D ) 3.3 8.8 4.7 9.3 13.2 7.0 5.7 22.9 4.4 ( D ) 5.6 3.7 < D J 8.9 ( D ) 3.7 32 3.3 3.0 13.0 ( D ) 10.6 340 ( D ) 9.9 9.0 8.8 17.5 7.5 5.1 5.9 272 7.5 82 12.1 18.8 ft l D ) 12.8 3.5 348 13.1 11.9 24.7 12.9 ( D ) 14.8 See footnotes at end of table. U6 BEA STUDIES OF DIRECT INVESTMENT Table 14.— Employment, Value Added by Manufacture, and Value of Shipments of Foreign-Owned and All U.S. Establishments, by Detailed Industry, 1990— Continued sic code Industry Foreign-owned establishments Number ol employees Thousands of dollars Value added by manufacture Value of shipments All U.S. establishments Number of em- ployees ' Thousands of dollars Value added by manufacture ' Value of shipments 2 Foreign-owned establishments as a percentage of all U.S. establishments Employ- ment Value added by manufac- ture 3537 354 3541 3542 3543 3544 3545 3546 3547 3548 3549 355 3552 3553 3554 3555 3556 3559 356 3561 3562 3563 3564 3565 3566 3567 3568 3569 357 3571 3572 3575 3577 3578 3579 358 3581 3582 3585 3586 3589 359 3592 3593 3594 3596 3599 36 361 3612 3613 362 3621 3624 3625 3629 363 3631 3632 3633 3634 3635 3639 364 3641 3643 3644 3645 3646 3647 3648 365 3651 3652 366 3661 3663 3669 367 3671 3672 3674 3675 3676 3677 3678 3679 369 3691 3692 3694 3695 3699 37 371 3711 Industrial trucks and tractors Metalworking machinery Machine tools, metal cutting types Machine tools, metal forming types Industrial patterns Special dies, tools, jigs and fixtures Machine tool accessories Power-driven handtools Rolling mill machinery Welding apparatus Metalworking machinery, nee Special industry machinery Textile machinery Woodworking machinery Paper industries machinery Printing trades machinery Food products machinery Special industry machinery, nee General industrial machinery Pumps and pumping equipment Ball and roller bearings Air and gas compressors Blowers and fans Packaging machinery Speed changers, drives, and gears Industrial furnaces and ovens Power transmission equipment, nee General industrial machinery, nee Computer and office equipment Electronic computers Computer storage devices Computer terminals Computer peripheral equipment, nee Calculating and accounting equipment Office machines, nee Refrigeration and service machinery Automatic vending machines Commercial laundry equipment Refrigeration and heating equipment Measuring and dispensing pumps Service industry machinery, nee Industrial machinery, nee Carburetors, pistons, rings, valves Fluid power cylinders and actuators Fluid power pumps and motors Scales and balances, except laboratory Industrial machinery, nee Electronic and other electric equipment Electric distribution equipment Transformers, except electronic Switchgear and switchboard apparatus Electrical industrial apparatus Motors and generators Carbon and graphite products Relays and industrial controls Electrical industrial apparatus, nee Household appliances Household cooking equipment Household refrigerators and freezers Household laundry equipment Electric housewares and lans Household vacuum cleaners Household appliances, nee Electric lighting and wiring equipment Electric lamps Current-carrying wiring devices Noncurrent-carrying wiring devices Residential lighting fixtures Commercial lighting fixtures Vehicular lighting equipment Lighting equipment, nee Household audio and video equipment Household audio and video equipment Prerecorded records and tapes Communications equipment Telephone and telegraph apparatus Radio and television communications equipment Communications equipment, nee Electronic components and accessories Electron tubes Printed circuit boards Semiconductors and related devices Electronic capacitors Electronic resistors Electronic coils and transformers Electronic connectors Electronic components, nee Miscellaneous electrical equipment and supplies .... Storage batteries Primary batteries, dry and wet Engine electrical equipment Magnetic and optical recording media Electrical equipment and supplies, nee Transportation equipment Motor vehicles and equipment Motor vehicles and car bodies 2,383 19,092 2,062 1,883 F 2,608 4,849 3,110 A 2,678 F 24,212 G B 7,475 4,104 4,258 6,885 31,198 4,196 10,717 1,174 3,980 2,931 1,165 905 1,225 4,905 30,831 16,459 2,357 G 5,873 F 4,507 18,237 F E 12,482 G 2,542 11,225 3,372 1,344 2,171 1,782 2,556 228,237 15.390 I I 22,343 11,175 2,338 6,485 2,345 19,287 H H G H 4,270 H 15,332 H 2,898 793 1,939 G 1,611 1,697 19,299 13,038 6,261 36,028 17,726 13,338 4,964 74,588 7,508 3,325 34,660 6,098 4,549 550 3,736 14,162 25,970 3,671 1.690 1,606 7,779 11,224 104,147 73,413 32,296 115,580 1,394,423 171,141 96,304 ( D ) 184,990 344,150 230,447 ( D ) 267,392 ( D ) 1,734,560 434,247 452,470 297,397 454,441 2,208,830 206,436 719,562 119,325 257,166 231,718 84,437 66,086 103,237 420,863 2,913,058 1,834,287 203,435 ( D ) 416,633 ( D ) 323,078 1,042,239 643,108 ( D ) 208,850 722,025 142,034 90,006 196,397 136,089 157,499 16,703,246 1.075,338 Q < D ) 1,426,822 592,403 133,675 500,490 200,254 1,131,593 ( D ) ( D ) 34.4 ( D ) 9.8 ( D ) 6.6 3.5 10.9 ( D ) 10.8 11.7 43.2 42.3 45.0 14.4 19.1 9.9 22.2 13.9 32.1 4.3 19.1 31.3 31.6 2.4 10.0 8.9 16.0 15.9 15.9 3.5 32.4 19.2 5.9 10.4 13.5 11.1 8.4 9.1 11.3 11.2 15.7 n 18.4 ( D ) 15.8 38.8 25.0 23.5 8.2 13.1 8.1 29.0 6.7 16.9 13.4 6.2 7.3 6.9 14.1 9.3 9.3 4.7 ( D ) 10.6 ( D ) 16.3 8.6 7.7 ( D ) 7.7 4.7 13.6 7.5 19.6 40.5 1.3 15.6 20.7 ( D ) ( D ) 14.1 14.8 22.8 10.7 23.7 14.4 ( D ) 27.3 ( D ) 9.1 n 4.9 3.8 11.5 ( D ) 10.4 10.1 52.8 48.8 58.9 14.7 20.7 8.5 23.0 14.7 38.0 3.5 18.7 34.6 32.3 4.9 13.0 7.6 16.1 15.6 8.5 3.0 31.9 21.5 4.9 7.8 8.1 See footnotes at end of table. CHARACTERISTICS OF FOREIGN-OWNED ESTABLISHMENTS U7 Table 14.— Employment, Value Added by Manufacture, and Value of Shipments of Foreign-Owned and All U.S. Establishments, by Detailed Industry, 1990— Continued sic code Industry Foreign-owned establishments Number of employees Thousands of dollars Value added by manufacture Value of shipments I U.S. establishments Number of em- ployees ' Thousands of dollars Value added by manufacture ' Value of shipments 2 Foreign-owned establishments as a percentage of all U.S. establishments Employ- ment Value added by manufac- ture Value of shipments 3713 3714 3715 3716 372 3721 3724 3728 373 3731 3732 374 3743 375 3751 376 3761 3764 3769 379 3792 3795 3799 38 381 3812 382 3821 3822 3823 3824 3825 3826 3827 3829 384 3841 3842 3843 3844 3845 385 3851 386 3861 387 3873 39 391 3911 3914 3915 393 3931 394 3942 3944 3949 395 3951 3952 3953 3955 396 3961 3965 399 3991 3993 3995 3996 3999 Truck and bus bodies Motor vehicle parts and accessories Truck trailers Motor homes Aircraft and parts Aircraft Aircraft engines and engine parts Aircraft parts and equipment, nee Ship and boat building and repairing Ship building and repairing Boat building and repairing Railroad equipment Railroad equipment Motorcycles, bicycles, and parts Motorcycles, bicycles, and parts Guided missiles, space vehicles, parts Guided missiles and space vehicles Space propulsion units and parts Space vehicle equipment, nee Miscellaneous transportation equipment .... Travel trailers and campers Tanks and tank components Transportation equipment, nee Instruments and related products Search and navigation equipment Search and navigation equipment Measuring and controlling devices Laboratory apparatus and furniture Environmental controls Process control instruments Fluid meters and counting devices Instruments to measure electricity Analytical instruments Optical instruments and lenses Measuring and controlling devices, nee Medical instruments and supplies Surgical and medical instruments Surgical appliances and supplies Dental equipment and supplies X-ray apparatus and tubes Electromedical equipment Ophthalmic goods Ophthalmic goods Photographic equipment and supplies Photographic equipment and supplies ... Watches, clocks, watchcases, and parts ... Watches, clocks, watchcases, and parts Miscellaneous manufacturing Industries ... Jewelry, silverware, and plated ware Jewelry, precious metal Silverware and plated ware Jewelers' materials and lapidary work ... Musical instruments Musical instruments Toys and sporting goods Dolls and stuffed toys Games, toys, and children's vehicles .... Sporting and athletic goods, nee Pens, pencils, office, and art supplies Pens and mechanical pencils Lead pencils and art goods Marking devices Carbon paper and inked ribbons Costume jewelry and notions Costume jewelry Fasteners, buttons, needles, and pins ... Miscellaneous manufactures Brooms and brushes Signs and advertising specialties Burial caskets Hard surface floor coverings, nee Manufacturing industries, nee Administrative and auxiliary G 39,230 C 18,928 4,945 3,013 10,970 5,993 G H 2,312 2,312 F F G G G G 121,520 19,160 19,160 53,500 3,290 7,702 13,410 3,130 10,806 5,648 3,027 6,487 29,530 11,597 7,931 1,078 2,895 6,029 7,861 7,861 9,455 9,455 2,014 2,014 26,087 1,138 E B F 1,545 1,545 10,644 E H 5,842 3,397 1,584 G E 2,636 2,636 6,727 E G F 4,248 200,064 2,123,952 ( D ) 985,449 243,878 186,076 555,495 292,752 225,809 225,809 9,722,110 1,433,915 1,433,915 3,679,493 333,003 404,098 791,866 260,544 744,956 491,886 160,220 492,920 2,573,803 1,027,510 697,442 77,419 202,729 568,703 480,831 480,831 1,360,864 1,360,864 193,204 193,204 1,929,276 54,025 79,949 79,949 899,270 465,662 219,327 98,523 144,693 144,693 532,012 360,031 ( D ) 6,563,321 ( D ) 2,223,467 746,741 397,010 1,079,716 590,271 339,421 339,421 15,840,686 2,094,047 2,094,047 6,037,558 506,393 669,225 1,379,551 440,090 1,125,640 822,932 299,938 793,789 4,262.668 1,554,613 1,174,739 135,006 495.358 902,952 633,762 633,762 2,400,481 2,400,481 412,170 412,170 3,553,235 109,874 130,485 130,485 1,659,072 ( D ) ( D ) 883,445 484,349 239,000 251,301 251,301 918,154 ( D ) 560,730 37,200 388,700 24,800 14,100 615,700 289,300 129,000 197,500 175,200 121,200 54,100 29,500 29,500 9,400 9,400 200,300 156,200 29,700 14,400 39,100 13,800 9,300 16,000 948,600 313,600 313,600 283,600 17,800 26,100 54,700 10,400 78,400 37,800 22,000 36,300 234,700 88,900 86,600 12,900 12,600 33,600 28,000 28,000 79,300 79,300 9,400 9,400 386,300 49,100 35,600 7,300 6,200 11,700 11,700 98,600 4,900 27,900 65,800 29,900 9,600 5,300 7,700 7,300 28,200 19,200 9,000 168,800 14,000 69,500 10,200 7,100 68,000 1,260,900 1,809,300 26.871,400 869,000 594,500 44,903.200 20,235,400 12,059,100 12,608,700 8.554,700 6,362,800 2,191.800 1,839,200 1,839,200 570.800 570.800 19,284,300 15,782,500 2,412,000 1,089,700 2,115,600 622,800 694,500 798,300 81,665,600 24,931,900 24,931,900 19,629,200 1,209.700 1,461,600 3,764,700 976,700 5,352,400 3.018,700 1,326,700 2,518,700 20,286,300 7,077,500 7,163.100 890,100 1,495,800 3,659,800 1,625.600 1,625,600 14.527,200 14,527,200 665,400 665,400 20,095,600 2,590,700 1,869,400 462,300 259,000 547,700 547,700 5,919,600 244,100 1,911,800 3,763,600 1,780,000 682,400 407,200 295,200 395.200 1,363,500 892,400 471,100 7,894,100 731.000 2,613,800 579,800 793,200 3,176,200 n.a. 4.382,200 64,875,400 3,122,000 2,167,200 94,640,200 51,369,600 22,812,800 20,457,900 15,853,700 10,855,700 4,998,000 4,693,600 4,693,600 1,475,800 1,475.800 30,554,100 25,082,600 3,755,800 1,715,600 5,745,500 1,657,500 1,846,500 2,241,500 123,776,700 36,733,500 36,733,500 31.455,800 1,916.700 2,396,000 5,924,000 1,665,900 8,389,700 4,906,100 2,217,700 4,039,700 30,934,200 10,261.600 11,127,600 1,364.700 2,576,500 5,603,800 2,274,700 2,274,700 21,018.200 21.018.200 1,360,200 1,360,200 37,205,200 5,754,200 4,180,100 751,900 822,200 872,900 872,900 11.043,600 380,400 3,622,900 7.040,200 3,310,100 1,205,800 745,900 485.600 872.700 2,222.900 1,415.700 807.200 14,001,600 1,221.800 4,826,500 1,093,500 1,377,300 5,482,400 n.a. ( D ) 10.1 3.1 1.7 2.3 5.6 3.4 ( D ) ( D ) 7.8 7.8 ( D ) (°) < D i ( D ) < D i ( D ) 12.8 6.1 6.1 18.9 18.5 295 24.5 30.1 13.8 14.9 13.8 17.9 12.6 13.0 9.2 8.4 230 17.9 28.1 28.1 11.9 11.9 21.4 21.4 6.8 2.3 ( D ) ( n' ( D ) 13.2 13.2 10.8 ( D ) ( D ) 8.9 11.4 16.5 ( D ) ( D ) 9.3 29.3 4.0 < D ) ( D ) ( D ) 6.2 15.9 ( D ) 7.9 ( D ) 22 1.2 1.5 4.4 3.4 ( D ) ( D ) 12 3 12.3 ( D ) ( D ) ( D ) ( D ) ( D ) 11.9 5.8 5.8 18.7 27.5 27.6 21.0 26.7 13.9 16.3 12.1 19.6 12.7 14.5 9.7 8.7 13.6 15.5 29.6 29.6 9.4 9.4 29.0 29.0 9.6 2.1 ( D ) © ( D ) 14.6 14.6 15.2 ( D ) 12.4 12.3 14.4 ( D ) ( D ) 10.6 30.7 6.7 ( D ) ( D ) ( D ) 11.3 n.a. ( D ) 10.1 ( D ) 2.3 1.5 1.7 5.3 3.7 ( D ) ( D ) 7.2 12 ( n' (°) n ( D i ( D ) 12.8 5.7 5.7 19.2 26.4 27.9 23.3 26.4 13.4 16.8 13.5 19.7 13.8 15.2 10.6 9.9 19.2 16.1 27.9 27.9 11.4 11.4 30.3 30.3 9.6 1.9 ( D ) 14.9 14.9 15.0 ( n' ( D ) 12.5 14.6 19.8 ( D ) ( D ) 11.3 31.1 6.6 O ( D ) ( D ) 105 n.a. D Suppressed to avoid disclosure of data of individual companies, n.a. Not available. 1. The data shown in this column are rounded to the nearest 100 employees because they are rounded in this manner in the Census Bureau's 1990 Annual Survey of Manufactures: Statistics lor Industry Groups and industries, from which they were taken. 2. The data shown in this column are rounded to the nearest $100,000 because they are rounded in this manner in the Census Bureau's 1990 Annual Survey of Manufactures: Statistics lor Industry Groups and Industries, from which they were taken. 3. On this line, the columns for number of employees cover both operating establishments and administrative and auxiliary establishments; the other columns cover operating establishments only. Note.— Size ranges are given in employment cells that are suppressed. The size ranges are: A— to 19; B — 20 to 99; C— 100 to 249; E— 250 to 499; F— 500 to 999; G— 1 .000 to 2,499; H-2,500 to 4.999: 1-5.000 to 9.999; J— 10.000 to 24,999; K— 25,000 to 49.999; L— 50.000 to 99.999; M— 100,000 or more. SIC Standard Industnal Classification DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY U9 Differences in Foreign- Owned U.S. Manufacturing Establishments by Country of Owner By Ned G. Howenstine and Dale P. Shannon This article was first published in the March 1996 Survey of Current Business. This article is the second in a series of articles that examine the characteristics of foreign-owned U.S. manufacturing establish- ments. In a January 1994 article, a profile of foreign- owned U.S. manufacturing establish- ments, or plants, showed that these establish- ments pay higher wages and are more produc- tive than U.S. -owned establishments. However, the differences were found to be largely at- tributable to differences in industry mix, plant scale, and occupational mix, rather than to foreign ownership per se. 1 This article extends the earlier analysis by ex- amining whether the industry mix and operating characteristics of foreign-owned U.S. manufac- turing establishments vary by country of owner and by examining the reasons for these varia- tions. 2 The analysis covers establishments owned by investors from six major investing countries — Canada, France, Germany, Japan, the Nether- lands, and the United Kingdom — and is based on data for 1991, the most recent data available. The following are the key findings of the analysis: The U.S. manufacturing establishments of each of the major investing countries tend to be much larger, pay higher wages, and be more productive than the U.S. -owned establishments. However, these tendencies vary by country of owner, particularly in the cases of plant scale and productivity. Some of these variations are due to differences in industry mix — that is, to 1. See "Characteristics of Foreign-Owned U.S. Manufacturing Establish- ments," Survey of Current Business 74 (January 1994): 34-59. 2. For convenience, the establishments of U.S. affiliates of foreign com- panies are referred to in this article as "foreign-owned establishments," even though the percentage of foreign ownership in a U.S. affiliate may be as low as 10 percent. (A U.S. affiliate is a U.S. business enterprise that is owned 10 percent or more, directly or indirectly, by a foreign person.) The data analyzed here are not adjusted for percentage of foreign ownership. Thus, for example, the employment data include all employees of a given estab- lishment, even though the foreign investor may own less than 100 percent of the affiliate to which the establishment belongs. However, most affili- ates are majority owned (that is, they are owned more than 50 percent by direct investors); majority-owned affiliates accounted for 86 percent of the manufacturing employment of all U.S. affiliates in 1991. differences among countries in the industry dis- tribution of their U.S. establishments — and some are due to differences within the same industries. With respect to differences in industry mix: • The establishments of all six countries tend to be concentrated in industries with large es- tablishments. This tendency is strongest for Netherlands-, Japanese-, and German-owned establishments. When the effects of differ- ences in industry mix are isolated from those of within-industry differences, these three countries' establishments were found to be over twice as large, on average, as U.S. -owned establishments. • The establishments of all six countries tend to be concentrated in high-wage in- dustries. This tendency is strongest for Japanese-owned establishments and weakest for British-owned establishments. When the effects of differences in industry mix are isolated from those of within-industry dif- ferences, the compensation per employee of Japanese-owned establishments is found to be 23 percent higher, on average, than that of U.S. -owned establishments. In contrast, the compensation per employee of British- owned establishments is only 3 percent higher. • The establishments of all six countries show a strong tendency to be concentrated in high- labor-productivity industries. This tendency is strongest for Netherlands-owned establish- ments and weakest for French- and British- owned establishments. When the effects of differences in industry mix are isolated from those of within-industry differences, the value added per production-worker hour of Netherlands-owned establishments is found to be 60 percent higher than that of U.S.- owned establishments, and that of French- and British-owned establishments is about 20 percent higher. i8o BEA STUDIES OF DIRECT INVESTMENT With respect to differences within industries: • The establishments of all six countries tend to be significantly larger than U.S. -owned es- tablishments in the same industries. The differences range from 4.5 times larger for German- owned establishments to 3.5 times larger for British- and Netherlands-owned establishments. • The establishments of five of the six countries differ little from U.S. -owned establishments in the degree to which their output re- sults from their own production or from production originating elsewhere. However, Japanese-owned establishments rely more heavily on production originating elsewhere than the establishments of the other coun- tries; that is, a relatively large share of the output of Japanese-owned establishments re- flects materials purchased from others. The ratio of purchased materials to output for Japanese- owned establishments is 10 percent higher than that for U.S. -owned establish- ments in the same industries; the ratios for the establishments of each of the other five countries are all within 3 percent of the ratio for U.S. -owned establishments. • The establishments of the six countries main- tain larger materials inventories relative to value added than do U.S.-owned establish- ments in the same industries. For Japanese- owned establishments, the ratio of materials inventory to value added is 62 percent higher than that of U.S.-owned establishments. The ratios of the other foreign-owned establish- ments ranged from 35 percent higher for German- owned establishments to 14 percent higher for Canadian-owned establishments. • Compensation rates within given industries vary among the establishments of the six investing countries largely because of differ- ences in plant scale, capital intensity, and lo- cation. However, even after these factors are accounted for, wage rates of French- owned establishments are about 6 percent higher, and wage rates of British- owned establish- ments are about 4 percent lower, than those of the other foreign-owned establishments. • Labor productivity varies significantly among the establishments of the six countries. Most of this variation appears to be attributable to differences in plant scale, capital intensity, employee skills, and location. Neverthe- less, even after these factors are accounted for, value added per production- worker hour of British-owned establishments is about 5 percent higher, and that of Japanese- owned establishments is about 12 percent lower, than that of the other foreign- owned establishments. These findings are based on 1991 data for a sample of the U.S. manufacturing establishments of the six major investing countries that was ex- tracted from the Census Bureaus Annual Survey of Manufactures (asm) through a joint project of the Bureau of Economic Analysis (bea) and the Census Bureau. 3 The establishments in the sample accounted for over three-quarters of the manufacturing employment of all foreign-owned U.S. manufacturing establishments in 1991. The remainder of this article consists of three sections and an appendix. The first section out- lines the economic rationale for the variations in the characteristics of foreign- owned opera- tions by country of owner. The second examines whether the variation in the concentration oi foreign-owned establishments in industries with particular attributes depends on the country oi the establishments' owners. The third investi- gates within-industry differences in the operating characteristics of foreign- owned establishments that have different countries of ownership. The appendix describes the data on foreign- owned establishments and presents the regression equa- tions used in analyzing the variation in wage rates and labor productivity across countries. Economic Rationale for Country-of-Ownership Differences The questions of why foreign direct investment occurs and of why the characteristics of foreign- owned operations may vary by country of owner have been studied extensively. According to one widely accepted explanation of direct investment, foreign investors are more likely to be active in in- dustries with particular attributes, and in a given host country, the characteristics of the plants owned by investors from one foreign country tend to differ from those owned by investors from other foreign countries. This explanation fol- lows from the premise that foreign investors face inherent disadvantages when investing abroad: They are less familiar with the general business 3. For data covering the universe of foreign-owned U.S. manufacturing establishments, see Foreign Direct Investment in the United States: Estab- lishment Data for Manufacturing, 1991 (Washington, dc: U.S. Government Printing Office, September, 1994). The data are classified by country of ultimate beneficial owner (ubo). 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. DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY l8l environment and frequently with the language in the host country than local entrepreneurs, and they must manage their foreign investments from a distance. To offset or overcome these dis- advantages and to compete successfully abroad, the foreign firm making the investment must possess specific advantages — such as specialized knowledge, goodwill, advanced technology, mar- keting skills, or production-management or other organizational capabilities. 4 Typically, these firm-specific advantages are not distributed evenly across industries and coun- tries. As a result, the industries in which the investments are made are likely to depend on the country of the investor. In addition, because the investor must structure its foreign businesses in a way that will exploit these advantages, the char- acteristics of a business owned by a particular foreign country are likely to differ from those of businesses that are domestically owned or that are owned by other foreign countries. 5 For example, if a foreign-owned U.S. plant utilizes a technol- ogy developed by its foreign parent, that plant may require more capital or a different mix of 4. This theory was first developed by Stephen H. Hymer. See Stephen H. Hymer, The International Operations of National Firms (Cambridge, ma: mix Press, 1976). 5. For a discussion of both the theoretical and empirical literature on how the variations in the characteristics of foreign-owned businesses depend on the country of the foreign owner, see John H. Dunning, Multinational Enterprises and the Global Economy (Wokingham, England: Addison-Wesley, 1993)- employee skills than a U.S.-owned plant or a U.S. plant owned by a foreign investor from another country. Although firm-specific advantages may lead to differences in operating characteristics, economic theory suggests that under competitive market conditions, payments for factors of production should be the same in foreign — and domesti- cally owned businesses. For example, the wages paid to workers of the same skill level should be the same. However, in the United States, wage rates differ substantially across industries for the same occupations, and some analysts have sug- gested that these differences may be the result of less than perfectly competitive labor markets. 6 If labor markets are not fully competitive — for ex- ample, due to differences in unionization or to regionally segmented labor markets — businesses owned by investors from one foreign country may be able to pay different wages to workers of the same skill level than those paid by domesti- cally owned businesses or businesses owned by investors from other foreign countries. 6. For this interpretation of wage-rate differentials, see Edward M. Gra- ham and Paul R. Krugman, Foreign Direct Investment in the United States (Washington, dc: Institute for International Economics, 1995). According to other analysts, the difficulty of measuring some economic factors makes it appear as if unexplained wage differentials exist; see Lawrence F. Katz and Lawrence H. Summers, "Industry Rents: Evidence and Implications," Brookings Papers on Economic Activity, Microeconomics 1989 (Washington, dc: Brookings Institution, 1989) and the comments by the discussants. Table 1.— Selected Data for Foreign-Owned and All U.S. Establishments in Manufacturing, 1988-91 Foreign-owned establishments All U.S. establishments Foreign-owned establishments as a percentage of all U.S. establishments 1988 1989 1990 1991 1988 1989 1990 1991 1988 1989 1990 1991 Number of establishments ' 9,105 131,778 303,362 1,543.4 10,458 161,929 371,912 1,815.3 11,934 177,361 417,539 2,004.2 12,741 183,579 423,136 2,004.6 362,906 1,262,412 2,682,606 19,148.3 363,166 1,308,103 2,793,015 19,040.8 378,087 1,326,362 2,873,502 18,840.3 373,999 1,313,829 2,826,207 18,061.9 2.5 10.4 11.3 8.1 2.9 12.4 13.3 9.5 3.2 13.4 14.5 10.6 3.4 Value added (millions of dollars) 14.0 Value of shipments (millions of dollars) 15.0 Total employment (thousands) 11.1 1. Consists of operating establishments and administrative and auxiliary establishments. Be- publications, data on the number of U.S. manufacturing establishments are from the Census Bu- cause the number of manufacturing establishments is not shown in the Census Bureau's ASM reau's annual County Business Patterns. Table 2.— Plant Scale, Wage Rates, and Labor Productivity of Foreign- and U.S.-Owned Establishments in Manufacturing, 1988-91 Foreign-owned establishments U.S.-owned establishments Ratio of foreign-owned establishments to U.S.-owned establishments (percent) 1988 1989 1990 1991 1988 1989 1990 1991 1988 1989 1990 1991 Plant scale: Value added per establishment (thousands of dollars) ' Wage rates: Production wages per hour (dollars) 16,664 11.84 70 161 18,050 12.08 73 169 17,334 12.57 74 173 17,131 12.88 77 177 3,270 10.57 49 104 3,328 10.81 51 108 3,214 11.04 52 112 3,212 11.33 54 116 510 112 142 155 542 112 144 157 539 114 140 154 533 114 Labor productivity: Value added per production-worker hour (dollars) 141 Output per production-worker hour (dollars) 2 153 1. Plant scale is computed by dividing value added by the number of operating establishments. 2. Output is measured as shipments plus the change in finished goods and work-in-process inventories. 182 BEA STUDIES OF DIRECT INVESTMENT Industry-Mix Differences Overall, foreign-owned manufacturing establish- ments tend to have larger plants, pay higher wages, and be more productive than U.S.- owned establishments. These differences per- sisted throughout the rapid expansion in foreign direct investment in U.S. manufacturing over the 1988-91 period for which data on foreign-owned manufacturing establishments are now available (tables 1 and 2). Some of these differences vary substantially by country of investor, and the variations reflect both industry-mix and within- industry differences. In this section, the industry mix of the establishments of each of the six ma- jor investing countries is compared with that of U.S. -owned establishments. 7 Plant scale As can be seen in table 3, the tendency to be con- centrated in industries with larger-than-average plant scale (value added per establishment) varies considerably by country of owner. 8 The ta- ble shows, for each country, both an overall measure of the plant scale of foreign-owned es- tablishments in relation to that of U.S. -owned establishments (first column) and a measure of 7. The discussion in the remainder of the article is based on an analysis of data for 1991, but data for 1988-90 were also examined. The results for these years were consistent with those for 1991. 8. Table 3 covers 457 of the 459 four-digit Standard Industrial Classifica- tion (sic) industries for which data on all U.S. manufacturing establishments are available from the asm; data for 2 industries are suppressed in order to avoid the disclosure of data for individual establishments. Value added, as measured by the Census Bureau's asm, is the numerator for plant scale. It differs from bea's national income and product accounts measure of gross product: Value added includes purchased services but ex- cludes indirect taxes, and it reflects inventory change valued at book value rather than at replacement cost. In the asm, value added is calculated as the value of shipments plus the net change in finished goods and work-in-process inventories less the cost of materials consumed. Because the number of manufacturing establishments is not shown in the Census Bureau's asm publications, average plant scale for U.S.-owned establishments was computed using the total value added from the asm and the number of U.S. manufacturing establishments shown in the Census Bu- reau's County Business Patterns, 1991: United States (Washington dc: U.S. Government Printing Office, 1993). Table 3.— Plant Scale of Foreign-Owned Establishments Relative to That of U.S.-Owned Establishments, 1991 the relative plant scale of foreign-owned es- tablishments that isolates industry- mix effects (second column). 9 Specifically, the second col- umn shows how the plant scale of foreign-owned establishments would compare with that of U.S.- owned establishments if in each industry, plant scale were the same for the two groups of es- tablishments and if the only difference were in the distribution of establishments by industry. 10 Differences across countries in this measure in- dicate the extent to which country of ownership influences the concentration of foreign-owned establishments in industries with large plant scale. As the second column indicates, Netherlands-, Japanese-, and German- owned establishments tend to be more concentrated in industries with large plant scale than the establishments of the other countries. 11 The concentration of British- owned establishments is the weakest, but it is still significant compared with that of U.S.-owned establishments. 12 Wage rates The concentration of foreign-owned U.S. es- tablishments in industries with above- average compensation per employee tends to vary among the six countries, but the variation is not as large as that in plant scale. Japanese- owned establishments show the strongest tendency to operate in high-wage industries; when the ef- fects of differences in industry mix are isolated from those of within- industry differences, com- pensation per employee of Japanese-owned estab- lishments is found to be 23 percent higher than 9. In the measures on the "all countries" line in the table, the plant scale of all foreign-owned establishments is compared with that of U.S.-owned establishments. These "all-countries" measures are provided for reference but are not discussed in the text. 10. The values in the second column can be expressed algebraically as P + £iPi(S?-Sj) * 100 Note.— This table was constructed using data lor 457 four-digit SIC industries, including those that do, and do not, have foreign-owned establishments. where P is average plant scale for all industries, pj is plant scale for industry i, and Si is the share of the ith industry in the total number of establishments for all industries. Variables with the superscript & denote data for foreign- owned establishments. 11. Several of the industries with relatively large plants that have significant numbers of Netherlands-, Japanese-, and German-owned establishments are in chemicals manufacturing. For example, all three countries have numerous establishments in various industries in the industrial inorganic and organic chemicals groups (sic 281 and 286) and in pharmaceutical preparations (sic 2834)- 12. A comparison of the values in the second column with those in the first column indicates that the overall measure of relative plant scale is both significantly larger for each country and more variable across countries than the measure that isolates industry-mix effects. The overall measure tends to be larger and more variable because it reflects not only the differences in industry mix, but also the differences within industries; see the section "Within-Industry Differences." DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY 183 that of U.S.-owned establishments (second col- umn of table 4). German- owned establishments are also heavily concentrated in high-wage in- dustries. British-owned establishments have the weakest concentration in high-wage industries. 13 Japanese- and German- owned establishments may be relatively heavily concentrated in indus- tries that have high compensation per employee because these industries typically have an em- ployee mix weighted toward skilled occupations. Japanese- and German-parent companies that invest abroad often have firm-specific advan- tages that are technology related — advantages that usually occur in industries employing rela- tively large numbers of skilled, and thus highly paid, workers. Labor productivity The concentration of foreign-owned establish- ments in industries with high labor productivity tends to vary significantly by country. Two measures of labor productivity — value added per production-worker hour and output per production-worker hour — show similar results (columns 2 and 4 of table 5). 14 According to both measures, the tendency to be concentrated in 13. Among the high-wage industries in which the employment of Japanese- owned establishments are concentrated are blast furnaces and steel mills (sic 3312), tires and inner tubes (sic 3011), semiconductor and related devices (sic 3674), motor vehicles and car bodies (sic 3711), and household audio and video equipment (sic 3651). Among the high-wage industries in which the employment of German-owned establishments are concentrated are a number in chemicals manufacturing, including pharmaceutical prepa- rations (sic 2834), noncellulosic organic fibers (sic 2824), industrial organic chemicals, nee (sic 2869), cyclic crudes and intermediates (sic 2865), and plastic materials and resins (sic 2821). 14. Output is measured as shipments plus the change in finished goods and work-in-process inventories. Productivity is measured using both output and value added because the two measures provide different advantages. For example, output, unlike value added, reflects the contribution of intermediate inputs to production; however, value added avoids the double counting that can occur in the output measure when one establishment provides materials used by other establishments in the same industry. For a discussion of the advantages and disadvantages of the two alternative measures of productiv- ity, see William Gullickson, "Measurement of Productivity Growth in U.S. Manufacturing," Monthly Labor Review 118 (July 1995): 13-28. Both value added per production-worker hour and output per production-worker hour measure productivity relative to a single input — Table 4.— Compensation per Employee of Foreign-Owned Establishments Relative to That of U.S.-Owned Establish- ments, 1991 Percent Country of owner Overall difference Industry-mix differences All countries 116 118 119 122 115 108 121 110 Canada Germany Netherlands United Kingdom 109 111 116 109 103 Japan 123 high-labor-productivity industries is strongest for Netherlands-owned establishments and weakest for French- and British-owned establishments. 15 Within-Industry Differences This section examines the tendency of the foreign-owned establishments of the individual countries to have different characteristics within industries. In addition to differences in plant scale, wage rates, and labor productivity, this sec- tion also examines differences within industries in the degree to which the output of the establish- ments results from their own production or from production originating elsewhere and differences in the size of their materials inventories relative to their production. As before, each country's manufacturing establishments are compared with U.S.-owned manufacturing establishments. Plant scale In the same industries, the establishments of all six countries tend to have significantly larger plants than U.S-owned establishments, and the within- industry differences vary by country (col- umn 7 of table 6). For a given country, the within- industry difference is measured as the dif- ference in plant scale that would have resulted if the industry distribution of the country's estab- lishments were the same as that of U.S.-owned establishments and if the only difference between the two groups of establishments were in the labor. However, the variation in each measure may reflect differences in the use of other inputs, such as capital and intermediate inputs. 15. Netherlands-owned establishments are concentrated in a number of high- labor- productivity industries within chemicals manufacturing and in petroleum refining. The high labor productivity in these industries partly reflects their capital-intensive production processes. Table 5.— Labor Productivity of Foreign-Owned Establish- ments Relative to That of U.S.-Owned Establishments, 1991 Country of owner All countries Canada France Germany Netherlands United Kingdom Japan Percent Value added per hour Overall difference (D 142 162 134 155 179 153 106 Industry- mix differences (2) 126 127 116 134 160 124 125 Output per hour Overall difference (3) 153 158 138 144 226 144 150 Industry- mix differences (4) 133 140 120 129 203 121 129 Note.— This table was constructed using data for 457 four-digit SIC industries, including those that do, and do not, have foreign-owned establishments. Note. — This table was constructed using data for 457 four-digit SIC industries, including those that do, and do not, have foreign-owned establishments. 184 BEA STUDIES OF DIRECT INVESTMENT plant scale in each industry. 16 These differences range from 4.5 times larger than U.S. -owned plants for German-owned establishments to 3.5 times larger for British- and Netherlands- owned establishments. The plants of the other three countries are roughly 4 times as large as those of U.S. -owned establishments. As discussed in the January 1994 Survey ar- ticle, large plants may be sought out by foreign investors because the income and other benefits that normally accrue to such plants tend to offset the inherent disadvantages foreign investors face when investing in the United States and when subsequently operating their U.S. businesses. For example, foreign investors may concentrate their investments in relatively large plants in order to spread the comparatively high fixed costs that they incur over a larger volume of output. Op- erating large plants may also benefit foreign 16. Using the notation from footnote 10, the values shown in column 7 of table 6 can be expressed algebraically as P + XjSiiPj-Pi) * 100. In contrast to tables 3-5 in the section "Industry-Mix Differences," which cover industries both with and without foreign-owned establishments, tables 6-9 and 11-14 cover only industries with foreign-owned establish- ments. Differences in industry mix occur because the intensity of foreign investment varies across industries; thus, when relative investment intensi- ties are analyzed, industries with no foreign investment must be accounted for in the same way as industries with extensive foreign investment. When within-industry differences are analyzed, only industries with foreign-owned establishments are included, because industries that do not have foreign- owned establishments provide no information about the within-industry differences between foreign- and U.S.-owned establishments. Because the number of industries in which the six countries have establishments varies, the number of industries in table 6 (column 1) varies by country. In addition to within-industry differences (column 5), the overall dif- ferences in the table (column 4) reflect differences in industry mix and the interaction of industry mix and within-industry differences. Because table 6 covers only industries with foreign-owned establishments, the industry-mix effects implicit in table 6 differ from those shown in table 3. investors by simplifying the organizational struc- ture, reducing the number of units that must be managed, and lowering the number of local busi- ness environments with which they must become familiar. Purchased materials Establishments may differ in the degree to which their output results from their own production or from production originating elsewhere. The extent to which establishments rely on produc- tion originating elsewhere can be measured by the ratio of the value of purchased materials to the value of total output for each coun- try's establishments. Based on this measure, the differences among the establishments of all the countries except Japan are relatively small (column 7 of table 7). 17 Japanese- owned estab- lishments rely much more heavily on purchased materials than do the establishments of the other five countries. 18 The heavy reliance on purchased materials by Japanese-owned establishments is consistent with the tendency of Japanese parent companies to rely on subcontracting in their production. It may also result because more Japanese- owned manufacturing plants are new, compared with 17. Column 7 shows within-industry differences in the ratio of cost ol materials to total output. The cost of materials consists of materials obtained from all suppliers, whether U.S. or foreign. The cost of materials consists of charges for materials consumed or put into production during the year, including freight charges and other charges incurred by the establishment in acquiring these materials. It also includes the cost of fuel consumed. 18. A recent analysis of bea's enterprise data also found that Japanese- owned U.S. companies tend to rely on production originating elsewhere to a much greater extent than do other foreign-owned U.S. companies. William J. Zeile, "Imported Inputs and the Domestic Content of Production by Foreign- Owned Manufacturing Affiliates in the United States," in Geography and Ownership as Bases for Economic Accounting, ed. Robert E. Baldwin, Robert E. Lipsey, and J. David Richardson (Chicago: University of Chicago Press, forthcoming in 1996). Table 6.— Plant Scale of Foreign- and U.S.-Owned Establishments, 1991 Number of industries ' (D Thousands of dollars Percent U.S.-owned establish- ments (2) Foreign- owned es- tablishments (3) Differences Foreign-owned establishments relative to U.S.-owned establishments Country of owner Overall difference (4) Within-industry differences 2 (5) Overall difference (Col.3/Col.2) x 100 (6) Within-industry differences ((Col.2+Col.5)/ Col.2) x 100 (7) All countries 410 173 160 174 98 272 181 3,373 3,129 3,977 2,914 3,811 3,342 3,482 19,209 23,976 15,957 24,053 25,753 14,336 25,519 15,835 20,847 11,980 21,139 21,942 10,994 22,037 9,431 8,987 11,756 10,328 9,989 8,173 10,418 569 766 401 825 676 429 733 38C Canada France Germany Netherlands United Kingdom 387 396 454 362 345 39S 1. The all-countries line covers the four-digit SIC industries in which at least one ol the six countries has establishments. The line tor a country covers those four-digit SIC industries in which that country has establishments. 2. Measured as the difference in plant scale that would have resulted it the industry distribution of foreign-owned establishments were the same as that of U.S.-owned establishments and if the only differences between the two groups of establishments were in the plant scale in each indus- try. Note.— Plant scale is measured as value added per establishment DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY 185 those of the other five countries. As shown in the following tabulation, outlays to establish new businesses in manufacturing as a share of total outlays to acquire existing businesses and estab- lish new businesses in manufacturing was much higher for Japan than for any of the other five countries: 19 Country of investor Canada France Germany Netherlands United Kingdom. Japan Percent 4 2 3 6 2 14 When a newly built plant begins operations and its workforce is relatively inexperienced, activities in the plant many cover only a few produc- tion stages; as the plant matures, it may be able to substitute its own production for production originating elsewhere. In addition, because for- eign owners may be unfamiliar with the U.S. business environment when they first set up their U.S. plants, newly built foreign-owned plants may be more likely to rely on materials purchased from their foreign owners. 20 Inventories To some extent, the variation in the use of pur- chased materials is paralleled by a variation in the size of materials inventories relative to value 19. The data in the tabulation, which are from bea's survey of U.S. busi- nesses acquired or established by foreign direct investors, are averages for 1987-91 and cover only the plants built when a new U.S. business enterprise (a new U.S. affiliate) is created. New plants built by existing U.S. affiliates and plant expansions by existing U.S. affiliates are not covered. 20. Numerous studies have shown that newly built foreign plants of multi- national companies tend to have large imports from their parent companies. One of the first studies was Raymond R. Vernon, "International Investment and International Trade in the Product Cycle," Quarterly Journal of Economics 80 (May 1966): 190-207. added. The ratio of materials inventories to value added for Japanese- owned establishments is 62 percent higher than that for U.S.-owned establishments within the same industries, by far the largest difference for any country (col- umn 7 of table 8). However, the establishments of the other five countries also maintained rel- atively large inventories of materials; the ratio ranged from 35 percent higher for German- owned establishments to 14 percent higher for Canadian-owned establishments. The finding that Japanese- owned establish- ments have unusually large materials inventories is somewhat surprising, given Japanese com- panies' reputation for keeping inventories at a minimum through their "just-in-time" system of deliveries from suppliers. One reason for the large inventories may be the particularly heavy re- liance by these establishments on purchased ma- terials, much of which are imported. 21 Because these materials typically travel over longer dis- tances and by different modes of transportation than materials purchased domestically, imported materials may be shipped less often and in larger quantities than domestically purchased materi- als. Thus, Japanese- owned plants that rely on imported materials may have to carry compar- atively large inventories in order to ensure that their supply is not interrupted. The differences among the establishments of the other five coun- tries in their reliance on imported materials also appear to partly explain the differences in the relative size of their materials inventories. 21. According to Zeile, imported materials account for a large portion of the purchased materials of the Japanese-owned U.S. affiliates; see "Imported Inputs and the Domestic Content of Production." Table 7.— Ratio of the Cost of Purchased Materials to Output of Foreign- and U.S.-Owned Establishments, 1991 Number of industries ' (1) Percent Country of owner U.S.-owned establish- ments (2) Foreign- owned es- tablishments (3) Differences Foreign-owned establishments relative to U.S.-owned establishments Overall difference (Col.3/Col.2) x 100 (6) Within-industry differences ((Col.2+Col.5)/ Col.2) x 100 (7) Overall difference (4) Within-industry differences 2 (5) All countries 410 173 160 174 98 272 181 53.4 54.4 55.5 49.8 48.1 52.6 50.9 55.3 51.2 53.5 49.2 47.3 49.6 64.8 1.9 -3.2 -2.0 -.7 -.8 -3.0 13.8 0.9 -1.3 1.5 -1.2 -1.5 -.8 5.2 104 94 96 99 98 94 127 102 Canada France Netherlands United Kinqdom 98 103 98 97 99 Japan 110 1. The all-countries line covers the four-digit SIC industries in which at least one of the six countries has establishments. The line lor a country covers those four-digit SIC industries in which that country has establishments. 2. Measured as the difference in the ratio of the cost of purchased materials to output that would have resulted if the industry distribution of the output of foreign-owned establishments were the same as that of U.S.-owned establishments and if the only differences between the two groups of establishments were in the ratio of the cost of purchased matenals to output in each industry. 186 BEA STUDIES OF DIRECT INVESTMENT Wage rates Compensation rates vary considerably among es- tablishments of the major investing countries; an analysis shows that these variations appear to largely result from factors typically associated with variations in compensation rates, such as location and plant scale. When these factors are controlled for, only British- and French-owned establishments appear to have compensation rates that differ from those of the other foreign-owned establishments in the same industries. Although the within-industry variation in compensation per employee among the estab- lishments of the six countries is smaller than that for any of the characteristics examined so far, it is significant. Compared with U.S.-owned establishments in the same industries, the dif- ferences in compensation per employee ranged from 9 percent higher for French-owned estab- lishments to 1 percent lower for Japanese- owned establishments (table 9, column j). 22 22. For other studies of compensation rates of foreign-owned U.S. man- ufacturing establishments, using the BEA-Census Bureau data, see Robert E. Lipsey, "Foreign-Owned Firms and U.S. Wages," National Bureau of Eco- nomic Research Working Paper No. 4927 (November 1994) and J. Bradford Jensen and Mark Doms, "A Comparison Between Operating Characteristics of Domestic and Foreign Owned Manufacturing Establishments in the United States," in Geography and Ownership as Bases for Economic Accounting. Using 1987 data, Lipsey found a somewhat different pattern, partic- ularly with regard to Japanese-owned establishments, than that found in this article. He found that the within-industry compensation rates of the Japanese-owned establishments in manufacturing are higher than those of U.S.-owned establishments, while this article finds that Japanese-owned es- tablishments' compensation rates are slightly lower. The disparity may reflect differences in the level of industry detail used. Lipsey used published data on foreign-owned establishments, generally at the two-digit sic level, pre- sumably to avoid the sometimes high degree of suppression in the published data at finer levels of detail. In contrast, the analysis in this article is based largely upon data at the four-digit sic level. Thus, Lipsey's finding may ac- tually reflect industry-mix effects; specifically, in many two-digit industries, Japanese-owned establishments are concentrated in the four-digit industries with the highest compensation rates. Doms and Jensen, in their analysis based on 1987 data, controlled for differences in industry mix and several other factors and found that wage rates of foreign-owned establishments vary by country of owner. They also found that Japanese- and Australian-owned establishments pay lower production- worker wages than other foreign-owned establishments. Table 8.— Ratio of Materials Inventory to Value Added of Foreign- and U.S.-Owned Establishments, 1991 Country of owner Number of industries ' (1) Percent U.S.-owned establish- ments (2) Foreign- owned es- tablishments (3) Differences Overall difference (4) Within-industry differences 2 (5) Foreign-owned establishments relative to U.S.-owned establishments Overall difference (Col.3/Col.2) x 100 (6) Within-industry differences ((Col.2+Col.5)/ Col.2) x 100 (7) All countries Canada France Germany Netherlands United Kingdom Japan 410 173 160 174 98 272 181 8.9 9.2 8.9 9.1 8.3 8.5 8.2 9.8 7.3 8.2 10.0 7.2 8.8 14.2 0.8 -1.9 -.7 .9 -1.1 .3 6.0 2.1 109 1.3 79 1.7 92 3.2 110 1.3 86 2.3 103 5.1 172 123 114 119 135 116 127 162 1. The all-countries line covers trie four-digit SIC industries in which at least one of the six countries has establishments. The line for a country covers those four-digit SIC industries in which that country has establishments. 2. Measured as the difference in trie ratio of materials inventory to value added that would have resulted if the industry distribution of the value added of foreign-owned establishments were the same as that of U.S.-owned establishments and if the only differences between the two groups of establishments were in trie ratios of materials inventory to value added in each industry. Table 9.— Compensation per Employee of Foreign- and U.S.-Owned Establishments, 1991 Country of owner Number of industries ' (1) Dollars U.S.-owned establish- ments (2) Foreign- owned es- tablishments (3) Differences Overall difference (4) Within-industry differences 2 (5) Percent Foreign-owned establishments relative to U.S.-owned establishments Overall difference (Col.3/Col.2) x 100 (6) Within-industry differences ((Col.2+Col.5)/ Col.2) x 100 (7) All countries Canada France Germany Netherlands United Kingdom Japan 410 173 160 174 98 272 181 34,541 34,804 36,403 34,376 36,787 35,202 36,852 39,754 40,654 41,544 42,228 38,605 37,350 41,209 5,214 5,850 5,141 7,852 1,818 2,148 4,356 1,401 115 1,679 117 3,374 114 2,642 123 1,821 105 684 106 -551 112 104 105 109 108 105 102 99 1. The all-countries line covers the four-digit SIC industries in which at least one of trie six countries has establishments. Trie line for a country covers those four-digit SIC industries in which that country has establishments. 2. Measured as the difference in compensation per employee that would have resulted if the industry distribution of trie employment of foreign-owned establishments were the same as that of U.S.-owned establishments and if the only differences between the two groups of establish- ments were in compensation per employee in each industry. DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY 187 The following analysis examines the extent to which the variation in within-industry compen- sation rates is attributable to differences in oc- cupational mix, location, plant scale, and capital intensity. Because data limitations make it im- possible to use the compensation-per-employee measure for certain aspects of the analysis, this analysis also uses two alternative measures of compensation rates — payroll per employee and hourly wage rates of production workers. 23 Occupational mix. — Compensation rates may vary because the establishments of the six coun- tries have different occupational mixes. Al- though detailed occupational data are not avail- able from the asm, a breakdown of total em- ployment and total payroll between two broad groups — production workers and nonproduction workers — is available. 24 Nonproduction workers are usually considered to be higher skilled, on average, than production workers. A compari- son of payroll per employee for the two groups supports this view: For both all U.S. establish- ments and foreign-owned establishments, payroll 23. Compensation covers benefits as well as wages and salaries; payroll covers only wages and salaries. 24. Production workers are workers — up through the line-supervisor level — at an operating establishment who are engaged in fabricating, pro- cessing, assembling, inspecting, receiving, storing, handling, packing, ware- housing, shipping (but not delivering), maintenance, repair, janitorial and guard services, product development, auxiliary production for a plant's own use (power plant, for example), record keeping, and other services closely associated with these production operations at the establishment. Nonproduction workers are workers engaged in factory supervision above the line-supervisor level and workers engaged in the following activities: Sales (including drivers/salespersons), sales delivery (highway truck drivers and their helpers), advertising, credit, collection, installation and servicing, clerical and routine office functions, executive, purchasing, financial, legal, personnel (including cafeteria and medical personnel), professional, and technical. per employee of nonproduction workers is sig- nificantly higher than that of production workers for total manufacturing and for each two-digit sic manufacturing industry (table 10 ). 25 The role of occupational mix in explaining wage differences can be examined by compar- ing variations in wages of production workers with variations in compensation per employee of all workers. This comparison indicates whether variation by country in the ratio of nonproduc- tion workers to production workers is a source of inter-country differences in overall rates of pay. Across the establishments of the six coun- tries, the range of within-industry differences is somewhat narrower for hourly wage rates of pro- duction workers than it is for compensation per employee of all workers (column 7 of table 11 and column 7 of table 9, respectively), suggesting that differences in occupational mix may explain some of the variation in compensation rates. How- ever, in some cases, the differences in the hourly wage rates of production workers are wider than those in the compensation per employee of all workers. 26 25. Payroll per employee rather than compensation per employee is shown in table 10 because data on employee benefits by type of worker are not available from the asm. Educational attainment, which is an indicator of employee skill level, is also higher for nonproduction workers than for production workers; see Eli Berman, John Bound, and Zvi Griliches, "Changes in the Demand for Skilled Labor Within U.S Manufacturing Industries: Evidence from the An- nual Survey of Manufacturing," Quarterly Journal of Economics 109 (May 1994): 367-97- 26. Lipsey found that differences in occupational mix played a role in ex- plaining why compensation rates are higher in foreign-owned establishments than in U.S.-owned establishments only for German-owned establishments, and even in this case, occupational mix only explained part of the difference. See "Foreign-Owned Firms and U.S. Wages." Table 10.— Payroll per Employee of Production and Nonproduction Workers of All U.S. Establishments and Foreign-Owned Establishments, 1991 [Dollars] SIC code Industry All U.S. establishments Production workers Nonproduction work- ers Foreign-owned establishments Production workers Nonproduction work- ers Manufacturing Food and kindred products Tobacco products Textile mill products Apparel and other textile products Lumber and wood products Furniture and fixtures Paper and allied products Printing and publishing Chemicals and allied products Petroleum and coal products Rubber and miscellaneous plastics products Leather and leather products Stone, clay, and glass products Primary metal industries Fabricated metal products Industrial machinery and equipment Electronic and other electric equipment Transportation equipment Instruments and related products Miscellaneous manufacturing industries 23,139 20,346 34,829 16,725 12,324 18,119 16,961 28,023 21,878 31,013 37,989 20,567 13,402 24,100 29,390 23,694 25,757 22,299 32,792 25,842 16,899 38,002 31,638 46,345 33,348 28,304 30,737 33,340 41,814 30,706 43,874 48,647 36,290 32,760 34,250 40,245 36,462 39,578 40,714 44,072 44,759 32,613 26,220 23,086 ( D ) 18,768 14,353 19,790 ( D ) 29,698 25,309 33,281 39,695 25,352 15,576 26,752 32,167 26,374 25,827 22,529 28,350 24,032 19,960 42,431 34,597 ( D ) 38,639 28,196 31,828 ( D ) 45,135 31,946 46,739 51,284 39,110 28,978 37,261 41,968 39,169 41,209 40,580 41,502 42,742 36,385 D Suppressed to avoid disclosure ol data of individual companies. SIC Standard industrial classification 188 BEA STUDIES OF DIRECT INVESTMENT Location. — Wage rates may also vary by coun- try of owner because the establishments of one country may be more (or less) concentrated than the establishments of other countries in geo- graphic areas where wages are relatively high (or low). However, even after controlling for dif- ferences in distributions of employment across States (see column 2 of table 12), payroll per employee still varies considerably. 27 This varia- tion may exist partly because, as discussed earlier, the establishments of the six countries tend to be concentrated to different degrees in high- wage industries. Furthermore, this concentration may not be uniformly distributed across States. Controlling for differences in State-by-industry distributions (see column 3 of table 12) signif- icantly narrows the differences in payroll per employee across the establishments of the six countries. 28 27. Payroll per employee rather than hourly wage rates or compensation per employee was used in this section because the all-U.S. data source for these comparisons, County Business Patterns, 1991, provides data only on total payroll and employment. For the establishments of each country, the relative payroll-per-employee measure in column 2 of the table is smaller than that in column 1, indicating that each country's establishments tend to be more concentrated in high-wage States than the U.S.-owned establishments. 28. For the establishments of each country, the relative payroll-per- employee measure in column 3 of the table is smaller than that in column 2, indicating that each country's establishments tend to be concentrated in the higher-wage industries within individual States. The conclusions based on the measures shown in table 12 are subject to two important qualifications. First, in constructing column 3, the differ- ences in the industry distributions were controlled for by using data at the three-digit sic level, because all-U.S. data on payroll per employee within States is not available at the four-digit level. Rough calculations indicate that if four-digit, rather than three-digit, industry data had been used, the rela- tive payroll-per-employee measure shown for Japanese-owned establishments would probably have been less than 100 percent instead of the 101 percent shown. Second, the boundaries of labor markets may not coincide with State boundaries. Wage rates in one part of a State may be higher than those in another part of the State (for example, wage rates may be higher in urban areas than in rural areas). As a consequence, State data may not always gauge accurately whether foreign-owned establishments have a tendency to be located in areas where wages are particularly high (or low). Other factors. — In addition to occupational mix and location, other factors may influence com- pensation rates. One is the extent to which the employees of the establishments are union- ized. Data are not available from the asm on the number of employees who are in unions, but such data are available from bea's 1992 bench- mark survey of foreign direct investment in the United States. 29 Because the benchmark survey data are collected on an enterprise basis, they are not directly comparable with the establish- ment data from the asm. However, the enterprise data do suggest that there is little relationship between unionization rates and the variation in compensation rates of the establishments of dif- ferent countries, once differences in industry mix are taken into account. The variation in compensation rates may also reflect differences in plant scale and capital in- tensity. In the January 1994 Survey article, it was found that at the all-countries level, differ- ences in compensation rates between foreign- and U.S.-owned establishments are significantly cor- related with differences in plant scale. Because the size of foreign-owned plants depends on the country of owner, the variation in compensation rates may partly reflect differences in scale. Cap- ital intensity could influence compensation rates if higher skilled labor tends to be required in plants that use large amounts of capital. In addi- tion, if skill levels are higher in capital-intensive plants, employee training may be relatively ex- pensive and the plants may pay higher wages 29. See U.S. Department of Commerce, Bureau of Economic Analysis, Foreign Direct Investment in the United States: 1992 Benchmark Survey, Final Results (Washington, dc: U.S. Government Printing Office, September 1995). Table 11.— Production-Worker Wages per Hour of Foreign- and U.S.-Owned Establishments, 1991 Number of industries ' Dollars Percent U.S.-owned establish- ments (2) Foreign- owned es- tablishments (3) Differences Foreign-owned establishments relative to U.S.-owned establishments Country of owner Overall difference (4) Within-industry differences 2 (5) Overall difference (Col.3/Col.2) x 100 (6) Within-industry differences ((Col.2+Col.5)/ Col.2) x 100 (7) All countries 410 173 160 174 98 272 181 11.37 11.52 11.66 11.43 11.61 11.53 12.13 12.87 13.46 13.36 13.30 12.00 11.87 13.74 1.50 1.95 1.69 1.87 .38 .34 1.61 0.31 .11 .80 .78 a -.17 113 117 115 116 103 103 113 103 Canada France Germany Netherlands United Kingdom 101 107 107 100 102 99 t Less than 0.005(±). 1. The all-countries line covers the four-digit SIC industries in which at least one of the six countries has establishments. The line for a country covers those four-digit SIC industries in which that country has establishments. 2. Measured as the difference in production-worker wages per hour that would have resulted if the industry distribution of the production-worker hours of foreign-owned establishments were the same as that of U.S.-owned establishments and if the only differences between the two groups of establishments were in production-worker wages per hour in each industry. DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY 189 to reduce employee turnover and the associated training costs. Combined effects. — The prior analysis suggests that variation in compensation rates among the six countries' establishments is associated with variations in industry composition, occupational mix, location, plant scale, or capital intensity. In order to determine whether differences in compensation rates remain once these factors are simultaneously taken into account, multi- ple regression equations were estimated in which the dependent variable was hourly wage rates of production workers, and the independent variables were plant scale, capital intensity, con- trol variables for four-digit sic industry and for location (State), and dummy variables to indi- cate residual country-of-ownership differences. 30 Six equations — one for each country — were esti- mated. In each case, the observations were the individual establishments of the six countries. In the equation for each country, the variable for country of owner was used to test whether the establishments of that country differed from the establishments of the other five, once the indus- try and State controls and the other independent variables were taken into account. 31 Key findings 30. The sample data used to estimate the regression equations differ some- what in coverage from those used in the analysis of the preceding sections. It should also be noted that, in the regressions, capital intensity was measured indirectly using a proxy variable, because the data needed to measure it di- rectly are not available. See the appendix for a discussion of how the sample was selected and a description of the capital intensity variable. 31. An alternative to estimating a separate regression equation for each country is to estimate a single equation that includes country-of-ownership variables for five of the six countries, with the sixth country serving as a the base. In general, the results from this alternative method, which are presen- ted in the appendix, are consistent with those from the separate regression equations. Table 12.— Payroll per Employee: Foreign-Owned Establish- ments Compared With U.S.-Owned Establishments, 1991 [Percent] Country of owner Canada France Germany Netherlands United Kingdom Japan Overall (D 119 114 120 118 107 114 After adjustment for dif- ferences in distributions Across States (2) 107 109 115 104 101 106 Across States and industries (3) 101 102 98 101 Note.— Column 1 shows payroll per employee of foreign-owned establishments relative to that of U.S.-owned establishments before controlling for differences in distributions across States. Column 2 shows the relative payroll-per-employee measure that would result if the distributions of the foreign-owned establishments across States were the same as that ol the U.S.-owned establishments and if the only difference between the two groups of establishments were in pay- roll per employee within each State. Column 3 was constructed by controlling for differences between foreign- and U.S.-owned establishments in distributions both across States and across three-digit SIC industries within States. Specifically, column 3 shows the relative payroll-per-em- ployee measure that would result if the distributions of the foreign-owned establishments across industries within individual States were the same as those of U.S.-owned establishments and if the only difference between the two groups of establishments were in payroll per employee within each State-industry cell. of this analysis are discussed below; the estimated equations are shown in the appendix. The regression analysis indicates that among the establishments of the six countries, the vari- ation in hourly wage rates largely results from differences in industry mix, location, plant scale, and capital intensity. However, even after these factors are taken into account, the wage rates of French-owned establishments are about 6 percent higher, and those of British- owned establishment are about 4 percent lower, than those of the other foreign-owned establishments. These results are based on tests that assume that the relationship between hourly wage rates and both plant scale and capital intensity is the same for the establishments of each country (that is, that the regression coefficient for each vari- able is the same for each country). In order to check whether the effect of a particular country's ownership may reflect differences in the relation- ship between the other independent variables and country of ownership (slope effects) rather than any overall country-of-ownership effect (inter- cept effect), a second set of regression equations was estimated in which the relationship between wage rates and both plant scale and capital in- tensity can vary depending on the country of owner. The results from the second set of equations in- dicate that the relatively high production-worker wage rates in French-owned establishments are due to a stronger positive relationship between wage rates and capital intensity for those estab- lishments than for the establishments of the other five countries. Further, French-owned estab- lishments with the same capital intensity as the establishments owned by the other countries tend to have higher production-worker wage rates than the other establishments and the higher the capital intensity, the larger the gap between the wage rates of French-owned establishments and those of the other establishments. The reasons for the relatively high compen- sation rates for French-owned establishments and the relatively low compensation rates of British-owned establishments are unclear. The differences in the compensation rates may reflect differences in the firm- specific advantages that enable foreign companies to invest successfully in the United States. For example, the advan- tages of parent companies in one foreign country may stem from production-management or other organizational capabilities rather than from the possession of advanced technology. If so, com- pensation rates of that country's establishments 190 BEA STUDIES OF DIRECT INVESTMENT may be relatively low, because these establish- ments are less likely than those of other countries to use technologically complex production pro- cesses that require relatively large numbers of high-skill, high-wage production workers. Varia- tions in the skill mix of production workers were not controlled for in this analysis, and they may be the source of some of the differences in the wage rates of foreign-owned establishments by country of owner. Labor productivity The variation in labor productivity across the es- tablishments of the six countries appears to be largely attributable to differences among the es- tablishments in factors such as plant scale and employee skill level. However, some evidence suggests that once these factors are taken into account, the labor productivity of British-owned establishments tends to be somewhat higher, and the labor productivity of Japanese-owned estab- lishments somewhat lower, than that of the other foreign- owned establishments. Whether labor productivity is measured as value added per production-worker hour or as output per production-worker hour, the labor productivity of the establishments of the six countries varies significantly from country to country, but each country's establishments have higher labor productivity than U.S. -owned es- tablishments in the same industries. 32 Using the value-added measure, the labor productivity of French- and Netherlands- owned establish- ments is particularly high relative to that of U.S. -owned establishments — 40 percent and 38 32. The value-added and the output measures each have unique advantages as measures of labor productivity (see footnote 14). percent higher, respectively (table 13, column 7). In contrast, the labor productivity of Japanese- owned establishments is only 7 percent higher. Using the output measure, the differences in la- bor productivity range from 43 percent higher for Netherlands- owned establishments to 8 per- cent higher for Canadian-owned establishments (table 14 column 7). If the within-industry differences in labor pro- ductivity for the establishments of the six coun- tries are ranked, both measures of productivity yield similar rankings, except that the Japanese- owned establishments rank sixth on the basis of the value-added measure and third on the ba- sis of the output measure. This disparity may reflect a tendency for the operations of Japanese- owned establishments to be structured differently from those of the establishments of the other countries. That structural differences exist is sug- gested by the earlier finding that the ratio of purchased materials to output tends to be much larger for Japanese- owned establishments than for the other establishments. The remainder of this section evaluates the ex- tent to which variation in labor productivity by country of owner reflects differences among the establishments in factors that often influence la- bor productivity — plant scale, capital intensity, and employee skill levels. In the January 1994 Survey article, it was found that at the all- countries level, the labor productivity of foreign- owned establishments differed significantly from that of U.S. -owned establishments and that most of this difference was attributable to differences in industry mix, plant scale, capital intensity, and employee skill level. In order to determine if this finding holds across countries, multiple re- gression equations that simultaneously take these Table 13.- -Value Added per Production-Worker Hour of Foreign- and U.S.-Owned Establishments, 1991 Country of owner Number of industries ' (1) Dollars Percent U.S.-owned establish- ments (2) Foreign- owned es- tablishments (3) Differences Foreign-owned establishments relative to U.S.-owned establishments Overall difference (4) Within-industry differences 2 (5) Overall difference (Col.3/Col.2) x 100 (6) Within-industry differences ((Col.2+Col.5)/ Col.2) x 100 (7) All countries 410 173 160 174 98 272 181 53 54 59 50 63 56 58 80 91 74 87 109 84 65 27 37 16 37 46 27 7 7 8 24 15 24 13 4 150 169 126 174 173 149 113 114 Canada France Germany Netherlands United Kingdom Japan 114 140 130 138 124 107 1. The all-countries line covers the four-digit SIC industries in which at least one of the six countries has establishments. The line lor a country covers those four-digit SIC industries in which that country has establishments. 2. Measured as the difference in value added per production-worker hour that would have re- sulted if the industry distribution of the production-worker hours of foreign-owned establishments were the same as that of U.S.-owned establishments and if the only differences between the two groups of establishments were in value added per production-worker hour in each industry. DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY 191 factors into account were estimated for each country. In the regressions, the dependent vari- able was labor productivity and the independent variables were plant scale, capital intensity, em- ployee skill level, control variables for four-digit sic industry and for State, and dummy variables to indicate residual country-of-ownership differ- ences. Separate equations were estimated for the value-added and the output measures of labor productivity. In addition, because an establish- ment's output embodies purchased materials as well as its own value added, a measure of the use of purchased materials relative to total out- put was included as an independent variable in the equations using the output measure. When the value-added measure was used as the dependent variable, the regression results suggest that most of the differences in labor productivity across the establishments of the six countries are attributable to differences in plant scale, capital intensity, employee skill level, industry, and loca- tion. However, even after these factors are taken into account, the labor productivity of British- owned establishments is about 5 percent higher, and the labor productivity of Japanese- owned es- tablishments about 12 percent lower, than that of the establishments of the other countries. These results were based on regressions in which it was assumed that the relationships be- tween labor productivity and plant scale, capital intensity, and employee skill level are the same for the establishments of each country. A sec- ond set of equations was estimated in which this assumption was relaxed. The results of these regressions suggest that the relatively high la- bor productivity of British-owned establishments reflects a stronger positive relationship between labor productivity and capital intensity for those establishments than for the establishments of the other five countries. Further, British- owned es- tablishments with the same capital intensity as the other establishments tend to have higher la- bor productivity than the other establishments and the higher the capital intensity, the larger the gap between their productivity and that of the other establishments. When the output measure was used as the dependent variable, no systematic differences in productivity were found across the establish- ments of the six countries once differences in industry mix, location, use of purchased mate- rials, plant scale, capital intensity, and employee skill were taken into account. These results are based on regression equations in which it was assumed that the relationships between labor productivity and the use of pur- chased materials, plant scale, capital intensity, and employee skill level are the same for the es- tablishments of each country. A second set of regression equations was estimated in which this assumption was relaxed. Like the results of the value-added regressions, the results of these re- gressions suggest a stronger positive relationship between labor productivity and capital intensity for British-owned establishments than for the establishments of the other countries. These re- sults also suggest that the positive relationship between the use of purchased materials and la- bor productivity is stronger for Japanese- owned establishments than for the other establishments. In contrast, the results suggest that for Canadian- owned establishments, high labor productivity is associated with lower, rather than higher, use of purchased materials. A number of factors that were not taken into account in this analysis may explain the differ- Table 14.— Output per Production-Worker Hour of Foreign- and U.S.-Owned Establishments, 1991 Country of owner Number of industries ' (1) Dollars U.S.-owned establish- ments (2) Foreign- owned es- tablishments (3) Differences Overall difference (4) Within-industry differences 2 (5) Percent Foreign-owned establishments relative to U.S.-owned establishments Overall difference (Col.3/Col.2) x 100 (6) Within-industry differences ((Col.2+Col.5)/ Col.2) x 100 (7) All countries Canada France Germany Netherlands United Kingdom Japan 410 173 160 174 98 272 181 115 119 133 100 122 120 119 182 188 160 165 210 168 194 158 158 120 165 172 140 163 117 108 143 124 133 121 133 1. The all-countries line covers the four-digit SIC industries in which at least one ol the six countries has establishments. The line for a country covers those four-digit SIC industries in which that country has establishments. 2. Measured as the difference in output per production-worker hour that would have resulted if the industry distribution of the production-worker hours of foreign-owned establishments were the same as that of U.S.-owned establishments and if the only differences between the two groups of establishments were in output per production-worker hour in each industry. 192 BEA STUDIES OF DIRECT INVESTMENT ences in the labor productivity of British- and Japanese- owned establishments. For example, the productivity, like the wage rates, of foreign- owned establishments may be influenced by the firm-specific advantages of the establishments' parent companies. The variation in labor productivity may also re- flect a variation in the average age of the foreign- owned establishments by country of owner. Many Japanese- owned establishments are rela- tively new. Productivity in new plants may be relatively low because these plants often oper- ate at less-than-full capacity and because they may incur training and other costs that are not incurred in older plants. 33 Appendix This appendix consists of a description of the data on foreign-owned establishments and a dis- cussion of the estimated regression equations and of the alternative regression method that were used in the analysis of wage rates and labor productivity. The data The data for foreign-owned establishments were obtained from the Census Bureau's Annual Sur- vey of Manufactures (asm) through a project that linked be a enterprise, or company, data on foreign direct investment in the United States with Census Bureau establishment, or plant, data for all U.S. companies. Data were obtained for most of the asm items for the universe of foreign-owned manufacturing establishments. The panel of foreign-owned establishments ex- amined in this article covers a subset of the universe of such establishments. The panel in- cludes only the establishments owned by foreign investors from the six countries selected for study. It excludes administrative and auxiliary estab- lishments because the data available by detailed industry cover only operating establishments, and it excludes establishments for which data were imputed (estimated). Published asm statistics cover all manufactur- ing establishments in the United States. These statistics are estimates derived by combining the data for establishments in the asm sample with 33. Doms and Jensen used data from several Census Bureau economic censuses to create a proxy for plant age and found that labor productivity was relatively low in Japanese-owned plants even after plant age is taken into account. They also found that the productivity of foreign-owned plants is generally higher than that of U.S.-owned plants but lower than that of U.S. plants of U.S. multinational companies. See "A Comparison Between Operating Characteristics of Domestic and Foreign Owned Manufacturing Establishments." the data estimated for establishments not in the sample. The foreign-owned establishments not in the sample were excluded from the panel be- cause the procedure used to estimate data for them employs industry-level ratios that do not differentiate between foreign- and U.S.-owned es- tablishments and therefore tends to mask the differences between the two groups of establish- ments. The panel also excludes extreme outliers. These outliers consist of a few foreign-owned es- tablishments whose data appear to be erroneous or for which temporary circumstances peculiar to the establishments resulted in unusual values and of a few establishments that appear to have been engaged in activities that are not typical of other foreign- and U.S.-owned establishments in the same four-digit industry. 34 Even after these exclusions, the panel includes 84 percent of all foreign-owned manufacturing establishments. It also accounts for a large por- tion of the universe totals for both value added and employment — 88 percent and 85 percent, respectively. Among the six major investing countries, value added accounted for by the panel ranged from 79 percent of the universe total for Japanese-owned establishments to 91 percent of the total for Canadian-, Netherlands-, and British- owned establishments. The panel of establishments used to estimate the regression equations differs slightly from that described here; the differences are noted in the next section. Regression analysis As indicated in the main text of the article, sev- eral multiple regression equations were estimated to analyze the variations in wage rates and in la- bor productivity among the establishments of the six countries. The regressions for wage rates are shown in tables 15 and 16, and those for labor productivity, in tables 17-20. The main text dis- cusses the variables used in the regressions and key results. Two sets of regressions were run for wage rates, and two were run for each of the labor pro- ductivity measures. The first set of regressions is based on the assumption that the relation- ships between the independent variables and the dependent variable is the same for the establish- ments of each country (that is, that the regression 34. In "Characteristics of Foreign-Owned U.S. Manufacturing Establish- ments," outliers were controlled for by limiting the analysis to only those four-digit industries with six or more foreign-owned establishments. That approach was rejected for this study because of the relatively small number of four-digit industries in which individual investing countries own six or more establishments. DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY 193 coefficient for each variable is the same for each country). The second set of regressions relaxes this assumption; that is, the second set of regres- sions checks whether the effect of a particular country's ownership is due to differences in the relationship between the other independent vari- ables and the country of ownership (slope effects) rather than to any overall country-of-ownership effect (intercept effect). Table 15.— Regression Analysis: Country-of-Ownership Effects on Production-Worker Wages (Intercept Only), 1991 Equa- tion 1 Number of ob- serva- tions R 2 Country-of-owner variables Country Intercept effect 2 1 6,139 0.696 Canada 0.006 (.019) 2 6,139 .698 France .063*'* (.018) 3 6,139 .696 Germany .005 (.018) 4 . 6,139 .696 Netherlands .008 (.024) 5 6,139 .697 United Kingdom -.043"" (.013) 6 6,139 .696 Japan .005 (.018) '" Significant at the 1 -percent level. " Significant at the 5-percent level. • Significant at the 10-percent level. 1. Each equation included controls for four-digit SIC industry and for State and included vari- ables for plant scale and capital intensity. The coefficients for plant scale and capital intensity were significant at the 1 -percent level in all equations, and the values for each coefficient varied only slightly across equations. In all equations, the coefficients of the plant-scale variable round- ed to 0.065, and those of the capital-intensity variable rounded to -0.032. Capital intensity was measured using a proxy variable (see the appendix). 2. In each equation, the country-of-owner dummy variable tested whether the wages paid by the establishments of the specified country differed from those paid by the establishments of the other five countries, once the industry and State controls and the other independent vari- ables were taken into account. Note— The observations were the individual establishments of the six countries. All variables were expressed as natural logs; numbers in parentheses are standard errors. Unlike the analysis elsewhere in the article, which was based on industry-level aggregations, the regressions used establishment-level data. Six equations — one for each country — were es- timated for each set of regressions. In each case, the observations were the individual estab- lishments of all six countries. In the equation for each country, a dummy variable for that Table 17.— Regression Analysis: Country-of-Ownership Ef- fects on Value Added per Production-Worker Hour (Inter- cept Only), 1991 Number of ob- serva- tions R 2 Country-of-owner variables Equa- tion 1 Country Intercept effect 2 1 2 3 4 5 6 6,139 6,139 6,139 6,139 6,139 6,139 0.814 .814 .814 .814 .814 .814 Canada France Germany Netherlands United Kingdom Japan 0.014 (.037) .023 (.035) -.023 (.035) .014 (.045) .053** (■025) -.118'" (.034) '" Significant at the 1 -percent level. " Significant at the 5-percent level. ' Significant at the 10-percent level. 1 . Each equation included controls for four-digit SIC industry and for State and included vari- ables for plant scale, capital intensity, and employee skill level. The coefficients for plant scale, capital intensity, and employee skill level were significant at the 1 -percent level in all equations, and the values for each coefficient varied only slightly across equations. In all equations, the coefficients of the plant-scale variable rounded to 0.220, those of the capital-intensity variable rounded to 0.259, and those of the employee- skill-level variable ranged from 0.621 to 0.626. Capital intensity was measured using a proxy variable (see the appendix). 2. In each equation, the country-of-owner dummy variable tested whether the value added per production-worker hour of establishments of the specified country differed from that of the establishments of the other five countries, once the industry and State controls and the other independent variables were taken into account. Note.— The observations were the individual establishments of the six countries. All variables were expressed as natural logs; numbers in parentheses are standard errors. Table 16.— Regression Analysis: Country-of-Ownership Effects on Production-Worker Wages (Intercept and Slope), 1991 Number of observations R 2 Country-of-owner variables 2 Equa- tion 1 Country Intercept effect Slope effect Plant scale 3 Capital intensity 3 1 6,139 0.696 Canada -0.149 (.108) 0.020' (.011) 0.014 (.017) 2 6,139 .697 France .125 (.094) -.004 (.010) .025* (■013) 3 6,139 .696 Germany -.016 (.104) ft) (.011) -.015 (■017) 4 6,139 .696 Netherlands .288' (.158) -.029' (.016) .009 (.026) 5 6,139 .697 United Kingdom -.062 (.072) -.001 (.008) -.016 (.010) 6 6,139 .696 Japan .040 (.104) -.008 (.011) -.022 (.016) "• Significant at the 1 -percent level. " Significant at the 5-percent level. ■ Significant at the 10-percent level. t Less than 0.0005(4 1 . Each equation included controls for four-digit SIC industry and for State and included vari- ables for plant scale and capital intensity. The coefficients for plant scale and capital intensity were significant at the 1 -percent level in all equations. The coefficients of the plant-scale variable ranged from 0.061 to 0.067, and those of the capital-intensity variable ranged Irom -0.026 to -0.035. 2. In each equation, the country-of-owner dummy variables tested whether the wages paid by the establishments of the specified country differed from those paid by the establishments of the other five countries, once the industry and State controls and the other independent vanables were taken into account. 3. See the text and the appendix lor the definitions of these variables. Note.— The observations were the individual establishments ol the six countries. All variables were expressed as natural logs: numbers in parentheses are standard errors. 194 BEA STUDIES OF DIRECT INVESTMENT country is used to test whether that country's establishments differed from the establishments of the other five countries once the industry and State controls and the other independent variables were taken into account. In the regressions, capital intensity was meas- ured indirectly using a proxy variable — the ratio of total fuel costs to production-worker wages — because the data needed to measure it directly were not available. 35 The regressions controlled for industry and State by including the mean val- ues of the dependent variables in each industry in each State as independent variables. This proce- dure is equivalent to including dummy variables in the equations for each industry- State cell. The sample of establishments used for the re- gression analysis was somewhat smaller than that used for the analysis elsewhere in the article be- cause it excluded establishments for which the value for one of the variables in the regression equations either could not be calculated or was an extreme outlier. (Most of the variables in the re- gression equations are ratios — for example, value added per production-worker hour; a value for a ratio could not be calculated for a particular establishment if the denominator was zero.) A total of 6,139 establishments were included in the 35. In "Characteristics of Foreign-Owned U.S. Manufacturing Establish- ments," an alternative proxy, the non-employee compensation share of value added, was used. Tests of how well the alternative proxy and the one used in this article correspond to a capital stock measure obtained in bea's annual survey of foreign direct investment in the United States indicated that the correlation was much closer for the proxy used in this article than for the alternative. sample used for the regression analysis. These establishments accounted for 82 percent of the employment and 86 percent of the value added of all operating establishments of the six countries. Table 19.— Regression Analysis: Country-of-Ownership Ef- fects on Output per Production-Worker Hour (Intercept), 1991 Equa- tion 1 Number of ob- serva- tions R 2 Country-of-owner variables Country Intercept effect 5 1 2 3 4 5 6 6,139 6,139 6,139 6,139 6,139 6,139 0.852 .852 .852 .852 .852 .852 Canada France Germany Netherlands United Kingdom Japan -O.007 (.032) .013 (.030) -.009 (.030) .001 (.039) .016 (.022) -.030 (.029) *'* Significant at the 1 -percent level. " Significant at the 5-percent level. * Significant at the 10-percent level. 1. Each equation included controls lor four-digit SIC industry and for State and included vari- ables for plant scale, capital intensity, employee skill level, and the ratio of purchased materials to output The coefficients for plant scale, capital intensity, employee skill level, and the ratio of purchased materials to output were significant at the 1 -percent level in all equations, and the values for each coefficient varied only slightly across equations. In all equations, the coeffi- cients of the plant-scale variable rounded to 0.115. those for the capital- intensity variable round- ed to 0.312, those for the employee-skill-level variable ranged from 0.708 to 0.710, and those for the ratio of the purchased-materials-to- output variable ranged from 0.155 to 0.157. Capital intensity was measured using a proxy variable (see the appendix). 2. In each equation, the country-of-owner dummy variable tested whether output per produc- tion-worker hour of the establishments of the specified country differed from that of the establish- ments of the other five, once the industry and State controls and the other independent variables were taken into account. Note.— The observations were the individual establishments of the six countries. All variables were expressed as natural logs; numbers in parentheses are standard errors. Table 18.— Regression Analysis: Country-of-Ownership Effects on Value Added per Production-Worker Hour (Intercept and Slope), 1991 Number of observations R 2 Country-of-owner variables 2 Country Intercept effect Slope effect Equa- tion 1 Plant scale 3 Capital intensity 3 Employee skill level 4 1 6,139 0.814 Canada -0.121 (.262) -O.034 (.022) -0.093" (.033) 0.114 (.094) 2 6,139 .815 France -.597" (.282) .085*" (.021) -.006 (.026) -.044 (.099) 3 6,139 .814 Germany .335 (.279) -.015 (.022) -.057* (.032) -.122 (.102) 4 6,139 .814 Netherlands -1.345" (.438) .047 (.031) -.082 (.051) .324 (.142) 5 6,139 .815 United Kingdom .344* (.191) -.008 (.016) .073"' (.020) -.044 (.065) 6 6,139 .814 Japan -.129 (.266) -.017 (.021) -.016 (.030) .054 (.084) '" Significant at the 1 -percent level. " Significant at the 5-percent level. • Significant at the 10-percent level. 1 . Each equation included controls for four-digit SIC industry and for State and variables for plant scale, capital intensity, and employee skill level. The coefficients for plant scale, capital inten- sity, and employee skill level were significant at the 1 -percent level in all equations, the coeffi- cients of the plant-scale variable ranged from 0.207 to 0.227, those for the capital-intensity vari- able ranged from 0.230 to 0.269. and those for the employee-skill-level variable ranged from 0.606 to 0.648. 2. In each equation, the country-of-owner dummy variables tested whether the value added per production-worker hour of establishments of the specified country differed from that of the establishments of the other five countries, once the industry and State controls and the other independent variables were taken into account 3. See the text and the appendix for the definitions of these variables. 4. Measured as production-worker wages per hour. Note.— The observations were the individual establishments of the six countries. All variables were expressed as natural logs; numbers in parentheses are standard errors. DIFFERENCES IN FOREIGN-OWNED ESTABLISHMENTS BY COUNTRY 195 Alternative regression method The results obtained when an alternative regres- sion method was used are shown in table 21. Under this method, for each dependent variable, a single equation was estimated that includes country-of-ownership variables for five of the six countries, and the sixth country was used as the base. In the alternative regressions, the coefficients of the country-of-ownership variables provide esti- mates of the extent to which the wage rates or labor productivity of the establishments of each of the five countries differ from the wage rates or labor productivity of the establishments of the base country. The country chosen to serve as base country could have been any of the six coun- tries. In order to facilitate the comparisons of the results of these regressions with the previ- ous regressions, the base country selected was the one for which the coefficient for the country- of-ownership variable was closest to the average for the establishments of all six countries. Thus, in the wage-rate equation, Germany was cho- sen as the base country, and in the productivity equations, Canada was chosen. The regression results shown in table 21 are generally consistent with those shown in tables 15, 17, and 19. For example, a comparison of the wage-rate regressions for the two methods indicates that if the coefficients of the country- of- owner variables in the equation in table 21 Table 20.— Regression Analysis: Country-of-Ownership Effects on Output per Production-Worker Hour (Intercept and Slope), 1991 Number of obser- vations R 2 Country-of- owner variables 2 Country Intercept effect Slope effect Equa- tion 1 Ratio of purchased materials to output 3 Plant scale 3 Capital intensity 3 Employee skill level 4 1 6,139 0.854 Canada -0.068 (227) -0.240*" (.053) -0.038* (.019) -0.045 (.029) 0.053 (.081) 2 6,139 .853 France -.334 (.244) -.024 (.064) .050" (.019) -.005 (.023) -.039 (.086) 3 6,139 .853 Germany .007 (.244) -.052 (.068) -.002 (■019) -.066" (.028) -.053 (.089) 4 6,139 .853 Netherlands -.938" (.381) .030 (.084) .047* (.028) -.044 (.046) .186 (.123) 5 6,139 .853 United Kingdom .310* (.165) -.004 (.047) -.012 (.014) .083"* (■017) -.024 (.056) 6 6,139 .855 Japan -.107 (.228) .504'" (.065) .030 (.019) -.063" (.026) .022 (.072) •" Significant at the 1 -percent level. " Significant at the 5-percent level. ' Significant at the 10-percent level. 1. Each equation included controls for four-digit SIC industry and for State and included vari- ables for plant scale, capital intensity employee skill level, and the ratio of purchased materials to output. The coefficients for plant scale, capital intensity, employee skill level, and the ratio of purchased materials to output were significant at the 1 -percent level in all equations. The coeffi- cients of the plant-scale variable ranged from 0.107 to 0.124, those for the capital-intensity vari- able ranged from 0.279 to 0.324, those for the employee-skill-level variable ranged from 0.698 to 0.724, and those for the ratio of the purchased-materials-to-output variable ranged from 0.089 to 0.212. 2. In each equation, the country-of-owner dummy variables tested whether output per produc- tion-worker hour of the establishments of the specified country differed from that of the establish- ments of the other five, once the industry and State controls and the other independent variables were taken into account. 3. See the text and the appendix for the definitions of these variables. 4. Measured as production-worker wages per hour. Note.— The observations were the individual establishments of the six countries. All variables were expressed as natural logs; numbers in parentheses are standard errors. Table 21.— Regression Analysis: Alternative Method, 1991 Number of ob- serva- tions R 2 Plant scale ' Capital intensity ' Employee skill level 2 Ratio of purchased materials to output ' Country-owner variables Dependent variable Canada France Germany Nether- lands United Kingdom Japan Production-worker wages per hour 3 Value added per production-worker hour 3 6,139 6,139 6,139 0.697 .814 .852 0.065'" (.005) .220*" (.009) .115"* (.008) -0.031"' (.008) .259'" (.015) .312*" (.013) .624*" (.035) .709"* (.030) .157"* (.025) -0.001 (.025) n ( B ) 0.047* (.024) .010 (.047) .018 (.041) ( B ) -.038 (.048) -.003 (■041) 0.002 (.028) -.006 (.056) .004 (.048) -0.032 (.020) .019 (.040) .016 (.035) -0.003 (■023) -.116" Output per production-worker hour 3 (.047) -.020 (Ml) '" Significant at the 1- percent level. " Significant at the 5- percent level. ' Significant at the 10-percent level. B Base country (see the appendix). 1. See the text and the appendix for the definitions of these variables. 2. Measured as production-worker wages per hour. 3. The equation included controls for four-digit SIC industry and for State. In the equation, the country-of-owner dummy variables tested whether the establishments of each of the other five countnes differed from the establish- ments ol the base country, once the industry and State controls and the other independent vanarjles were taken into account. Note— The observations were the individual establishments ol the six countries. All vanables were expressed as natural logs; numbers in parentheses are standard errors. 196 BEA STUDIES OF DIRECT INVESTMENT are ranked in terms of their size, the ranking is identical to that obtained when the coefficients of the country-of-owner variables in table 15 are ranked. In particular, both methods indicate that the wage rates of French- owned establishments are higher than those of the other establishments once differences in industry mix, location, scale, and capital intensity are taken into account. Sim- ilarly, both methods indicate that the wage rates of British-owned establishments are lower than those of the other establishments. Although providing similar rankings, the two sets of results differ in the degree of confi- dence associated with the estimated coefficients of the country-of-owner variables. For exam- ple, in the equations in table 15, the coefficients of the country-of-owner variables in the equa- tions for both France and the United Kingdom are significant at the l-percent level. In con- trast, in the wage-rate equation in table 21, the coefficient for the country-of-owner variable for France is significant only at the 10-percent level, and the coefficient for the United Kingdom is not statistically significant. These differences in statistical significance arise because in table 21, the coefficients are esti- mated on the basis of a comparison of the establishments of a particular country with the establishments of the base country (Germany, in the case of the wage-rate equation) and because in table 15, the coefficients are estimated on the basis of a comparison of the wage rates of the establishments of a particular country with the wage rates of the establishments of the other five countries taken as a group. When a single country is used as the base country, associations between the industry mix or location variables and the country-of-owner variables for either the base country or the subject country can limit the ability of the regression procedure to sepa- rate the country-of-ownership effects from the industry-mix effects or the location effects. ^ Guides to the Statistics 197 198 BEA STUDIES OF DIRECT INVESTMENT A Guide to be A Statistics on U.S. Multinational Companies By Raymond J. Mataloni, Jr. This article was first published in the March 1995 Survey of Current Business. statistics on U.S. multinational companies O (mnc's) produced by the Bureau of Economic Analysis (bea) provide a comprehensive and in- tegrated data set for empirical analysis of mnc's and of the effects of mnc's on the economies of home and host countries. When this data set began in 1929, its scope was limited to one data item — the value of foreign commercial assets controlled by U.S. companies. Since then, the scope of these statistics has greatly expanded in step with the growth in mnc's and the increasing integration of the global economy. 1 bea's current data on U.S. mnc's are among the most diverse in the world, ranging from traditional balance- of-payments items that most countries produce to "financial and operating" items that few other countries produce but that allow a much broader understanding of U.S. mnc's (see box "Note on International Comparability"). This article provides an introductory guide to these statistics. The statistics on U.S. mnc's support numer- ous activities by the government and the private sector, including the following: • Compilation of the U.S. economic accounts by bea; • Conduct of bilateral and multilateral negoti- ations to reduce barriers to investment and trade; • Studies by academic and government re- searchers to assess the impact of U.S. in- vestment abroad on the U.S. and foreign economies; and • Strategic planning by U.S. businesses. 1. From 1929 to 1950, the Commerce Department conducted five surveys of U.S. mnc's to determine the book value of American business investments in foreign countries. A census covering 1957 represented a significant expan- sion in the scope and purpose of these surveys. Its goal was to evaluate "...the full effects of U.S. business investments both on our domestic economy and on the economies of foreign countries..." (U.S. Department of Commerce, Office of Business Economics, U.S. Business Investments in Foreign Countries: A Supplement to the Survey of Current Business (Washington, dc, U.S. Government Printing Office, 1962): iii). To fulfill this goal, the data items collected were greatly expanded to include, for instance, condensed balance sheets and income statements, employment, and U.S. merchandise trade of foreign affiliates. In both form and function, the 1957 survey can be regarded as the prototype for all of bea's later U.S.-mnc surveys. This guide is intended to familiarize the reader with the statistics available on U.S. mnc's (sec- tions I and II), some of the major questions they can and cannot answer (section III), and some details on their presentation (section IV). Many topics are covered in less than full detail; a more detailed and technical methodology can be found in U.S. Direct Investment Abroad: 1989 Benchmark Survey, Final Results. 2 In this guide, the following terms are used extensively. Direct investment is investment in which a resident of one country obtains a last- ing interest in, and a degree of influence over the management of, a business enterprise in another country. In the United States, the criterion used to distinguish U.S. direct investment abroad (us- dia) from other types of investment abroad is the ownership of at least 10 percent of a foreign business enterprise; thus, usdia is the ownership or control, directly or indirectly, by one U.S. resi- dent of 10 percent or more of the voting securities of an incorporated foreign business enterprise or the equivalent interest in an unincorporated for- eign business enterprise. 3 A U.S. parent company (also referred to as "U.S. parent" or "parent") is a U.S. business that undertakes usdia; a for- eign affiliate (also referred to as "affiliate") is a foreign business in which the U.S. parent has a direct investment interest; and a U.S. mnc is the combined operations of the parent and its affiliates. bea produces two broad sets of data on U.S. mnc's: (1) Balance of payments and direct in- vestment position data and (2) financial and operating data. The balance of payments and di- rect investment position data focus solely on the value of transactions between U.S. parents and 2. U.S. Direct Investment Abroad 1989 Benchmark Survey, Final Results, U.S. Department of Commerce, Bureau of Economic Analysis (Washington, dc: U.S. Government Printing Office, October 1992). 3. This definition is consistent with guidelines established by the In- ternational Monetary Fund (imf) and the Organisation for Economic Co-operation and Development (oecd). See imf, Balance of Payments Man- ual, 5th ed. (Washington, dc: imf, 1993): 86-87 and oecd, Detailed Benchmark Definition of Foreign Direct Investment, 2nd ed. (Paris: oecd, 1992). GUIDE TO BEA STATISTICS ON U.S. MNC S 199 their foreign affiliates and the cumulative value of parents' investments in their affiliates. The fi- nancial and operating data, in contrast, provide a wide variety of indicators of the overall domestic and foreign operations of U.S. mnc's, irrespective of the degree of intra-MNC funding. For example, total foreign-affiliate assets (which can be funded by internal affiliate funds, by funds received from foreigners and unaffiliated U.S. persons, as well as by funds received from U.S. parents) were $1.7 trillion in 1992, and the direct investment po- sition (which measures the portion of affiliate assets that are funded by U.S. parents) was $499 billion. Both types of data are collected in mandatory surveys conducted regularly by bea. Benchmark surveys (or censuses), which are currently con- ducted every 5 years, are the most comprehensive surveys in several respects: (1) They collect both types of data, (2) they cover virtually the entire population — or universe — of U.S. mnc's in terms Note on International Comparability International guidelines for the compilation of balance of pay- ments and direct investment position data have been set forth by several international organizations. Recently, these guidelines have undergone major revisions, as part of an internationally coordinated effort to modernize and extend international standards for economic accounting and to improve harmonization among the recommenda- tions of different organizations. The bea data on direct investment discussed in this article conform closely with these guidelines. The data of other countries generally conform less closely, and thus often are not comparable with bea's data, but efforts to improve confor- mity are under way in many countries. As a result, the international comparability of direct investment statistics, while incomplete, is im- proving and should continue to improve as these efforts continue. The most detailed recommendations specifically pertaining to di- rect investment appear in the International Monetary Fund's (imf) Balance of Payments Manual and the Organisation for Economic Co- operation and Development's (oecd) Detailed Benchmark Definition of Foreign Direct Investment; recommendations consistent with these are employed in the external sector of the international System of National Accounts 1993 (sna). As now constructed, this body of rec- ommendations provides comprehensive and detailed international standards for recording both positions (stocks) and flows related to direct investment. The recommendations cover a wide range of issues, including concepts and definitions, time of recording, geo- graphical allocation, and valuation. Direct investment statistics are currently available for roughly 100 countries. However, many of these countries' statistics devi- ate significantly from international guidelines. 3 One of the most common deviations is the lack of information on reinvested earn- ings. Although a major source of financing for direct investment — 1. See System of National Accounts 1993 (Brussels/Luxembourg, New York, Paris, and Washington, dc: Commission of the European Communities, imf, oecd, United Nations, and World Bank, 1993). 2. The new (5th) edition of the imf Manual is the first to deal with the measurement of stocks of investment; previous editions dealt only with flow items included in balance of payments accounts. This change not only was an improvement in its own right, but it also improved harmonization between the Manual and the sna. (A major change introduced in the latest revision of the sna was improved integration in the treatment of stocks and flows.) Other major changes introduced in the revised Manual include provision of more detailed guidance for recording trade in services and transactions involving new and emerging financial instruments. 3. The United Nations recently published a compendium of direct investment statis- tics worldwide; see United Nations Conference on Trade and Development, World Investment Directory, vol. I-VI (New York: United Nations, 1994). For more detailed information on direct investment definitions used by oecd members, see oecd, "Tech- nical Notes," International Direct Investment Statistics Yearbook 1994 (Paris: oecd, 1994): 266-312. accounting for almost 60 percent of capital outflows for U.S. direct investment abroad in 1994 — reinvested earnings are not covered in the statistics of the many countries that must use central bank statis- tics, rather than survey information obtained from direct investors or their affiliates, as their primary data source. (Unlike equity cap- ital flows or distributions of dividends, reinvested earnings do not give rise to foreign exchange transactions that would flow through the banking system.) Japan and France, for example, are among the many countries lacking information on reinvested earnings. As efforts to improve conformity with international guidelines proceed, perhaps the most important task, as well as one of the most difficult, will be achieving more widespread coverage of reinvested earnings. Another common deviation is the use of a percentage-ownership threshold different from the recommended 10- percent level for iden- tifying an investment as "direct." For example, the United Kingdom and Germany use a threshold of 20 percent. In addition, some countries do not use ownership percentages as the sole criteria for defining direct investment; instead, they attempt to evaluate individ- ual investments subjectively in determining whether the degree of influence or control is consonant with the general concept of direct investment. A few other variances from international guidelines may be ob- served in the statistics of some countries. For instance, some countries exclude certain types of intercompany debt from direct in- vestment, while others may exclude investment in certain industries. Still other countries base their statistics on government approvals of investments rather than on actual flows of funds. Compared with direct investment balance of payments and po- sition data, financial and operating data for mnc's are much less widely available. In fact, the United States is one of only a very few countries that now produce such data. However, the need for such data is becoming more widely recognized, and several countries are trying to find ways to develop them. Major factors that have heightened interest in these data include the increasing economic in- terdependence of world economies, the adoption by many companies of global business strategies and internationally integrated produc- tion processes, and the increasingly common practice of broadening bilateral and multilateral commercial agreements to cover not only trade issues, as in the past, but also investment issues. Among the financial and operating data items that appear to be of primary in- terest are intra-firm trade flows and local sales by foreign affiliates (sometimes termed "establishment trade"). Because of the pioneer- ing role of the United States in developing financial and operating data for mnc's, bea is frequently consulted by national statistical offices and international organizations in connection with attempts to develop such data for other countries. 200 BEA STUDIES OF DIRECT INVESTMENT of dollar value, and (3) they obtain more data items than are collected in the other surveys. In addition to the benchmark surveys, bea con- ducts quarterly and annual sample surveys. The balance of payments and direct investment posi- tion estimates are based on data collected in the quarterly surveys, and the financial and operating estimates are based on data collected in the an- nual surveys. In the sample surveys, reports are not required for small affiliates, in order to re- duce the reporting burden on the U.S. companies that must file. Instead, bea estimates the data for these affiliates by extrapolating forward their data from the most recent benchmark survey on the basis of the movement of the sample data. Thus, coverage of the U.S.-mnc universe is complete in nonbenchmark, as well as benchmark, periods. Balance of Payments and Direct Investment Position Data Balance of payments and direct investment posi- tion data track transactions between U.S. parents and their foreign affiliates and the cumulative value of parents' investment in their affiliates, respectively. These data are essential inputs to the U.S. economic accounts; they contribute to the balance of payments accounts, the U.S. inter- national investment position (up), the national income and product accounts (nipa's), and the input-output (1-0) accounts. The balance of payments accounts measure economic transactions between U.S. and foreign residents and consist of two major accounts: The current account, which covers transactions in goods, services, income, and unilateral transfers, and the capital account, which covers changes in financial claims and liabilities. Direct investment current-account flows measure receipts and pay- ments between parents and affiliates for the use of capital or the provision of services, such as royalties paid by affiliates to their U.S. parents for the use of a production process. Direct invest- ment capital-account flows measure movements of capital between parents and affiliates, such as equity investment by parents in their affiliates or loans between parents and affiliates. The iip measures the accumulated stocks of U.S. assets abroad and foreign assets in the United States. One important component of the up is the U.S. direct investment position abroad, which measures the value of the net accumulated stock of capital that U.S. parents have provided to their foreign affiliates. The nipa's measure the Nation's output of goods and services. Direct investment current- account flows are included in two key summary nipa measures — gross domestic product (gdp) and gross national product (gnp). All U.S.-parent receipts under current-account flows enter gnp because they reflect the value of output of labor and property supplied by U.S. residents (regard- less of the location of the labor or property — in the United States in a U.S. parent company or abroad in a foreign affiliate). 4 However, only those U.S.-parent receipts under current- account flows that reflect the output of labor and property located in the United States (that is, U.S.-parent exports of goods and services) enter gdp. 5 The 1-0 accounts depict the economic inter- actions between industries in the U.S. economy. They show, for each industry, the amount of its output that goes to each other industry as raw materials or semifinished products, and the amount that is sold to the final markets of the economy, placed in inventory, or exported; U.S.- parent exports of goods and services are included in the exports. From a different perspective, the 1-0 accounts show each industry's contribution to the production process — in the form of value added as well as its consumption of the products of other domestic industries and imported prod- ucts; U.S.-parent imports of goods and services are included in the imports. 6 Current-account flows As mentioned earlier, direct investment current- account flows measure receipts and payments 4. gnp measures the output of labor and property (located either here or abroad) supplied by U.S. residents. 5. gdp measures the output of labor and property located in the United States. 6. For a more detailed explanation of the structure and concepts of the 1-0 accounts, see "Benchmark Input-Output Accounts for the U.S. Economy, 1987," Survey of Current Business 74 (April 1994): 73-115. Table 1.— Current-Account Flows on U.S. Direct Investment Abroad, 1993 [Millions of dollars] Income Earnings Distributed earnings Reinvested earnings Interest U.S. parents' receipts ... U.S. parents' payments Royalties and license fees .... U.S. parents' receipts U.S. parents' payments .... Other services U.S. parents' receipts U.S. parents' payments .... 57,515 56,117 26,552 29,565 1,398 3,746 2,349 14,926 15,158 232 4,908 10,497 5,589 Note.— Income includes a current-cost adjustment. All estimates are before deduction of with- holding taxes. GUIDE TO BEA STATISTICS ON U.S. MNC S 201 that accrue between U.S. parents and their for- eign affiliates in return for providing capital to, or performing services for, one another. 7 These receipts and payments fall into three categories: Direct investment income, royalties and license fees, and charges for other services (table 1). Di- rect investment income is the U.S. parents' return on capital that they have provided to their foreign affiliates. It comprises (1) U.S. parents' claims on the earnings (or profits) of foreign affiliates and (2) U.S. parents' interest receipts on loans to their foreign affiliates, less the parents' interest payments on loans from their foreign affiliates. 8 The earnings component of direct investment in- come is computed after foreign income taxes and excluding capital gains and losses. No distinction is made between earnings that are distributed to the parent and those that are reinvested; both are included in direct investment income. example: A U.S. parent has an 80- percent equity interest in a Korean affiliate, and the affiliate has after- tax earnings of $100 million. The affiliate distributes one- half of its earnings to its owners and reinvests the remainder. In this case, assum- ing there are no interest receipts and payments between the parent and the affiliate, the parent's direct investment income from that affiliate would be $80 million, or 80 percent of the $100 million in after- tax earnings. The remaining direct investment current- account flows — royalties and license fees and charges for other private services — represent re- ceipts and payments that accrue between U.S. parents and foreign affiliates for providing serv- ices to one another. Royalties and license fees rep- resent charges for intangible property or rights, such as patents, trademarks, copyrights, fran- chises, manufacturing rights, and other intangi- ble assets or proprietary rights. For example, a U.S. parent in the computer industry may col- lect royalties from its foreign affiliate when the affiliate sells computer networks that use operat- ing systems developed by the parent. Charges for other services cover fees for management, profes- sional, or technical services; rentals for the use of tangible property; and film and television tape rentals. For example, a U.S. automobile company may collect fees from its foreign affiliate when it provides technical assistance in introducing new manufacturing systems and techniques or when it performs research and development on behalf of its affiliate. The data on direct investment current-account flows that are collected in be a surveys are ad- justed before they are incorporated into the balance of payments accounts and the nipa's. Direct investment income is converted from a financial accounting basis to an economic ac- counting basis, so that its earnings component will reflect the contribution of direct investment capital to current-period production. 9 In addi- tion, the effect of withholding taxes is removed from all reported current-account flows. 10 Capital-account flows Direct investment capital flows measure funds that U.S. parent companies provide to their foreign affiliates (outflows), net of funds that af- filiates provide to their parents (inflows) during a given period. 11 These funds can be supplied in three forms: Equity capital, intercompany debt, and reinvested earnings (chart 1). Equity capital outflows occur when a U.S. par- ent increases its equity investment in one of its existing foreign affiliates or makes a new equity investment in a foreign business enterprise, ei- ther by acquiring an existing foreign business or by establishing a new one (chart 1, first arrow). Equity capital inflows occur when a U.S. parent reduces its equity interest in an existing affiliate (chart 1, second arrow). example: If a U.S. company acquires a British company by purchasing all of that company's 7. Receipts and payments between U.S. parents and foreign affiliates for providing goods to one another (U.S. merchandise exports and imports) also are included in the current account, but they are not separately identified. (They are, however, separately identified in the direct investment financial and operating data; see the section "Financial and Operating Data.") 8. In all the examples in this article, the voting interest (the basis for distinguishing direct investment) is assumed to be the same as the financial interest (the basis for apportioning claims on earnings) that the U.S. parent has in its foreign affiliate. This is usually the case, but the two sometimes differ. 9. The conversion is accomplished through four adjustments. First, as noted earlier, capital gains and losses are removed from reported earnings, because they represent changes in the dollar value of existing assets, not charges against current production. Second, a capital consumption adjust- ment is made to convert depreciation charges from a historical-cost basis to a current- (or replacement-) cost basis. Third, charges for the depletion of natural resources are added back to earnings because these charges are not treated as production costs in the nipa's. Fourth, expenses for mineral ex- ploration and development are reallocated across time periods to ensure that they are written off over their economic lives rather than all at once. Ex- cept for the removal of capital gains and losses, these adjustments are made to direct investment income only at the global level; the other adjustments cannot be made below the global level because the required data are not available. For additional information, see "U.S. International Transactions: First Quarter 1992 and Revised Estimates for 1976-91," Survey 72 (June 1992): 72-75- 10. Withholding taxes are taxes withheld by governments on income or other funds that are distributed or remitted, such as payments for services. The direct investment current-account flow totals that enter the balance of payments accounts and nipa's are gross of withholding taxes, in accordance with international guidelines. However, detailed estimates of these flows by country and by industry are net of withholding taxes because country-specific information on some types of withholding taxes is not available. 11. A rare exception to this rule occurs when a foreign affiliate has an equity interest in its U.S. parent. In this case, changes in the affiliate's equity interest in its U.S. parent are not recorded as capital inflows on usdia, but rather as capital inflows on foreign direct investment in the United States if the interest is at least 10 percent or on foreign portfolio investment in the United States if the interest is less than 10 percent. 202 BEA STUDIES OF DIRECT INVESTMENT stock for $500 million, a $500 million equity capi- tal outflow would be recorded. If, after a time, the U.S. company sells this stock to a foreign resident for $500 million, a $500 million equity capital inflow would be recorded. Intercompany debt flows are of two types: U.S. -parent receivables and U.S. -parent payables. U.S.-parent receivables represent loans that a U.S. parent extends to its foreign affiliate. 12 An out- flow on U.S.-parent receivables occurs when the parent extends a new loan to its affiliate (chart i, third arrow); an inflow occurs when an affiliate repays part or all of a loan from its U.S. parent (chart 1, fourth arrow). example: If a U.S. parent makes a $50 million loan to its Canadian affiliate in the first quarter of the year and the affiliate repays one-half of the principal in the second quarter, a $50 million out- flow in the first quarter and a $25 million inflow in the second quarter would be recorded under U.S.-parent receivables. U.S.-parent payables represent loans that a for- eign affiliate extends to its U.S. parent. An outflow on U.S.-parent payables occurs when the parent repays part or all of a loan from its foreign affiliate (chart 1, fifth arrow); an inflow occurs when an affiliate extends a new loan to its U.S. parent (chart 1, sixth arrow). Reinvested earnings are the U.S. parent's claim on the undistributed after-tax earnings of its for- eign affiliate. They are computed as the difference between a parent's claim on its affiliate's current earnings and the dividends that the affiliate pays to its parent in a given period. 13 Reinvested earn- ings are positive when a parent has a claim on positive current earnings of its affiliate in excess of the dividends that it receives from its affiliate (chart 1, seventh arrow). example: A wholly owned French affiliate earns $100 million after taxes and pays a $20 million dividend to its U.S. parent; the $80 million dif- 12. The word "loan" is used loosely to signify all classes of financial obli- gations, which include trade accounts, notes payable, and dividends payable as well as loan obligations. 13. The word "dividend" is used loosely to signify all distributions from cumulative retained earnings, including earnings distributions from unincorporated affiliates as well as dividends from incorporated affiliates. Components of Capital Inflows and Outflows on U.S. Direct Investment Abroad U. S. P A R E N T OUTFLOWS INFLOWS Parent sells, or reduces its stake in, an existing affiliate EQUITY CAPITAL Parent establishes an affiliate or increases its stake in an existing affiliate Affiliate repays part or all of a loan received from its parent U.S. Parent Receivables INTERCOMPANY DEBT Parent extends a loan to its affiliate Affiliate extends a loan to its parent U.S. Parent Payables Parent repays part or all of a loan received from its affiliate Affiliate suffers losses, or it earns a profit and pays dividends to its parent in excess of the parent's share of that profit. REINVESTED EARNINGS Affiliate earns a profit and does not pay dividends to its parent in excess of the parent's share of that profit F R E I G N A F F I L I A T E U.S. Department of Commerce, Bureau of Economic Analysis GUIDE TO BEA STATISTICS ON U.S. MNC S 203 ference between earnings and dividends would be recorded as reinvested earnings. Reinvested earnings are negative when an affili- ate's current earnings are negative or the parent receives dividends in excess of its claim on current earnings (chart 1, eighth arrow). 14 Direct investment position In contrast to the current- and capital-account items discussed above, which measure flows dur- ing a given period of time, the U.S. direct investment position abroad (also referred to as the "position") is a stock item. As such, it measures the total outstanding level of usdia at a given point in time. The position is measured as the yearend value of U.S. parents' equity (including retained earnings) in, and net outstanding loans to, their foreign affiliates. Three alternative valuations of the position are available: Historical cost, current cost, and mar- ket value. The historical-cost position measures usdia at its book value, which in most cases is the initial acquisition price. Book value is the stan- dard valuation method for financial accounting and thus is used by mnc's when reporting direct investment data to bea. Its analytical usefulness is limited, however, because it reflects prices of various years and thus cannot be interpreted as either a constant- or a current-dollar value. To meet the need for measures that are valued at prices of the current period, bea has devel- oped current-cost and market-value estimates of the position. 15 The direct investment position at current cost revalues that portion of the position that represents U.S. parents' claims on the tangi- ble assets of affiliates (such as plant, equipment, and inventories), using price indices appropriate to each of a few broad asset classes. The direct investment position at market value revalues both the tangible and intangible assets on which U.S. parents have claims, using aggregate stock price indices for foreign countries. 1 Market-value es- timates tend to be more volatile than those based on historical or current cost (chart 2) because of the high volatility of stock market prices. The current-cost and market-value estimates are produced only at the global level and not by country or industry. Year-to-year change in the position. — The year- to-year change in the position is the sum of direct investment capital flows and valuation ad- justments (table 2). Valuation adjustments are broadly defined to include all changes in the position other than capital outflows; they re- sult from price changes, exchange- rate changes, and other factors. Valuation adjustments to the historical-cost position consist of translation ad- justments, other capital gains and losses, and other adjustments. Valuation adjustments to the 14. Dividends may exceed current earnings because they are paid out of cumulative retained earnings, and thus they may reflect prior-period, as well as current-period, earnings. 15. These two measures not only enhance the analysis of direct investment but also put direct investment on valuation bases consistent with those used for other types of assets included in the up. See "Valuation of the U.S. Net International Investment Position," Survey 71 (May 1991): 40-49. 16. These indices are from Morgan Stanley Capital International, bea's market-value estimates revalue only the owners' equity portion of the posi- tion; the intercompany debt portion is assumed to be approximately valued at current- period prices. CHART 2 Alternative Valuations of the U.S. Direct Investment Position Abroad, 1982-93 Billion $ 1,000 800 600 400 200 1982 83 84 85 86 87 88 89 90 91 92 93 U.S. Department of Commerce, Bureau of Economic Analysis Table 2.— Change in the U.S. Direct Investment Position Abroad by Account [Millions of dollars] Line Position, yearend 1992 Capital outflows, 1993 Equity capital Increases Decreases Intercompany debt U.S. parent receivables (increases +; decreases -) U.S. parent payables (increases -; de- creases +) Reinvested earnings Valuation adjustments, 1993 Translation adjustments Other capital gains and losses Price changes Other Position, yearend 1993 (line 1 + line 2 + line 10) Histori- cal cost 498,991 58,094 17,423 24,322 6,898 10,882 14,694 -3,811 29789 -8,441 -6,818 614 n.a. -3,237 548,644 Current cost 668,181 57,870 17,423 24,322 6,898 10,882 14,694 -3,811 29,565 -9,888 -10,344 n.a 2,855 -2,399 716,163 Market value 785,903 57,870 17,423 24,322 6,898 10,882 14,694 -3,811 29,565 149,378 -18,360 n.a. 166,899 839 993,151 n.a. Not applicable. 204 BEA STUDIES OF DIRECT INVESTMENT current-cost and market-value positions consist of translation adjustments, price changes, and other adjustments. Translation adjustments reflect the effects of movements in exchange rates on the dollar value of affiliate assets and liabilities (on which the par- ent has a claim) between the periods for which the position is calculated. These adjustments are made to the position on all three valua- tion bases because all three require translation of foreign-currency-denominated affiliate assets (and liabilities) into dollars. example: A U.S. parent company has a wholly owned affiliate in the United Kingdom and the affiliate's assets are valued at £100 million, both at yearend t and yearend t-i. If, at yearend t-i, the exchange rate is £i=$2, the dollar value of the parent's position in the affiliate would be $200 million. If there are no direct investment capi- tal flows in year t, but if at yearend t, the pound has strengthened to £.i=$4, the dollar value of the parent's position would double during year t from $200 million to $400 million. In this case, the change in the parent's position would be fully accounted for by a $200 million trans- lation adjustment made to reflect the rise in the investment's dollar value that resulted from the appreciation of the pound. In the historical-cost position, other capital gains and losses represent the revaluation of the assets (on which the parent has a claim) of ongo- ing affiliates for reasons other than exchange-rate changes. Other capital gains and losses may occur for a variety of reasons, but they most com- monly result from the partial sale of an affiliate's assets for an amount different from the assets' historical cost. example: At yearend t-i, a U.S. parent's direct investment position in its French affiliate is $100 million — $80 million in an automobile assembly plant and $20 million in an engine plant. If the affiliate sells the engine plant in year t for $30 million, realizing a gain of $10 million, and then reinvests the sale proceeds in its assembly plant, a $10 million valuation adjustment (to re- flect the gain) would be recorded to raise the direct investment position to $110 million. In the current-cost and market-value positions, price changes represent the revaluation of the as- sets (on which the parent has a claim) of ongoing affiliates from one year's prices to the next. Other valuation adjustments reflect any changes in the value of affiliates' assets (on which the parent has a claim) that are not reflected in cap- ital flows or the preceding adjustments. For historical-cost estimates, these adjustments most commonly reflect capital gains and losses booked by U.S. parents when they sell their full inter- est in a foreign affiliate. For the current-cost and market-value estimates, they are also related to capital gains and losses on the sale of affil- iate assets; however, rather than reflecting the full amount of the capital gain or loss, they only reflect any difference between the realized cur- rent value of the investment and what bea had estimated it to be. Financial and Operating Data The financial and operating data provide a wide variety of indicators of the overall operations of U.S. mnc's and of the separate operations of U.S. parents and foreign affiliates. These data are col- lected to address questions about the economic impact of mnc's on home and host countries that cannot be addressed by the balance of payments data alone. Some of these questions — such as "How many people do U.S. mnc's employ in the United States or abroad?" — can be answered with a single data item. Others require several data items, perhaps in combination with data from outside sources; for example, "Are U.S. mnc's producing less of what they sell and becoming more reliant on outside suppliers?" To answer such questions, data are needed on the activities of U.S. mnc's as a whole, regardless of the U.S. parent's ownership share or the source of financ- ing. Therefore, the foreign-affiliate financial and operating data are not adjusted for the percentage of U.S.-parent ownership. Financial and operating data are separately tabulated for two foreign-affiliate groups: All for- eign affiliates and majority-owned foreign affiliates (mofa's). mofa's are foreign affiliates in which the combined ownership of all U.S. parents ex- ceeds 50 percent. Some types of analysis require mofa data. For example, mofa data should be used when examining the distribution, between the United States and abroad, of the worldwide resources that U.S. parents control. 17 In addition, mofa data must be used to analyze some aspects of affiliate operations because the necessary data items are not collected for other affiliates. Financial and operating data include the fol- lowing: (1) Balance sheets and income state- ments, (2) sales by type (such as goods or serv- ices) and destination (such as local or nonlocal), (3) employment and employee compensation, (4) U.S. merchandise trade, (5) technology, and (6) external financing (table 3). Each of these cate- gories includes many more individual data items; for example, detailed components of the balance 17. Although effective control can sometimes be obtained with a minority interest, unambiguous control requires a majority interest. GUIDE TO BEA STATISTICS ON U.S. MNC S 205 sheet (inventories, net property, plant, and equip- ment, etc.) are available annually for mofa's. The amount of additional detail available within many of the categories is much greater in benchmark survey years than in other years. One of the most useful measures of U.S.- mnc operations, gross product, is derived from financial and operating data. U.S.-mnc gross product measures the value of goods and services produced by mnc's, either in the United States (U.S.-parent gross product) or abroad (mofa gross product) (table 3). 18 For a firm, gross prod- 18. Estimates for U.S. parents are available only in benchmark survey years, because the data items necessary to derive them are not collected in other years; estimates for mofa's are available annually. uct (or value added) differs from sales because sales include the inputs that the company pur- chases from outsiders as well as what it produces itself. mnc gross product estimates have a variety of uses. For instance, they can be used to meas- ure the contribution of U.S.-parent and mofa production (U.S.-parent and mofa gross prod- uct) to total home- or host-country production (U.S.- or foreign-country gdp). In addition, the ratio of gross product to output (sales plus inven- tory changes) for parents and mofa's measures the extent to which parents and mofa's produce Table 3.— Selected Financial and Operating Data for Nonbank U.S. Parents, Foreign Affiliates, and MOFA's, 1989 and 1992 [Millions of dollars or thousands of employees, unless otherwise noted] Selected data items Latest benchmark survey data, covering 1989 U.S. parents All foreign affiliates MOFA's Latest annual survey data, covering 1992 U.S. parents All foreign affiliates MOFA's Assets Liabilities Owners' equity Balance sheet Income Costs and expenses Net income Income statement Total sales .. Goods Services Investment income ' .. To U.S. customers .... Affiliated 2 Unaffiliated To foreign customers Affiliated 2 Unaffiliated Sales by type and destination Employment and employee compensation Employment Employee compensation Compensation per hour of production workers in manufacturing (dollars) U.S. merchandise trade Exports Imports Technology Research and development funded by Research and development performed by External financial position of MOFA's Balance at close of year: Total external funds 3 By provider: U.S. parents Other U.S. persons Persons in affiliate's country of location I Other foreign persons Gross product 4,852,373 3,613,323 1,239,050 3,258,875 3,088,212 170,663 3,136,837 2,204,073 786,491 146,273 2,841,052 '2"84T052 295,785 130,487 165,298 18,765.4 666,196 n.a. 223,352 181,095 59,925 82,227 1,044,884 1,330,028 838,098 491,930 1,336,208 1,250,866 85,342 1,284,894 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6,622.1 165,804 n.a. 102,558 97,394 n.a. n.a. n.a. 1,080,247 673,173 407,074 1,060,058 987,916 72,142 1,019,966 889,875 109,631 20,461 114,719 92,968 21,751 905,247 153,198 752,049 5,114.0 132,565 10.37 97,488 84,298 7,048 7,922 754,015 215,929 22,846 401,854 113,385 319,994 5,570,464 4,237,922 1,332,542 n.a. n.a. 43,409 3,353,017 2,309,111 897,209 146,697 n.a. n.a. n.a. n.a. 17,617.2 722,796 n.a. 245,475 199,858 71,796 n.a. 1,746,757 n.a. n.a. n.a. n.a. 74,015 1,578,683 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6,727.5 201,408 n.a. 120,255 109,235 n.a. n.a. 1,463,521 925,800 537,721 1,341,862 1,278,244 63,618 1,298,532 1,113,043 153,674 31,817 130,518 104,067 26,451 1,168,015 220,087 947,929 5,359.8 169,623 n.a. 114,139 98,850 10,159 n.a. 1,061,160 306,272 42,154 535,597 177,137 363,696 n.a. Not available. 1 . Some parents and MOFA's, primarily those in finance and insurance, include investment in- come in sales or gross operating revenues. Most parents and MOFA's not in finance or insurance consider investment income an incidental revenue source and include it in their income statements in a separate "other income" category, rather than in sales. BEA collects separate data on invest- ment income to ensure that— where it is included in total sales— it is not misclassified as sales of services. 2. Sales among parents and affiliates that belong to the same MNC. Because U.S. parents represent the fully consolidated domestic operations of a U.S. MNC. they have no sales to affili- ated U.S. persons. 3. External funds (debt and equity) exclude MOFA retained earnings; thus, they represent fi- nancing that is not internally generated. MOFA Majority-owned foreign affiliate 206 BEA STUDIES OF DIRECT INVESTMENT what they sell rather than relying on outside suppliers. 19 Frequently Asked Questions About U.S. mnc's This section discusses some of the most fre- quently asked questions about U.S. mnc's — such as "Where are U.S. mnc's investing?" "Are U.S. companies shifting their operations abroad?" and "What portion of U.S. cross-border trade is be- tween U.S. parents and their foreign affiliates?" This section identifies the various bea data that can be used to address these and other questions, as well as the limitations of the data. Where are U.S. mnc's investing? — The balance of payments and direct investment position data and the financial and operating data can both be used to measure the extent of U.S.-mnc in- vestment in a particular country. The choice of data set depends on whether one wants to know the amount of funds that a country re- ceived from U.S. direct investors in a given period or cumulatively or whether one wants to know the size of U.S. -owned business operations in a country. If one wants to know the amount of funds that a country received during a given pe- riod from U.S. direct investors, capital outflows (a balance of payments data item) during that period would be the appropriate measure. If one wants to know the cumulative amount of funds that a country received from U.S. direct investors (together with any subsequent valuation adjust- ments), the direct investment position at yearend would be the appropriate measure. In 1992, for instance, the historical-cost U.S. direct invest- ment position abroad was largest in the United Kingdom ($83 billion), Canada ($69 billion), and Germany ($34 billion). If, however, one wants to know the size of U.S. -owned business opera- tions in a country, a financial and operating data item (such as employment, total assets, or prop- erty, plant, and equipment) or gross product of affiliates would be a good indicator. In 1992, for instance, affiliate employment was largest in the United Kingdom (917,000), Canada (873,000), and Mexico (661,000). Direct investment capital flows passing through third countries — such as offshore financial centers — en route to their ultimate destination can cause the balance of payments and direct investment position data to be grossly out of pro- portion to the financial and operating data for those countries. In Bermuda, for example, the direct investment position was $26 billion in 1992, but affiliate employment was only 2,800; thus, U.S. parents had invested $9 million per affil- iate employee in that country, compared with a worldwide average of $74,000. This anomaly occurs because direct investment capital flows (and thus the direct investment position) are attributed to the country of immediate destina- tion, whereas the financial and operating data are always attributed to the country in which an af- filiate's physical assets are located or in which its primary activity is carried out. example: A U.S. manufacturer sends $100 mil- lion to its holding-company affiliate in Panama, which, in turn, sends the funds to Germany to build a factory. The capital flow and posi- tion are recorded against Panama, because that is the country with which the U.S. company had a direct transaction. By contrast, the property, plant, and equipment (a financial and operat- ing data item) associated with the new factory is recorded in Germany because that is where the U.S.- controlled operations are located and the funds are ultimately spent. Except for the small group of countries that tend to serve as offshore financial centers, however, a host country's level of affiliate activity can usu- ally be determined using either data set — the direct investment position or the financial and operating data. What are the primary factors determining the location of manufacturing affiliates 7 . — In choos- ing locations for their manufacturing affiliates, U.S. parents seek to optimize the conditions that will affect their return on investment. Two desirable conditions are access to large and pros- perous markets and access to low-wage labor. Data on manufacturing affiliate employment and sales suggest that access to markets is the more important condition. In 1992, 65 percent of employment by manufacturing mofa's was in rel- atively high- wage countries (table 4). In that same year (as in previous years), Europe was the most popular location for newly acquired or established affiliates. The popular notion that manufacturing affiliates are established abroad primarily in low-wage countries to produce for U.S. markets appears unfounded; in 1992, only 12 percent of sales by manufacturing mofa's were to U.S. customers. 20 19. For more information on the derivation and uses of U.S.-mnc gross product estimates, see "Gross Product of U.S. Multinational Companies, 1 977-9'." Survey 74 (February 1994): 42-63. 20. For a discussion of the factors determining the location of manufac- turing mofa's and for an analysis of shifts in their location among high- wage and low-wage countries during 1982-91, see "U.S. Multinational Companies: Operations in 1991," Survey 73 (July 1993): 47-49. GUIDE TO BEA STATISTICS ON U.S. MNC S 207 Table 4.— Employment and Wage Rates for Manufacturing MOFA's in High-Wage and Low-Wage Host Countries, 1992 All sample countries High-wage-country sample 3 Australia Belgium Canada France Germany Ireland Italy Japan Netherlands Spain Sweden Switzerland United Kingdom Low-wage-country sample 3 Argentina Brazil Colombia Hong Kong Korea, Republic of Malaysia Mexico ■ Philippines Portugal Singapore South Africa Taiwan Thailand ... Venezuela Addendum: Non-sample countries Average hourly wage rate, 1989 (dollars) ' 12.99 16.04 16.71 15.69 17.03 10.17 16.73 20.89 18.39 10.81 18.69 17.86 12.11 3.49 4.17 3.87 2.98 4.44 1.78 2.28 1.50 5.60 3.13 4.47 4.55 1.11 3.59 Employment by manu- facturing MOFA's Thousands of employees 3,067.0 2,005.6 87.2 69.6 386.4 201.7 398.0 39.3 108.1 82.2 80.3 88.3 16.3 21.0 427.2 1,061.4 32.6 252.0 20.1 36.4 18.6 71.8 372.8 53.5 14.5 67.2 14.5 37.0 36.1 34.3 206.8 Share of sample total (percent) 2 100.0 65.4 2.8 2.3 12.6 6.6 13.0 1.3 3.5 2.7 2.6 2.9 .5 .7 13.9 34.6 1.1 8.2 .7 1.2 .6 2.3 12.2 1.7 .5 2.2 .5 1.2 1.2 1.0 1. Average hourly wage paid to production workers of MOFA's, 1989. 2. To ensure the statistical significance of the data underlying the distinction between "high- wage" and "low-wage" countries, the analysis is restricted to a sample of host countries having the largest presence of manufacturing MOFA's, based on the 1989 benchmark survey of U.S. direct investment abroad. To be included in the sample, a country must have hosted manufactur- ing MOFA's that together had at least 10,000 employees in that year; such countries accounted for roughly 95 percent of all employment by manufacturing MOFA's in that year. 3. Trie distinction between "high-wage" and "low-wage" countries is based on estimates of average hourly wages of production workers of manufacturing MOFA's from the 1989 benchmark survey. High-wage countries are defined as those with average hourly wages higher than $9.30 (the unweighted average hourly wage in 1989 of all countries included in the sample), and low- wage countries are defined as those with average hourly wages lower than that level. MOFA Majority-owned foreign affiliate Are U.S. mnc's shifting production (and employ- ment) abroad? — Gross product and employment data for U.S. parents and mofa's can be summed to measure the global production and employ- ment of mnc's over which U.S. parents exert unambiguous control. Changes in the U.S.- parent share of these measures indicate changes in the domestic (U.S.) share of worldwide U.S.- mnc production. On the whole, only slight changes have occurred over the last decade. Be- tween 1982 and 1989 (the latest year for which data are available), the U.S.-parent share of worldwide U.S.-mnc gross product edged down 1 percentage point to 77 percent, as a decrease in manufacturing was largely offset by an increase in other industries (table 5). 21 Between 1982 and 1992, the U.S.-parent share of worldwide U.S.- mnc employment declined 2 percentage points to 77 percent (table 6). Some analysts have wondered whether it would be possible for U.S. mnc's to shift some foreign- affiliate production back to the United States; that is, to what extent can exports by U.S. parents substitute for affiliate production? Such ques- tions cannot be answered using bea (or other) data alone; the answers depend on what would happen in the absence of foreign-affiliate pro- duction, which is unknown. To address these questions, therefore, analysts must use bea data in combination with assumptions about the rela- tionship between parent and affiliate production. However, this relationship may be quite variable from one mnc to another: For some firms, do- mestic and foreign production may be equally 21. For further discussion of these changes, see "Gross Product of U.S. Multinational Companies, 1977-91," Survey 74 (February 1994): 42-63. Table 5.— Gross Product of Nonbank U.S. MNC's, U.S. Parents, and MOFA's, by Industry of Parent, 1982 and 1989 Millions of dollars Share of U.S. parents in worldwide MNC total (percent) MNC's worldwide U.S. parents MOFA's 1982 1989 1982 1989 1982 1989 1982 1989 All industries 1,019,734 542,689 477,045 1,364,878 793,771 571,107 796,017 421,050 374,967 1,044,884 586,568 458,316 223,717 121,639 102,078 319,994 207,203 112,791 78 78 79 77 Manufacturing Other 74 80 MNC Multinational company MOFA Majority-owned foreign affiliate Table 6.— Employment by Nonbank U.S. MNC's, U.S. Parents, and MOFA's, by Industry of Parent, 1982 and 1992 Thousands of employees Share of U.S. parents in worldwide MNC total (percent) MNC's worldwide U.S. parents MOFA's 1982 1992 1982 1992 1982 1992 1982 1992 All industries 23,727.0 14,247.3 9,479.7 22,977.0 13,094.4 9,882.6 18,704.6 10,532.8 8,171.8 17,617.2 9,307.4 8,309.8 5,022.4 3,714.5 1,307.9 5,359.8 3,787.0 1,572.8 79 74 86 77 Manufacturing Other 71 84 MNC Multinational company MOFA Majority-owned foreign affiliate 208 BEA STUDIES OF DIRECT INVESTMENT viable alternatives, while for others, it may be possible to compete effectively abroad or to sus- tain domestic operations only if at least some output is produced overseas. Results of anal- yses of the impact of usdia have thus varied widely, both in magnitude and direction, depend- ing upon the assumptions chosen and methods of analysis used. 22 What percentage of U.S. merchandise trade is ac- counted for by U.S. mnc's? — Because U.S. parents have a significant presence in the U.S. econ- omy and because they account for many of the largest and most globally oriented U.S. firms, they naturally account for a large share of U.S. merchandise trade. U.S.-MNC-associated mer- chandise trade encompasses (1) intra-MNC trade, or trade between U.S. parents and their for- eign affiliates, and (2) mnc trade with others, or trade between U.S. parents and unaffiliated foreigners and trade between foreign affiliates and unaffiliated U.S. persons. In 1992, U.S.- MNC-associated trade accounted for 58 percent of U.S. merchandise exports and for 41 percent 22. See, for example, G.C. Hufbauer and F.M. Adler, Overseas Manufac- turing Investment and the Balance of Payments, U.S. Treasury Department Tax Policy Research Study No. 1 (Washington, dc: U.S. Government Print- ing Office, 1968); United States Senate Committee on Finance, Implications of Multinational Firms for World Trade and Investment and for U.S. Trade and Labor (Washington, dc: U.S. Government Printing Office, 1973); and Robert E. Lipsey, "Outward Direct Investment and the U.S. Economy," National Bureau of Economic Research Working Paper No. 4691 (March 1994). Table 7.— U.S. Merchandise Trade Associated with Nonbank U.S. MNC'S, 1992 (Millions of dollars] MNC-associated U.S. exports, total Intra-MNC trade Shipped by U.S. parents to MOFA's Shipped by U.S. parents to other foreign affiliates .. MNC trade with others Shipped by U.S. parents to other foreigners Shipped to foreign affiliates by other U.S. persons . To MOFA's To other foreign affiliates MNC-associated U.S. imports, total Intra-MNC trade Shipped by MOFA's to U.S. parents Shipped by other foreign affiliates to U.S. parents .. MNC trade with others Shipped by other foreigners to U.S. parents Shipped by foreign affiliates to other U.S. persons . By MOFA's By other foreign affiliates Addenda: All U.S. merchandise exports MNC-associated U.S. exports as a percentage of total Intra-MNC exports as a percentage of total All U.S. merchandise imports MNC-associated U.S. imports as a percentage of total Intra-MNC imports as a percentage of total MNC Multinational company MOFA Majority-owned foreign affiliate 1992 261,051 104,679 99,140 5,539 156,372 140,796 15,576 14,999 577 216,479 92,614 85,139 7,475 123,865 107,244 16,621 13,711 2,910 448,166 58 23 532,663 41 17 of U.S. merchandise imports. Intra- mnc trade accounted for 23 percent of U.S. merchandise ex- ports and 17 percent of U.S. merchandise imports (table 7). (A significant share of the remaining trade is associated with U.S. affiliates of foreign mnc's. 23 ) Through what channels do U.S. mnc's serve foreign markets? — Despite their large share of U.S. mer- chandise exports, the ultimate delivery of goods and services to foreign markets by U.S. mnc's is primarily through sales by affiliates rather than through U.S. exports. Of all U.S. -mnc sales to unaffiliated foreigners in 1992, 85 percent were sales by mofa's and the remainder were exports by U.S. parents (table 8). 14 The dominance of sales by mofa's reflects many factors, such as the following: (1) Many sales to foreigners would not be feasible through exporting from the United States, because of trade barriers and transporta- tion costs, (2) sales of many services (such as lodging) require a local presence, and (3) mofa's are often better positioned than their parents to design, manufacture, distribute, and service products for the special requirements of the host- country markets. Recognition of the size and significance of sales by mofa's has spurred re- cent work on the development of supplemental 23. For a discussion of the pattern of U.S. affiliates' trade in 1977-91, see "Merchandise Trade of U.S. Affiliates of Foreign Companies," Survey 73 (October 1993): 52-65. 24. These ratios understate the role of U.S.-parent exports in serving foreign markets, to some extent, because all U.S.-parent exports to mofa's (table 8, lines 2 and 4) are counted as mofa sales (table 8, line 9). When a mofa simply resells goods and services received from its U.S. parent, credit for the sale is, in effect, accorded to the mofa; yet, in many, if not most, such cases, the mofa is merely an intermediary that facilitates sales by its U.S. parent. Table 8.— Channels for Delivering Goods and Services to Foreign Markets by Nonbank U.S. MNC's, 1992 [Millions of dollars] Line Cross-border sales to unaffiliated foreigners by U.S. parents: Cross-border merchandise exports Less: Merchandise exports to foreign affiliates Plus: Sales of services to foreigners Less: Sales of services to foreign affiliates Equals: Cross-border sales to unaffiliated foreigners Sales to unaffiliated foreigners by MOFA's: Total sales Less: Sales to other foreign affiliates Less: Sales to the United States Equals: Sales to unaffiliated foreigners Total sales to unaffiliated foreigners by U.S. MNC's (line 5 line 9) Addenda: Share of total sales to unaffiliated foreigners by U.S. MNC's (percent): Cross-border sales by U.S. parents ((line 5/line 10) * 100) Sales by MOFA's ((line 9/line 10) ' 100) 1992 245,475 104,679 35,651 7,290 169,157 1,298,532 220,087 130,518 947,927 1,117,084 15 85 MNC Multinational company MOFA Majority-owned foreign affiliate GUIDE TO BEA STATISTICS ON U.S. MNC S 209 balance of payments accounts that more fully in- corporate, or more fully illustrate, the returns to U.S. persons from sales by mofa's. 25 What is the investment climate in a particular for- eign country? — bea does not collect information on the investment climate or other aspects of the host countries for usdia. Other public and private sources provide this type of information. For example, the International Trade Admin- istration (ita) — a separate agency of the U.S. Department of Commerce — provides summaries of foreign market conditions. 26 Additionally, some private consulting firms produce exten- sive information on doing business in foreign countries. How much do U.S. mnc's spend to acquire or estab- lish affiliates in a particular foreign country? — At present, bea does not collect data on outlays by U.S. mnc's to establish or acquire affiliates in for- eign countries. Direct investment capital flows capture only the portion of these investments that are funded by U.S. parents; they do not measure funds from other sources, such as funds supplied by foreign affiliates, that are used to establish or acquire new affiliates. Moreover, these flows are not always attributed to their ultimate country of destination. For these reasons, direct investment capital outflows should not be used as a proxy for gross spending on new investments by U.S. mnc's in a particular country. On the basis of financial and operating data, new foreign affiliates are identified each year, and a summary of their distribution by area and by industry, as measured by their assets or employ- ment, is presented in the Survey. 27 However, these data do not indicate the amount of U.S. mnc's initial investments in these affiliates. Data Presentation Confidentiality Information collected by bea is protected against public disclosure by the International Investment and Trade in Services Survey Act (p.l. 94-472, 90 Stat. 2059, 22 u.s.c. 3101-3108, as amended), which provides the legal authority for bea's in- vestment surveys. Under the act, information collected by bea cannot be published or released in such a manner that the person or company that furnished it can be specifically identified. 28 Furthermore, the information collected may be used only for statistical and analytical purposes. Use of an individual company's data for tax, in- vestigative, or regulatory purposes is prohibited. Ensuring confidentiality is essential to securing the cooperation of respondents and maintaining the integrity of the statistical system. To ensure confidentiality, the data are ag- gregated and then tested before publication to determine if they should be shown or if they should be suppressed. In the published tables, "(D)" is placed in any data cell that might dis- close individual company data. The published data are sufficient for most types of analysis, but bea can make special tabulations, or perform re- gressions on the company-specific data, at cost, within the limits of available resources and sub- ject to the legal requirements to avoid disclosure of data of individual companies. 29 Industry classification bea classifies U.S.-mnc activities into 135 Inter- national Surveys Industry (isi) groups adapted from the Standard Industrial Classification (sic) Manual, 1987, the all-inclusive industry classifica- tion system used in Federal economic statistics. To facilitate the comparison of mnc data with data that are classified according to the sic, bea has prepared a concordance between its isi codes and the corresponding sic codes (table 9). The precision of industry-level mnc data may be limited by the degree of consolidation in U.S.- parent and foreign-affiliate data. U.S. -parent and foreign-affiliate data are not collected for in- dividual establishments (or plants) or even for individual business enterprises (or companies), which may consist of a number of establish- ments. 30 Rather, they are collected for a group of 25. See "Alternative Frameworks for U.S. International Transactions," Survey 73 (December 1993): 50-61. 26. For details, call the ita's Trade Development unit at (202) 482-1461. 27. "U.S. Multinational Companies: Operations in 1992," Survey 74 (June 1994): 45- 28. bea frequently receives requests for the names of U.S. mnc's, but the act prohibits it from providing the information. Such requests are sometimes directed to private sources that have produced publicly available directories of U.S. mnc's. One such publication is the Directory of American Firms Operating in Foreign Countries 13th ed. (New York, ny: Uniworld Business Publications, Inc., 1994), which provides a list of the names and addresses of U.S. companies that have foreign affiliates, by host country. Additionally, the International Directory of Corporate Affiliations (New Providence, ni: National Register Publishing Company, 1994) provides a list of the names and addresses of major companies worldwide that have foreign affiliates, by company. 29. Data users requiring special tabulations should submit their requests in writing, including a justification of need, and bea will consider each request on a case-by-case basis. Requests for, or questions about, special tabulations should be directed to the International Investment Division (BE-50), Data Re- trieval and Analysis Branch, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, dc 20230. 30. A business establishment is a business or industrial unit at a single ge- ographic location (such as a sporting goods store) that produces or distributes goods or performs services. A business enterprise is a business organization consisting of one or more establishments that are part of the same legal entity (such as a company- owned chain of sporting goods stores). A consolidated business enterprise is 210 BEA STUDIES OF DIRECT INVESTMENT Table 9. — International Surveys Industry (ISI) Categories and the Corresponding 1987 Standard Industrial Classification (SIC) Categories Industry Petroleum: Oil and gas extraction: Crude petroleum extraction (no refining) and natural gas Oil and gas field services Petroleum and coal products: Integrated petroleum refining and extraction Petroleum refining without extraction Petroleum and coal products, nee Petroleum wholesale trade Other: Petroleum tanker operations Petroleum and natural gas pipelines Petroleum storage for hire Gasoline service stations Manufacturing: Food and kindred products: Grain mill and bakery products: Grain mill products Bakery products Beverages Other: Meat products Dairy products Preserved fruits and vegetables Other food and kindred products Chemicals and allied products: Industrial chemicals and synthetics Drugs Soap, cleaners, and toilet goods Agricultural chemicals Chemical products, nee Primary and fabricated metals: Primary metal industries: Ferrous Nonferrous Fabricated metal products: Metal cans, forgings, and stampings Cutlery, hand tools, and screw products Heating and plumbing equip, and structural metal prod. Fabricated metal prod., nee, ordnance, and services ... Machinery, except electrical: Farm and garden machinery Construction, mining, and materials handling machinery .. Computer and office equipment Other: Engines and turbines Metalworking machinery Special industry machinery General industry machinery and equipment Refrigeration and service industry machinery Machinery, except electrical, nee Electric and electronic equipment: Household appliances Household audio and video, and communications equip- ment. Electronic components and accessories Electrical machinery, nee Transportation equipment: Motor vehicles and equipment Other Other manufacturing: Tobacco products Textile products and apparel: Textile mill products Apparel ana other textile products Lumber, wood, furniture, and fixtures: Lumber and wood products Furniture and fixtures Paper and allied products: Pulp, paper, and board mills Other paper and allied products Printing and publishing: Newspapers Miscellaneous publishing Commercial printing and services Rubber products Miscellaneous plastics products Glass products Stone, clay, and other nonmetallic mineral products Instruments and related products: Measuring, scientific, and optical instruments Medical instruments and supplies and opthalmic goods Photographic equipment and supplies Other: Leather and leather products Miscellaneous manufacturing industries Wholesale trade: Durable goods: Motor vehicles and equipment Lumber and construction materials Professional and commercial equipment and supplies Corresponding 1987 SIC code Industry Metals and minerals Electrical goods Hardware, plumbing, and heating equipment and supplies Machinery, equipment and supplies, nee Durable goods, nee Nondurable goods: Paper and paper products Drugs, proprietaries, and sundries Apparel, piece goods, and notions Groceries and related products Farm-product raw materials Nondurable goods, nee Banking Finance (except banking), insurance, and real estate: Finance, except banking: Savings institutions and credit unions Business franchising Other Insurance: Life insurance Accident and health insurance Other Real estate Holding companies Services: Hotels and other lodging places Business services: Advertising Equipment rental (excluding automotive and computers) Computer and data processing services: Computer processing and data preparation services Information retrieval services Computer related services, nee Business services, nee: Services to buildings Personnel supply services Other Automotive rental and leasing Motion pictures, including television tape and film Health services Engineering, architectural, and surveying services Management and public relations services Other: Automotive parking, repair, and other services Miscellaneous repair services Amusement and recreation services Legal services Educational services Accounting, auditing, and bookkeeping services Research, development, and testing services Other services provided on a commercial basis Other industries: Agriculture, forestry, and fishing: Agricultural production— crops Agricultural production— livestock Agricultural services Forestry Fishing, hunting, and trapping Mining: Metal mining: Iron ores Copper, lead, zinc, gold, and silver ores Other metallic ores Metal mining services Nonmetallic minerals: Coal Coal mining services Nonmetallic minerals, except fuels Nonmetallic minerals services, except fuels Construction Transportation: Railroads Water transportation Transportation by air Pipelines, except petroleum and natural gas Passenger transport arrangement Transportation and related services, nee Communication and public utilities: Telephone and telegraph communications Other communications services Electric, gas, and sanitary services Retail trade: General and merchandise stores Food stores Apparel and accessory stores Eating and drinking places Retail trade, nee Corresponding 1987 SIC code 132 and part of 131 138 Part of 131 and part of 291 Part of 291 295 and 299 517 Part of 44 4612, 4613, and part of 492 Part of 4226 554 204 205 208 201 202 203 206, 207, and 209 281, 282, and 286 283 284 287 285 and 289 331,332, and 339 333, 334, 335, and 336 341 and 346 342 and 345 343 and 344 347, 348, and 349 352 353 357 351 354 355 356 358 359 363 365 and 366 367 361, 362, 364, and 369 371 372, 373, 374, 375, 376, and 379 21 22 23 24 25 261,262, and 263 265 and 267 271 272, 273, 274, and 277 275, 276, 278, and 279 301, 302, 305, and 306 308 321, 322, and 323 324, 325, 326, 327, 328, and 329 381,382, and 387 384 and 385 386 31 39 501 503 504 505 506 507 508 502 and 509 511 512 513 514 515 516, 518, and 519 6011,602, 608, and 6712 603 and 606 6794 609, 61,62, and 67 (except 671, 6732, part of 6794, and 6798) 631 632 633, 635, 636, 637, 639, and 64 65 and 6798 6719 70 731 735 7374 7375 737 (except 7374 and 7375) 734 736 732, 733, and 738 751 78 80 and part of 8741 871 874 (except part of 8741) 75 (except 751) 76 79 81 82 872 873 (except 8733) 72, 83, 84, 86, and 89 101 102, 103, and 104 . 106 and 109 108 122 and 123 124 14 (except 148) 148 15, 16, and 17 401 Part of 44 45 4619 472 41, 42 (except part of 4226), and 47 (except 472) 481 and 482 483, 484, and 489 49 (except part of 492) 53 54 56 58 52, 55 (except 554), 57, and 59 nee Not elsewhere classified. GUIDE TO BEA STATISTICS ON U.S. MNC S 211 enterprises under common control (referred to as "a consolidated business enterprise"). Enter- prises can be consolidated to different degrees. 31 U.S.-parent-company data tend to be more con- solidated than foreign-affiliate data; U.S. parents represent the fully consolidated domestic op- erations of a U.S. mnc. The data for highly diversified U.S. parent companies may include a wide variety of activities conducted by many dif- ferent establishments. Foreign-affiliate data tend to be less consolidated because under bea's re- porting requirements, foreign-affiliate operations can be consolidated only if they are in the same country and in the same three-digit industry or if they are integral parts of the same business operation. example: A U.S. company's German unit A man- ufactures tires and a majority of its sales are to its German unit B, which assembles automobiles. In this case, units A and B may be consoli- dated into one foreign affiliate. If the two units' operations are unrelated (such as an insurance company and a tire manufacturer), then each is recorded as a separate affiliate with its own industry classification. In most tabulations, all of the operations of a given U.S. parent or foreign affiliate are assigned to one primary industry, even if the parent or af- filiate has secondary activities in other industries. The primary industry is assigned in the following manner: (1) A U.S. parent or foreign affiliate is first clas- sified in the major industry that accounts for the largest percentage of its sales. The major industry groups used for this purpose are (a) agriculture, forestry, and fishing, (b) mining, (c) petroleum, (d) construction, (e) manufacturing, (f) trans- portation, communication, and public utilities, (g) wholesale trade, (h) retail trade, (i) finance, insurance, and real estate, and (j) services. (2) Within the major industry group, the par- ent or affiliate is classified in the two-digit isi subindustry in which its sales are largest. (3) Within this two-digit industry, the par- ent or affiliate is classified in the three-digit isi subindustry in which its sales are largest. This procedure ensures that the parent or af- filiate is not assigned to a three-digit subindustry that is outside its major industry group. a group of enterprises under common ownership or control. For example, a corporate conglomerate consisting of a holding company and its majority- owned manufacturing and financial services subsidiaries is a consolidated business enterprise. 31. For example, suppose a corporation called "Acme Inc." owns an ice cream manufacturing company (with several plants, or establishments) and a wholesale distribution subsidiary (with multiple depots, or establish- ments). All three business entities are enterprises, but Acme Inc. is the most consolidated. The following example illustrates the three- stage classification procedure. Suppose a parent's or an affiliate's sales were distributed as follows: Industry code Sales (Percentages of total) 352 I I 30 ^— 10 353 j 55 j ^^* 15 367 ' 25 508 45 where industry codes 351, 352, 353, and 367 are in manufacturing and code 508 is in wholesale trade. Because 55 percent of the parent's or af- filiate's sales were in manufacturing and only 45 percent were in wholesale trade, the parent's or affiliate's major industry is manufacturing. Because 30 percent of its sales within manufactur- ing were in two-digit industry 35 (nonelectrical machinery) — that is, the sum of the percentages in 351, 352, and 353 is 30 percent — and 25 percent were in two-digit industry 36 (electrical machin- ery), the parent's or affiliate's two-digit industry is 35. Finally, because its sales within industry 35 were largest in subindustry 353, the parent's or affiliate's three-digit subindustry is 353. Thus, the three-stage classification procedure results in the parent or affiliate being assigned to subindustry 353, even though its sales in that subindustry were smaller than its sales in either subindustries 508 or 367. Consolidating diverse activities into one pri- mary industry weakens the precision of industry- level data for parents and affiliates, but the degree of imprecision depends on the number of dif- ferent activities that are consolidated. For this reason, the industrial classifications of U.S. par- ents tend to be less precise than those of foreign affiliates. Tabulating data on the parents' and affiliates' sales by industry of sales, rather than by industry of affiliate, yields greater precision, bea collects sales data by three-digit isi code for each of a U.S. parent's eight largest industries of sales and for each of a foreign affiliate's five largest industries of sales. When classified this way, a parent's or affiliate's sales in secondary industries are shown in those industries rather than in the parent's or affiliate's primary industry. Several key data items for affiliates (such as assets, sales, and employment) are tabulated by industry of U.S. parent as well as by industry of affiliate in bea's published data. Nonduplica- tive affiliate data (such as gross product, capital expenditures, or employment) by industry of par- ent can be added to parent data by industry in 212 BEA STUDIES OF DIRECT INVESTMENT order to obtain data on the worldwide operations of U.S. mnc's by industry of parent. example: A U.S. automobile manufacturer has an affiliate A in the United Kingdom that assem- bles automobiles, an affiliate B in Canada that casts automobile wheel rims, and an affiliate C in Mexico that manufactures automobile audio components. By industry of affiliate, data for af- filiate A would be classified in motor vehicles and equipment manufacturing; those for affiliate B, in metal cans, forgings, and stampings manufactur- ing; and those for affiliate C, in audio, video, and communications equipment manufacturing. By industry of U.S. parent, however, data for all three affiliates would be classified in motor vehicles and equipment manufacturing. Table formats U.S.-mnc data are presented in a variety of table formats in order to provide the fullest possi- ble detail by country and by industry, while Table 10.— Revision Sequence for U.S.-MNC Data Sets Estimate Usual release date Balance of payments data: Quarterly releases: Preliminary estimate 10 weeks after end of quarter ' First revision 22 weeks after end of quarter ' Annual releases 2 : Preliminary estimate 10 weeks after end of year ' First revision 6 months after end of year Second revision 1 1/2 years after end of year Third revision 2 1/2 years after end of year Benchmark revision Approximately 3 1/2 years after end of benchmark survey year Financial and operating data: Preliminary estimate 1 1/2 years after end of year 3 2 1/2 years after end of year 3 Final estimate ensuring the confidentiality of company-specific information. For foreign affiliates, bea pub- lishes tables on selected data items (such as the direct investment position and affiliate employ- ment) that show each country in which there is usdia, along with regional subtotals (but with no cross- classification by industry). Likewise, ta- bles showing data by each three-digit isi code, along with two-digit subtotals (but with no cross- classification by country) are also published. 32 Tables showing data crossclassified by country and industry are less detailed; tables 13 and 14 (at the end of the article) illustrate the level of detail available. Revision sequence Preliminary estimates of the U.S.-mnc data are released as soon as the accuracy of the estimates can be reasonably ensured. Preliminary balance of payments flow estimates for a quarter are re- leased 10 weeks after the end of the quarter; preliminary annual financial and operating data are generally released iVz years after the end of a year (table 10). The data are then periodically revised as reported data are substituted for bea estimates of missing data or as reported data are revised. 1. This is a press release date. The data are subsequently published in the Survey of Cur- rent Business; see table 1 1 for details. 2. In annual and benchmark revisions, all quarters for the year are revised. 3. In benchmark survey years and immediately following years, data are generally released 1 to 4 months later. 32. Balance of payments and direct investment position data are shown in these formats in an annual article in the Survey (usually in the August issue) that presents detail for historical-cost position and related capital and income flows. Financial and operating data are shown in these formats in separate publications (see "Data Availability"). Table 11.— U.S.-MNC Data Series: Types of Information and Publications U.S-MNC data series Types of information Survey of Current Business articles and related publications Balance of payments and direct investment position data Financial and operating data Direct investment income; royalties and li- cense fees; and other services trans- actions between U.S. parents and their foreign affiliates; direct investment capital flows; and the direct investment position. U.S. parents' and foreign affiliates' balance sheets and income statements; sales by type and destination; employment and em- ployee compensation; U.S. merchandise trade; gross product (value added) 2 ; and technology. Also external financing for MOFA's. Quarterly data on direct investment capital, income, and other flows appear in the March, June, September, and December Survey articles on U.S. international transactions. Annual direct investment position data appear in the June Survey article on the direct investment positions on a histor- ical-cost basis. Detailed annual data on the position and related capital, income, and other flows between parents and affiliates generally appear in the August Survey. Some historical data are available in separate BEA publications (see table 12). ' Summary annual financial and operating data appear in articles on U.S. multinational companies' operations, usually in the June Survey. More detailed data appear in separate BEA publications (see table 12). 1. It should be noted, however, that the data prior to 1982 do not reflect certain definitional changes that BEA instituted in recent years. For details on these changes, see "U.S. Direct In- vestment Abroad: Detail for Position and Balance of Payments Flows, 1989," Survey 70 (August 1990): 57 and "U.S. International Transactions: First Quarter 1992 and Revised Estimates for 1976-91," Survey 72 (June 1992): 70-77. 2. U.S. parent gross product data are only available in the benchmark survey years of 1977, 1982, and 1989. MNC Multinational company MOFA Majority-owned foreign affiliate GUIDE TO BEA STATISTICS ON U.S. MNC S 213 Data availability bea makes its U.S.-mnc data available through a variety of media: In publications (both in the Survey and in separate data publications), on diskette, on cd-rom (the National Trade Data Bank cd-rom), and on the Internet. 33 Table 11 33. Full issues of the Survey, individual Survey articles on mnc's, and the data from the National Trade Data Bank cd-rom are on stat-usa's World Wide Web system, which is available for a modest subscription fee. To access this information, go to http://www.stat-usa.gov/BEN/Services/beahome.html. For further information, contact the stat-usa Help Line on (202) 482-1986. summarizes the availability of published bea data on U.S. mnc's, and table 12 provides ordering in- formation for specific publications and diskettes. Additionally, a comprehensive list of articles, publications, and diskettes on direct investment is available from the International Investment Division, Bureau of Economic Analysis, U.S. De- partment of Commerce, BE-50, Washington, dc 20230. Tables 13 and 14 follow. £| Table 12.— Ordering Information for BEA Publications and Diskettes on U.S i. MNC'S Year(s) covered Title Publication Diskette Source Acession or stock number Price BEA accession number Price Balance of payments and direct investment position data 1950-76 1977-81 1982-93 1989-93 Selected Data on U.S. Direct Investment Abroad, 1950-76 U.S. Direct Investment Abroad: Balance of Payments and Direct Investment Position Estimates, 1977-81. U.S. Direct Investment Abroad: Balance of Payments and Direct Investment Position Estimates, computer printout (annual). U.S. Direct Investment Abroad: Balance of Payments and Direct Investment Position Estimates, 1989-93. NTIS NTIS BEA BEA PB87-121869 PB87-1 78265 50-94-20-577 $36.50 $19.50 $10.00 per year 50-94-40-577 $20.00 Financial and operating data 1977 1982 1983 U.S. Direct Investment Abroad, 1977 U.S. Direct Investment Abroad, 1982 Benchmark Survey Data U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates: Revised 1983 Estimates NTIS NTIS BEA BEA BEA NTIS NTIS NTIS GPO BEA GPO GPO PB82-1 30634 PB86-169117 50-86-10-103 50-87-10-103 50-88-10-103 PB90-1 14125 PB90-258898 PB92-101583 003-010-00234-4 50-93-10-103 003-010-00247-6 003-010-00245-0 $61.00 $52.00 $5.00 $5.00 $5.00 $19.50 $19.50 $19.50 $25.00 $6.50 $6.50 $6.50 50-8640403 50-87-40409 50-8840-403 50-8940-403 50-9040403 50-91-40403 50-92-40403 50-9340403 50-9440403 50-9440404 $20.00 1984 Revised 1984 Estimates $20.00 1985 Revised 1985 Estimates $20.00 1986 1987 1988 1989 1990 Revised 1986 Estimates Revised 1987 Estimates Revised 1988 Estimates U.S. Direct Investment Abroad, 1989 Benchmark Survey, Final Results U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates: Revised 1990 Estimates $20.00 $20.00 $20.00 $20.00 $20.00 1991 1992 Revised 1991 Estimates Preliminary 1992 Estimates $20.00 $20.00 Note— To place an order, use the forms found in the appendix to "User's Guide to BEA Information," Survey 75 (January 1995). MNC Multinational company BEA Bureau of Economic Analysis GPO U.S. Government Printing Office NTIS National Technical Information Service 214 BEA STUDIES OF DIRECT INVESTMENT Table 13.— Employment of Nonbank Foreign Affiliates, Country by Industry of Affiliate, 1992 [Thousands] All indus- tries Petro- leum Manufacturing Whole- sale trade Finance (except bank- ing), in- surance, and real estate Services Total Food and kin- dred products Chemi- cals and allied products Primary and fab- ricated metals Machin- ery, ex- cept elec- trical Electric and elec- tronic equip- ment Trans- portation equip- ment Other manu- facturing Other in- dustries All countries 6,727 J5 230.2 4,006.5 495.1 587.1 198.9 507.2 557.0 738.7 922.4 550.8 150.3 569.1 1,220.8 Canada 872.7 25.0 406.5 ( D ) 48.0 31.6 26.3 32.4 P) 111.8 74.4 28.5 69.9 268.4 Europe 2,790.9 76.7 1,666.3 167.3 264.8 86.9 279.1 166.5 313.8 387.9 307.1 72.5 336.4 331.9 Austria Belgium Finland France 22.1 111.5 19.9 8.4 402.3 1.0 2.1 .6 .5 6.1 P) 74.9 7.6 2.7 222.1 1.5 10.1 2.0 .1 14.6 .5 21.0 1.6 .5 42.4 .4 3.5 .6 .1 8.4 .8 7.0 .3 P) .7 5.6 1.1 .1 20.1 4.2 P) .4 P) P) P) 1.8 1.6 70.3 6.6 16.9 7.1 3.7 61.9 .4 1.4 .3 5.1 2.1 12.9 3.3 .8 83.9 .9 .8 23.3 Germany Greece Ireland Italy Luxembourg Netherlands 581.7 11.3 43.5 176.8 7.9 145.1 13.6 .5 .5 4.0 .1 8.4 418.6 4.8 39.7 114.1 6.3 84.9 23.5 1.5 1.9 10.8 12.6 49.9 1.8 4.8 25.0 17.8 26.0 1.5 3.1 .7 7.5 70.1 7.1 24.9 .4 P) P) .3 6.4 13.2 .1 9.5 P) 1.5 15.0 .3 1.8 81.4 1.3 16.5 22.1 4.8 P) 44.3 3.6 1.8 24.8 .1 18.0 4.9 .4 .4 2.1 .1 P) 36.1 2.1 .5 9.4 .8 21.3 64.2 .5 22.4 .6 P) Norway Portugal Spain Sweden Switzerland Turkey United Kingdom 21.3 24.5 138.7 42.7 53.2 21.6 917.9 40.5 ( D ) .4 .8 .6 .9 1.4 24.9 ( D ) 4.0 15.1 102.0 ( D ) 22.2 15.8 462.8 ( D ) .3 3.9 16.3 1.0 % 44.8 ( D ) .4 3.5 20.2 2.6 1.6 2.6 62.3 6.4 P) .1 3.3 P) .6 1.0 28.2 .4 P) 7.2 6.5 2.0 .4 86.1 .2 .2 P) 9.3 .8 1.4 P) 51.0 P) 2.5 P) .1 4.9 O P) P) P) P) 5.4 8 P) 5.4 16.0 11.1 16.4 2.6 58.9 P) .1 .2 2.2 .4 1.5 P) .1 3.6 2.6 6.7 2.2 P) 1.4 135.8 P) .9 .9 11.1 P) P) .4 P) Other 3.2 Latin America and Other Western Hemisphere 1,395.1 29.5 997.3 161.4 147.3 47.4 54.9 163.4 206.0 216.9 41.9 14.2 67.9 244.2 South America 601.6 61.0 349.9 25.6 43.0 9.9 12.9 91.9 7.4 22.7 4.0 5.8 1.3 4.1 .9 1.7 4.3 .5 452.1 41.6 315.3 9.8 23.9 6.3 3.4 48.0 3.7 ( D ) 12.9 32.7 1.1 3.7 1.4 1.1 l D ) 82.7 9.9 48.6 2.4 7.8 1.1 1.3 11.4 .2 27.4 1.2 16.7 3.6 2.5 .7 .4 2.2 .2 33.4 .9 32.2 .3 33.4 P) 23.7 .4 1.2 .3 .1 5.5 P) 108.8 8.3 n p> .5 7.2 P) P) i 2.3 P) 2.3 .5 P) .8 24.4 5.2 5.5 4.9 2.2 .6 P) P) .2 5.7 .8 1.1 2.9 .5 .1 .3 .1 26.3 1.9 12.0 2.2 3.5 .5 6.1 .1 70.5 Argentina Brazil Chile Colombia Ecuador Peru Venezuela Other 7.4 10.3 4.5 8.8 2.0 P) P) 2.8 Central America 746.7 27.6 11.4 22.0 661.0 19.5 5.2 3.9 .3 .2 1.6 1.1 .6 528.8 14.4 5.8 6.9 493.7 3.9 4.1 91.7 3.9 2.7 4.2 79.4 .8 .6 61.6 1.7 1.0 1.1 56.4 1.0 .3 20.1 1.0 .3 18.4 .4 21.5 21.5 129.8 P) 126.6 P) 97.2 97.2 106.9 P) 1.9 1.5 94.2 2.0 P) 14.5 1.3 .3 .3 11.2 P) 6.4 .2 .2 5.7 .2 .1 P) .1 R A .1 P) Costa Rica 11.8 Guatemala Honduras Mexico Panama Other 4.6 14.5 p) Other Western Hemisphere 46.9 8.0 1.1 2.8 19.4 6.4 1.3 2.6 3.0 2.4 3.0 .1 .2 .4 .1 .2 .3 .7 C) 1.0 16.5 .4 .4 { i .2 1.0 1.8 ( D ) < D ) .1 < C i .1 .1 .1 3.1 .3 .7 .9 .1 .7 .4 .2 .1 .1 P) .1 .4 fl 1.6 .2 1.2 P) 3.0 .1 .1 .3 .6 .9 .1 .9 .2 2.1 .2 1.1 .2 .2 .4 .1 P) 6.4 .4 1.0 .4 P) .7 .5 .3 .4 p) Bahamas Barbados Bermuda Dominican Republic Jamaica Netherlands Antilles .8 P) .1 Trinidad and Tobago United Kingdom Wands, Caribbean p] Other Africa Egypt Nigeria South Africa 124.1 14.1 10.6 39.1 60.4 16.6 1.4 5.1 ( D ) 64.7 7.0 2.7 312 23.8 O P .6 .7 3.9 10.7 1.8 1.0 5.5 2.4 6.1 .4 .2 2.7 2.9 6.0 p> .2 2.6 .5 P) .6 P) Pi 1.0 .4 P) O P) 6.7 1.0 2.4 1.8 1.5 .9 .4 .5 7.5 P) .8 P) 27.7 (D o> Other Middle East 50.0 29.0 13.2 3.1 4.6 7.0 ( D ) 1.7 1.3 ( D ) 19.1 12.5 6.2 .1 .3 ( D ) ( D ) .1 5.3 P) 4.0 A 1.8 1.3 .5 .5 .5 4.9 4.7 .1 .1 .4 .4 P) 2.5 1.5 P) 1.9 .4 .3 .9 .2 .6 .2 .1 .3 18.4 13.4 4.5 . .4 .1 3,1 Israel Saudi Arabia P) .5 United Arab Emirates .3 Other P) Asia and Pacific 1,466.9 366.2 32.4 85.8 40.5 47.0 394.9 53.9 84.3 ( D ) 87.9 90.7 57.7 73.1 ( D ) 63.0 9.1 .4 .7 .8 < D i 13.8 n, el ! 1 .3 3.1 2.0 852.6 110.3 29.2 53.5 36.4 12.8 228.2 37.4 72.6 <°i 79.6 68.9 43.4 57.1 ( D ) 110.7 ( D ) P) Pi .5 P) 5.6 4.5 .7 .3 40.0 P) U ! ! P) 110.9 18.6 3.6 1.3 14.7 4.5 33.1 4.4 2.2 % 1.5 6.4 3.3 P) 25.1 5.7 .3 1 3 .6 4.0 .9 P) .1 2.3 1.3 1.6 1.8 .1 140.5 9.2 2.1 4.9 9.3 .4 52.2 3.0 .3 32.3 3.2 P) 187.2 5.5 P) 1.1 P) 23.4 8.8 48.1 .2 P) 28.2 % .5 105.3 P) P) .1 1.9 60.8 5.9 £! P) .9 P) 172.9 23.5 2.0 22.3 5.6 2.9 49.1 9.9 14.8 12.5 15.3 P) 5.8 5.0 P) 118.8 P) 2.1 12.0 P) 1.8 47.7 4.4 2.9 3.1 1.9 5.8 5.2 5.2 .6 33.6 4.9 3.1 .6 P) P) 1.8 .7 1.6 P) Pi 1.9 .2 69.0 27.3 .1 4.5 P) .2 17.6 7.2 P) 1.0 .5 3.8 2.8 1.6 .1 329.9 Australia China Hong Kong P) .7 12.0 India Indonesia Japan Korea. Republic of Malaysia New Zealand P) ,Di 8 Philippines Singapore Taiwan Thailand Other P) P) 4.2 P) 27.9 33.3 2,581.2 182.3 12.4 ( D ) 62.1 36.3 15.5 Addenda: Eastern Europe 2 ( D ) 1,552.7 76.2 P) 142.1 17.2 1.3 250.2 22.1 82.8 4.2 .2 268.5 .7 P) 149.9 7.1 .5 294.1 8.5 3.7 365.1 16.4 P) 258.9 10.9 .1 70.1 1.4 .1 315.3 11.3 2.5 European Communities (12) 3 322.1 OPEC' 46.2 • Less than 50 employees. D Suppressed to avoid disclosure of data of individual companies. 1. "International" affiliates are Uiose that have operations in more than one country and that are engaged in petroleum shipping, other water transportation, or operating movable oil- and gas-drilling equipment. 2. "Eastern Europe" comprises Albania, Armenia, Azerbaiian, Belarus, Bulgaria, Czechoslovakia, Estonia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Poland, Romania, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. 3. European Communities (12) comprises Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxem- bourg, Netherlands, Portugal, Spain, and the United Kingdom. 4. OPEC is the Organization of Petroleum Exporting Countries. Through yearend 1992, its members were Algeria, Ecuador, Gabon, Indonesia, Iran, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Ven- ezuela. GUIDE TO BEA STATISTICS ON U.S. MNC S 215 Table 14.— Employment of Nonbank Foreign Affiliates, Industry of Affiliate by Country, 1992 [Thousands) Total Canada Europe Total Of which: France Ger- many Italy Nether- lands Switzer' land United King- dom Latin America and Other Western Hemi- sphere Africa Middle East Asia and Pacific Total Of which: Australia Inter- national Japan All Industries Petroleum Oil and gas extraction Crude petroleum extraction (no relining) and natural gas ... Oil and gas field services Petroleum and coal products Integrated petroleum refining and extraction Petroleum refining without extraction Petroleum and coal products, nee Petroleum wholesale trade Other Manufacturing Food and kindred products Grain mill and bakery products Beverages Other Chemicals and allied products Industrial chemicals and synthetics Drugs Soap, cleaners, and toilet goods Agricultural chemicals Chemical products, nee Primary and fabricated metals Primary metal industries Ferrous Nonlerrous Fabricated metal products Machinery, except electrical Farm and garden machinery Construction, mining, and materials handling machinery Computer and office equipment Other Electric and electronic equipment Household appliances Household audio and video, and communication equipment Electronic components and accessories Electrical machinery, nee Transportation equipment Motor vehicles and equipment Other Other manufacturing Tobacco products Textile products and apparel Lumber, wood, furniture, and fixtures Paper and allied products Printing and publishing Rubber products Miscellaneous plastics products Glass products Stone, clay, and other nonmetallic mineral products Instruments and related products Other Wholesale trade Durable goods Nondurable goods Finance (except banking), Insurance, and real estate Finance, except banking Insurance Real estate Holding companies Services Hotels and other lodging places Business services Advertising Equipment rental (ex. automotive and computers) Computer and data processing services Business services, nee Automotive rental and leasing Motion pictures, including television tape and film Health services Engineering, architectural, and surveying services Management and public relations services , Other Other Industries Agriculture, forestry, and fishing Mining Metal mining Nonmetallic minerals , Construction Transportation Communication and public utilities Retail trade 6,727.5 230.2 97.0 60.3 36.7 71.7 ( D ) 36.9 ' D i 39.5 21.9 4,006.5 495.1 89.8 ( D ) ( D ) 587.1 173.3 187.0 149.4 10.7 66.7 198.9 54.6 11.3 43.3 144.4 507.2 ( D ) 72.2 235.2 ( D ) 557.0 106.3 41.3 306.9 102.5 738.7 706.9 31.8 922.4 65.4 106.4 54.4 166.4 34.1 84.9 55.5 54.1 36.2 195.5 69.6 550.8 380.7 170.0 150.3 51.0 94.0 3.2 2.1 569.1 54.0 332.2 44.3 11.4 82.4 194.1 17.1 36.7 18.9 69.0 1,220.8 80.2 91.6 72.1 19.6 73.3 89.8 172.5 713.4 872.7 25.0 8.9 14.6 h .2 1.0 .5 406.5 9.8 ( D ) 28.7 48.0 19.0 11.1 9.1 .5 8.2 31.6 10.3 ( D ) ( D ) 21.3 26.3 .4 2.0 14.7 9.1 32.4 11.2 4.2 6.1 10.9 17.9 111.8 2.4 11.0 13.1 <°) 8.6 P) 3.7 1.7 11.2 7.9 ( D ) 74.4 ( ? ( D ) 28.5 7.7 18.2 69.9 4.0 38.2 3.8 ( D ) 5.0 ( D ) 1.9 ( D ) 1.7 2.2 1.4 268.4 .2 10.4 213.1 2,790.9 76.7 25.3 15.3 10.0 30.1 8.9 19.8 1.4 13.8 7.5 1,666.3 167.3 41.9 29.7 95.7 264.8 75.8 93.0 62.5 3.0 30.6 86.9 17.8 P p 69.1 279.1 14.4 ( D ) 127.0 P) 166.5 37.3 16.1 75.5 37.5 313.8 302.8 11.0 387.9 ( D ) 39.3 16.8 ( D ) (D i 28.9 26.4 ( D ) 14.0 112.3 32.9 307.1 225.2 81.9 72.5 27.5 43.4 .6 1.1 336.4 16.7 208.0 29.5 8.9 56.7 113.0 ( D ) 14.2 5.6 24.8 13.1 ( D ) 331.9 ( D ) .8 .3 .5 P 48.4 25.9 208.5 402.3 222.1 14.6 5.5 42.4 8.6 n, .6 ( D ) 8.4 1.3 .7 .6 7.1 P) ( D ) 11.8 20.1 1.9 1.0 8.9 8.3 p> 14.0 70.3 .4 8.5 E| 6.4 2.7 1.7 18.8 5.3 61.9 48.7 13.2 5.1 2.1 2.8 .2 83.9 2.0 61.1 ( D ) .2 11.9 .4 1.0 .8 ( D ) 23.3 1.0 .3 .3 8.5 3.4 .3 9.8 581.7 13.6 1.2 .7 .5 4.3 P) W 3 8 418.6 23.5 8.5 49.9 17.2 14.1 P 26.0 4.0 ( D ) ( D ) 22.0 70.1 ( D ) 3.8 35.4 P) 10.0 2.4 ( D ) 5.0 P h 81.4 ( D ) 8.4 ( D ) 15.2 1.1 7.6 3.8 .8 4.0 18.4 10.1 44.3 30.6 13.8 4.9 3.2 1.4 .3 36.1 5.1 18.4 4.0 P) 5.4 P P 1.6 6.4 64.2 .2 7.2 n pj 35.8 176.8 P) .1 .2 P) 114.1 10.8 3.2 P) Pi 25.0 5.2 11.1 5.3 .6 2.8 3.1 1.4 P) P) 1.7 24.9 .1 1.0 P) P) 13.2 6.2 P) 3.5 15.0 P) P) 22.1 1.1 1.1 .4 2.6 .7 1.3 2.2 P) P) 8.6 .7 24.8 18.3 6.5 2.1 .9 .9 .1 .2 9.4 .6 P) 1.6 P) .7 .4 .3 P) .6 2.3 22.4 .3 P P) 145.1 8.4 P) P) .4 P) .1 .4 .4 84.9 12.6 2.1 17 8 11.0 1.8 2.4 .2 2.3 7.5 2.7 4.8 P) 9.6 3.8 9.5 .2 P) 2.3 P) 1.8 1.7 .2 P P) 1.4 .2 P) 1.5 P) .9 .6 7.5 .3 18.0 13.7 4.3 3.4 P) .1 21.3 .5 138 3.7 .1 4.1 5.9 .1 P 2.8 .3 P) 1.0 p) 4.6 1.4 53.2 .9 .2 .6 .1 22.2 P) .5 P) 1.6 .5 .7 .3 .2 P) .1 .2 .2 .2 .1 <*i 2.2 .2 16.4 11.4 5.0 1.5 1.2 .2 .1 .4 P) .5 2.7 P) .3 .7 .1 1.2 917.9 24.9 11.6 4.5 7.0 11.1 P) P 1.6 .7 462.8 44.8 8.5 11.3 25.1 62.3 15.2 19.0 17.6 .3 10.2 28.2 4.8 1.8 2.9 23.4 86.1 4.9 8.0 31.6 41.7 51.0 15.4 2.4 21.8 11.4 P> 74.2 P) P) 10.8 P) P) 8.9 7.8 4.5 P) 3.2 43.1 7.4 58.9 40.6 18.3 16.1 P) .3 135.8 3.0 82.2 5.9 5.0 24.8 46.6 P) 10.8 4.1 P) 5.2 7.3 152.0 1,395.1 29.5 12.3 4.7 7.6 5.8 2.1 1.8 1.9 10.6 .9 997.3 161.4 24.5 28.1 108.8 147.3 45.8 36.8 45.6 3.4 15.9 47.4 15.9 1.0 14.9 31.5 54.9 P) 9.0 9.9 163.4 42.0 9.5 72.5 39.4 206.0 204.6 1.3 216.9 P) 30.5 10.9 42.3 P> 30.0 14.2 18.6 5.5 26.1 11.3 41.9 22.2 19.6 14.2 P) 67.9 17.6 39.9 2.6 .7 3.6 329 .1 .4 P) P) .8 5.2 244.2 55.2 44.9 33.6 11.3 6.4 1.7 P P) 124.1 16.6 8.8 P) P) .6 5.7 P) 64.7 P) P> 1.5 10.7 .4 4.5 6.1 2.7 S3 P) 3.4 6.0 2.6 2.6 P) P) P) 10.2 P) .1 .2 P) .3 P) 1.5 6.7 P) 7.5 P> A 27.7 P) 15.9 P) P) P) 1.4 50.0 7.0 5.6 2.6 3.1 .2 P) 19.1 P) .1 .1 .4 4.9 2.4 2.5 .2 .1 P) 18.4 .4 .2 1.8 P) 2.9 A 3.1 pi .6 P) 1,466.9 63.0 29.8 24.1 5.6 19.2 P) 13.7 P) 8.3 5.7 852.6 110.7 P) P 43.3 110.9 30.0 41.6 26.3 3.9 9.3 25.1 7.5 3.0 4.5 17.6 140.5 .4 24.5 83.5 32.2 187.2 15.9 9.0 150.2 12.0 105.3 104.1 1.2 172.9 4.2 25.6 P) P) 4.5 9.3 10.0 7.5 5.0 47.3 20.5 118.8 79.8 39.0 33.6 11.8 21.1 .4 .4 69.0 6.3 35.6 7.2 .1 15.3 13.0 1.3 .5 P) P) 3.6 9.2 329.9 11.7 19.5 18.5 .9 11.8 P) P) 2607 366.2 9.1 4.0 P) P) P) P) .1 P) 110.3 P) 9.7 18.6 P) 4.1 2.8 .3 P) 5.7 1.8 P) P) 3.9 9.2 1.8 1.1 6.4 5.5 2.1 .9 .7 1.8 P) .1 23.5 P) 3.4 .4 P) 2.3 .2 1.7 .1 .8 6.6 1.2 Q p) 6.1 4.9 3.0 1.9 27.3 4.0 10.9 P) 3.1 P) .8 .1 P) P) P) 11.7 10.8 .9 7.9 1.5 P) P) 394.9 13.8 7.4 p) 5.3 P 2.8 3.6 228.2 5.6 .2 1.8 3.6 33.1 10.4 P) 7.3 .3 4.0 .6 .1 .4 3.5 52.2 .2 13.0 P) 23.4 21.5 1.9 60.8 60.7 .1 49.1 1.3 .3 3.4 .3 1.7 P) P) 1.6 P) .6 47.7 35.2 12.5 P) 5.5 P) 17.6 .1 13.0 1.0 .1 •n' P) .2 6 1.7 2.0 P) 27.9 12.4 6.2 62 6.1 P) 15.5 15.5 ' Less than 50 employees. D Suppressed to avoid disclosure of data of individual companies. nee Not elsewhere classified. GUIDE TO BEA STATISTICS ON FDIUS 217 A Guide to bea Statistics on Foreign Direct Investment in the United States By Alicia M. Quijano Much of the material in this article was drawn from method- ologies and technical notes by Betty L. Barker, R. David Belli, and Ned G. Howen- stine, which appear in other sources. This article was first published in the February 1990 Survey of Current Business. Editor's Note: This article appeared in 1990 and describes the data series as they existed at that time; since then, new data and new measures have become available. First, the establishment-level data on foreign direct investment in the United States have become available; these data are described in "Characteristics of Foreign-Owned U.S. Manufacturing Es- tablishments." Second, bea has introduced measures of the direct investment position valued at current-period prices, which are described in "Valuation of the U.S. International Investment Position," and a measure of direct investment in- come valued on a current-cost (replacement- cost) basis, which is described in "A Guide to bea Statistics on U.S. Multi- national Companies." (The current-cost income measure is defined in the same way for both U.S. direct investment abroad and foreign direct investment in the United States.) The recent surge in foreign direct invest- ment in the United States has caused a great deal of public debate on the magnitude and significance of such investment. Attention is fo- cused on questions such as how much is invested, who is investing from abroad, what industries are most affected, what States receive the most invest- ment, and how are these investments financed. This guide is designed to help those interested in foreign direct investment in the United States understand the data that are collected and pub- lished by the Bureau of Economic Analysis (bea). Its purpose is to explain the types of information collected and clarify the differences in the data sets. Direct investment implies that a person in one country has a lasting interest in and a degree of influence over the management of a busi- ness enterprise in another country. The criteria used to distinguish direct investment from other Further Information About Direct Investment A list of other articles, publications, and diskettes on direct investment is available from bea. Requests should be sent to International Investment Division, Bureau of Economic Analysis, U.S. Department of Commerce, BE-50, Washington, dc 20230. types of investment are rather arbitrary. In most countries, some percentage of ownership of a for- eign company is used. The criterion used in the United States is set forth in the International In- vestment and Trade in Services Survey Act, which authorizes the collection of the direct investment data by bea. Under the act, ownership or control of 10 percent or more of an enterprise's voting securities is considered evidence of a lasting inter- est in or a degree of influence over management sufficient to constitute direct investment. Thus, foreign direct investment in the United States is defined as the ownership or control, directly or indirectly, by one foreign person of 10 percent or more of the voting securities of an incorpo- rated U.S. business enterprise or the equivalent interest in an unincorporated U.S. business en- terprise. Any foreign investment that is not direct investment by this definition is considered port- folio investment. Data on portfolio investment are collected by the Treasury Department and are included, together with bea's data on direct in- vestment, in the U.S. international transactions accounts and in the U.S. international invest- ment position of the United States, both of which appear in the Survey of Current Business. bea's data provide comprehensive and reliable information needed to monitor, assess the im- pact of, and guide U.S. policy on foreign direct investment in the United States. They give a detailed picture of the levels, growth, origin, and State and industrial distribution of foreign direct investment and of the financial and op- erating characteristics of the U.S. affiliates. The data are collected under the International In- vestment and Trade in Services Survey Act by means of mandatory surveys of the U.S. affiliates of foreign companies; they are published in reg- ular articles in the Survey and in supplementary publications. 1 1. See table 5 on page 224. The data are also available on diskette or magnetic tape, and bea can prepare additional tabulations at cost, within the limits of available resources. 218 BEA STUDIES OF DIRECT INVESTMENT General Description of Data Balance of payments and direct investment position data bea collects three broad sets of data: (1) Balance of payments and the direct investment position data, (2) financial and operating data of U.S. affil- iates, and (3) establishment and acquisition data. Each of these data sets focuses on a distinct as- pect of foreign direct investment in the United States. The balance of payments and direct in- vestment position data track the transactions and positions of both new and existing U.S. affili- ates with their foreign parents; the financial and operating data provide a picture of the overall ac- tivities of the U.S. affiliates; and the acquisition and establishment data track new direct invest- ments, regardless of whether the invested finds were raised here or abroad. This set of data covers the U.S. affiliate's trans- actions and positions with its foreign parent or other members of its foreign parent group. (See the box below.) The major items included in the U.S. balance of payments are direct investment capital flows, direct investment income, royalties and license fees, and other services transactions with affiliated foreigners. The foreign direct investment position in the United States is a component of the U.S. international investment position. Balance of payments data are collected in two bea quarterly surveys and are published in quarterly articles on U.S. international trans- actions in the March, June, September, and December issues of the Survey of Current Relationships and Transactions of U.S. Affiliates with Their Foreign Parent Groups In many cases, a U.S. affiliate is only one unit in a global network of corporate affiliations. Thus, a U.S. affiliate may have a foreign parent who, in turn, is owned by a direct investor of a third country or who has affiliates in other countries. An affiliate's foreign parent is the first person outside the United States in the U.S. affiliate's ownership chain that has a direct invest- ment interest in the affiliate. Its ultimate beneficial owner (UBO) is that person, proceeding up the U.S. affiliate's ownership chain begin- ning with and including the foreign parent, that is not owned more than 50 percent by another person. The foreign parent group (FPG) consists of (1) the foreign parent, (2) any foreign person, proceeding up the foreign parent's ownership chain, that owns more than 50 percent of the person below it, up to and including the UBO, and, (3) any foreign person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it. In the U.S. balance of pay- ments, transactions of U.S. affiliates with all members of the FPG, not only transactions with foreign parents, are shown as transactions with "affiliated" foreigners. The diagram below illustrates relationships and transactions that could occur between a U.S. affiliate and members of the FPG. Com- pany A is a U.S. chemical company owned 50 percent by Company B, a Netherlands finance affiliate, which is owned 100 percent by Company C, a French manufacturing company. No single investor has more than 50-percent ownership of Company C. Like Company B, Company D, a British company, is owned 100 percent by Company C. Therefore, Com- pany A's foreign parent is Company B; Company A's UBO is Company C. Company A's FPG consists of Companies B, C, and D. Company D is in the FPG because, even though it does not have an ownership interest in the U.S. affiliate, it is owned more than 50 percent by Company C, the UBO. If Company A receives a loan from Company D, the transaction would be treated as a direct investment transaction in the balance of payments accounts, because Company D is part of the FPG. The flow would be recorded as an intercompany debt inflow from the United Kingdom; repayments by the affiliate would be recorded as outflows to the United Kingdom. If Company A pays dividends to Company B, the transaction would be recorded as a direct investment income payment between the United States and the Netherlands in the U.S. balance of payments because the dividends are paid directly to the foreign parent (not the UBO). If the Netherlands company (Company B) then passes on the dividend to the French UBO (Company C), this transaction would not be a U.S.- to-foreign transaction; it is a foreign-to-foreign transaction and as such is not recorded in the U.S. balance of payments. (It would, however, be recorded in the balance of payments accounts of France and the Netherlands.) The direct investment positions of both Company B and Company D are equal to the book value of their cumulative debt or equity trans- actions with Company A over time and are calculated at yearend. For Company B, the position is equal to its equity (including reinvested earnings) in Company A plus any net outstanding loans by it to Com- pany A. Company D has an investment position with Company A equal to the remaining balance of the loan. The position of Company C in Company A is zero because it has no direct equity interest in Company A and has made no loans to Company A. 100% UBO Company C (France) 100% > t s ' Foreign Parent Company B (Netherlands) Member of FPG Company D (United Kingdom) 50% \ f 1 Div idend 1 1 U.S. Affiliate Company A / 1 _l Intercompany loan GUIDE TO BEA STATISTICS ON FDIUS 219 Business. The position data are published in the U.S. international investment position article in the June Survey. More detailed tables on capital and income flows and on the position appear in the August Survey. Direct investment capital flows consist of equity and intercompany debt flows between U.S. af- filiates and their foreign parent groups and the foreign parents' share of the reinvested earnings of their U.S. affiliates. They represent the financ- ing supplied to an affiliate by its foreign parent group. As discussed in the box, capital flows can take place between the U.S. affiliate and the for- eign parent, the ultimate beneficial owner (ubo), or other members of the foreign parent group. The direct investment position equals the yearend book value of the foreign parent groups' equity (including retained earnings) in, and net outstanding loans to, their U.S. affiliates. In other words, it is the cumulative value of net capital inflows from foreign direct investors. The posi- tion at the end of the current year is equal to the position at the end of the previous year plus net capital inflows and valuation adjustments in the current year. 2 For example, the foreign di- rect investment position in the United States was $271.8 billion at yearend 1987. In 1988, net cap- ital inflows were $58.4 billion and net valuation adjustments were a negative $1.4 billion. Adding the latter two figures to the 1987 position gives the yearend 1988 position of $328.9 billion (table 1). The direct investment position estimates are carried at book value and are not adjusted to cur- rent value. Thus, they largely reflect prices at the time of investment rather than prices of the cur- 2. Valuation adjustments primarily reflect differences between transac- tion values, which are used to record direct investment capital inflows, and book values on U.S. affiliates' books, which are used to record the position and hence changes in the position. For example, these adjustments include differences between the sales value and the book value of affiliates that are sold by foreign parents and differences between the purchase value and the book value of affiliates that are acquired by foreign parents. Table 1.— Foreign Direct Investment in the United States: Position, Capital, Income, and Other Flows, 198788 [Millions of dollars) Position Capital inflow (outflow) Equity capital Reinvested earnings .... Intercompany debt Valuation adjustments Income Earnings Interest Royalties and license fees Other service charges 1988 328,850 46,894 30,621 1,481 14,792 4,480 58,435 40,362 6,560 11,513 -1,373 9,500 5,874 3,626 16,748 11,830 4,918 843 968 -616 -694 rent period. For a brief discussion of book value, see the section on characteristics of the data. Direct investment income consists of (1) the for- eign parents' shares of the U.S. affiliates' earnings (net of U.S. withholding taxes on distributed earnings) and (2) interest on intercompany debt of the U.S. affiliates with their foreign parent groups. Earnings is defined as the foreign par- ent's share in the net income of the U.S. affiliate, after provision for U.S. income taxes. Interest is defined as interest paid by the U.S. affiliate to the foreign parent group, net of interest received by the U.S. affiliate from the foreign parent group and net of U.S. and foreign withholding taxes. Royalties and license fees are payments by U.S. affiliates to, less receipts by U.S. affiliates from, their foreign parents and other members of the foreign parent groups of fees for the use or pur- chase of intangible property or rights, such as patents, trademarks, copyrights, franchises, man- ufacturing rights, and other intangible assets or proprietary rights. Payments and receipts are net of U.S. and foreign withholding taxes. Other services transactions consist of payments by U.S. affiliates to, less receipts by U.S. affiliates from, their foreign parents and other members of the foreign parent groups of service charges, charges for the use of tangible property, and film and television tape rentals. Service charges con- sist of fees for services — such as management, professional, or technical services — rendered be- tween U.S. affiliates and their foreign parent groups. Financial and operating data The primary focus of the financial and operat- ing data is on the overall operations of the U.S. affiliate, not just on the affiliate's transactions or positions with the foreign parent group. The data cover, among other things, U.S. affiliates' bal- ance sheets and income statements, employment and employee compensation, merchandise trade, sources of external financing, and selected data by State (table 2). They cover only nonbank U.S. affiliates. (Selected data for bank affiliates are available from the Federal Reserve System.) The estimates are based on sample data from bea's Annual Survey of Foreign Direct Investment in the United States or on universe data from bea's Benchmark Survey of Foreign Direct Investment in the United States. (The benchmark survey, or census, is bea's most comprehensive survey and is normally conducted every 5 years.) An an- nual article in the Survey of Current Business gives a brief description and analysis of the data. 220 BEA STUDIES OF DIRECT INVESTMENT Separate publications provide more detailed data. Data are available annually for 1977 forward. The information collected on the overall oper- ations of U.S. affiliates may be used to analyze the impact of foreign direct investment on the U.S. economy. For example, the information can answer questions such as: How many people do foreign-owned companies employ? How much do affiliates spend on plant expansions? What are their assets or sales? To answer these questions, data on the activity of the affiliate as a whole are needed, regardless of the foreign ownership share or the source of financing. Therefore, the data are not adjusted for percentage of foreign ownership. For example, if a French company has a 49-percent interest in a U.S. affiliate, all of the affiliate's employment is included in the data because all of the employees are affected by the foreign parent's influence or control over the management of the enterprise. (As discussed ear- lier, a 10-percent-or-more ownership interest is considered evidence that a foreign parent has suf- ficient influence or control over the management of the enterprise to constitute direct investment.) In some cases, however, data users may want to focus their analysis on U.S. affiliates in which the foreign parent has a majority ownership share. In response to this need, bea is develop- ing separate estimates of financial and operating data for majority-owned U.S. affiliates — those Table 2.— Selected Data of Nonbank U.S. Affiliates, 1986-87 Employment Total assets Gross property, plant and equipment Manufacturing ' Commercial property 2 Other Sales Goods Services Investment income Net income U.S. merchandise exports shipped by af- filiates U.S. merchandise imports shipped to affili- ates 1986 1987 Change Amount Percent Thousands of employees 2,937.9 3,159.7 221.8 Millions of dollars 838,039 320,215 n.a. n.a. n.a. 672,004 n.a. n.a n.a. 2,458 49,560 125,732 926,042 346,212 124,803 90,886 130,523 731,392 621,848 90,764 18,780 9,859 47,929 140,617 88,003 25,997 n.a n.a n.a. 59,388 n.a. n.a. n.a 7,401 -1,631 14,885 11 8 n.a n.a n.a. 9 n.a. n.a. n.a. 301 -3 12 n.a. Not available. 1 . Consists of the gross book value of property, plant, and equipment used for manufacturing, including petroleum refining. 2. Consists of the gross book value of all commercial buildings and associated land owned by the affiliate that is used or operated by the affiliate or leased or rented to others. Commercial buildings include apartment buildings, office buildings, hotels, motels, and buildings used for wholesale, retail, and services trades (such as shopping centers, recreational facilities, depart- ment stores, bank buildings, restaurants, public garages, and automobile service stations). owned more than 50 percent by foreigners. These estimates are expected to be available by mid-1990. Acquisition and establishment data In the late 1970 's, after an unprecedented surge in foreign direct investment, bea developed and implemented a survey of new investments that requires a report from every U.S. business that is newly acquired or established by a foreign direct investor. Since 1979, this survey has provided bea with the information on new investments needed to continually update its universe of foreign di- rect investment. The survey also provides users with more timely information on new invest- ments than was available previously. The results of the survey are summarized in an annual Sur- vey article, and supplementary tables containing additional detail are available from bea. The data from the survey cover (1) existing U.S. business enterprises in which foreign direct in- vestors acquired, directly or through their U.S. affiliates, at least a 10-percent ownership interest and (2) new U.S. business enterprises established by foreign direct investors. The data do not cover the acquisition of additional equity in an existing U.S. affiliate by the foreign parent, the acquisi- tion of an existing U.S. affiliate from a different foreign investor, or plant expansions by an ex- isting U.S. affiliate. These transactions are not considered new investments because they do not result in U.S. affiliates being added to the direct investment universe; rather, they are considered either a transfer or an expansion of an ongoing investment by foreign direct investors. The survey provides data on investment out- lays, that is, on how much foreign direct investors spend in a given year to acquire or establish new U.S. affiliates. Outlays are the total dollar cost of the equity interests acquired or established. The survey also includes data on the number and type of investments and investors and on selected operating items — total assets, sales, net income, employment, and acres of U.S. land owned — for the new U.S. affiliate. Outlays are presented by type of investor, that is, the foreign parent or an existing U.S. affiliate of the foreign parent (table 3). In the first case, the foreign parent acquires a direct ownership interest in the U.S. affiliate; in the second case, the foreign parent acquires an indirect ownership interest through its existing U.S. affiliate. GUIDE TO BEA STATISTICS ON FDIUS 221 The Sets of Data Compared Acquisition and establishment data compared with balance of payments data The acquisition and establishment data and the balance of payments data provide different meas- ures of the annual growth in foreign direct investment in the United States. The acquisition and establishment data cover the actual outlays to establish or acquire new U.S. affiliates, regardless of how or by whom the in- vestment was financed. Thus, the outlays may be made by either the foreign parent or an ex- isting U.S. affiliate, and the source of financing may be other than the foreign parent group, such as local borrowing by existing U.S. affiliates. In contrast, the balance of payments data cover only transactions between foreign parent groups and U.S. affiliates. If, for example, a U.S. affiliate of a German chemical manufacturer acquired a U.S. chemical company by borrowing finds in the United States, the borrowed funds would be in- cluded in investment outlays but not in capital inflows in the balance of payments because the acquisition did not involve funds from the foreign parent. Another difference is that direct investment capital flows finance any of the various opera- tions of existing as well as new U.S. affiliates, whereas investment outlays finance only acqui- sitions and establishments of new U.S. affiliates. For example, if a German chemical manufacturer supplied its U.S. affiliate with funds to expand a plant, the funds would be included in the balance of payments data as a capital inflow, but would not be included in the acquisition and establish- ment data as an investment outlay because no new affiliate was created. Direct investment capital flows related to ac- quisitions or establishments occur if the foreign parent purchases the equity directly or if the for- eign parent or another member of the foreign parent group supplies finds to a U.S. affiliate in order to acquire or establish another U.S. busi- ness. Even in these cases, the capital flows may not equal total outlays, because the capital flows may have financed only a portion of the total. In any event, this type of inflow cannot be sepa- rated from other capital flows between the foreign parent group and its U.S. affiliates. The acquisition and establishment data do not cover the acquisition of an existing affiliate by one foreign person from another because no new affiliate was created. For example, if a German chemical manufacturer acquired a U.S. chemical company that was already foreign owned, and thus already a U.S. affiliate, the purchase would Table 3.— Investment Outlays by Country of Each Ultimate Beneficial Owner, 1987-88 [Millions of dollars] 1987' Total By type of invest- ment Acquisi- tions Estab- lish- ments By type of investor Foreign direct inves- tors U.S. af- filiates 1988" Total By type of invest- ment Acquisi- tions Estab- lish- ments By type of inves- tor Foreign direct inves- tors U.S. af- filiates All countries Canada Europe Ol which: France Germany, Federal Republic of Netherlands Switzerland United Kingdom Latin America and Other Western Hemisphere Africa Middle East Asia and Pacific Of which: Australia Japan United States Addenda: European Communities (12) OPEC r Revised. * Preliminary. D Suppressed to avoid disclosure ol data of individual companies. 40,310 1,276 25,517 2,044 4,664 391 2,085 15,142 1,483 ( D ) 925 10,928 2,691 7,006 ( D ) 22,895 1,077 33,933 1,169 24,003 1,949 4,318 204 1,926 14,648 1,030 465 7,112 2,609 3,340 ( D ) 21,631 592 6,377 107 1,514 96 347 188 160 494 454 ( D ) 460 3,816 82 3,666 ( D ) 1,264 485 11,773 409 6,634 946 319 122 1,302 3,300 526 ( D ) 527 3,522 663 2,103 ( D ) 5,112 554 28,536 867 18,884 1,098 4,345 269 784 11,842 957 ( D ) 398 7,406 2,028 4,903 ( D ) 17,783 523 65,019 10,405 34,157 3,753 1,375 1,937 2,017 21,520 106 28 1,004 19,278 4,211 14,166 31,175 1,322 60,003 10,291 32,641 3,276 1,242 1,837 1,593 21,371 83 23 933 16,004 4,014 11,524 29 30,157 1,250 5,016 114 1,516 477 133 100 424 149 23 5 71 3,274 197 2,642 12 1,018 72 16,400 752 6,958 201 430 218 530 4,779 86 6 112 8,467 255 7,599 19 6,274 433 48,619 9,653 27,199 3,553 944 1,719 1,487 16,741 20 22 892 10,811 3,956 6,567 22 24,901 889 222 BEA STUDIES OF DIRECT INVESTMENT not be covered in the acquisition and establish- ment data. This transaction would be included in the balance of payments data only if the new foreign parent group provided funds to another U.S. affiliate to finance the acquisition indirectly. 3 Finally, the two sets of data are presented differently. The balance of payments data are presented by country of foreign parent and by industry of affiliate. The acquisition and es- tablishment data are presented by country of ubo and by industry of the U.S. business enter- prise acquired or established. (See subsections on country and industry classification on pages 224-225.) Financial and operating data compared with balance of payments data These two sets of data provide different meas- ures of the size of foreign direct investment in the United States. The measures differ mainly be- cause the financial and operating data cover the overall activities of the U.S. affiliate and are not adjusted for percentage of foreign ownership. In contrast, the balance of payments data focus ex- clusively on the foreign parent group's investment in the affiliate. The balance of payments data and the finan- cial and operating data are closely related, but the terminology used for certain items in the two sets of data can be a source of misun- derstanding to users. For example, data users often confuse the direct investment position — a balance-of-payments-related item — with the total assets of the affiliate — a financial and operating item. Total assets of the affiliate cover all assets of the affiliate carried in its balance sheet, regard- less of how the assets are financed. The position is the portion of the affiliate's assets that is fi- nanced by the foreign parent or other members of the foreign parent group in the form of debt or equity. One way to see the relationship between the direct investment position and total assets of the U.S. affiliate is by examining the composition of external financing of affiliates. Table 4 presents information on the external sources of finds, in- cluding finds from the foreign parent group, used by affiliates to finance assets in 1987. Affiliate li- abilities and owners' equity are broken down by transactor — that is, by the foreign parent group, unaffiliated foreign persons, or U.S. persons. The values for liabilities and owners' equity of the for- eign parent group are roughly equal to the direct investment position. 4 Two important observations can be made from this table. First, although financing from foreign parent groups is an important source of finds, financing from U.S. sources is even more impor- tant. Second, foreign parents account for more than 80 percent of all owners' equity in nonbank U.S. affiliates. Thus, although only a 10-percent ownership interest in an affiliate qualifies as direct investment, most foreign parents wholly own, or have a majority interest in, their U.S. affiliates. Another financial and operating data item that is sometimes confused with the position is the gross book value of property, plant, and equip- ment of affiliates. This item is taken from affiliates' balance sheets and is a measure of their total fixed assets, regardless of how these assets are financed. The direct investment position, as stated earlier, is the cumulative value of financing provided by the foreign parent group, regardless of how the funds are used. Thus, the position reflects sources of funds, whereas the gross book 3. This transaction would not be included in the balance of payments data if the foreign parent purchased capital stock in the U.S. affiliate from another foreign person, because that would be a foreign- to- foreign transac- tion. However, if the foreigners are in different countries, offsetting valuation adjustments would be made by bea to the direct investment position to re- duce the position of the seller's country and to increase the position of the purchaser's country. 4. The figure for equity and debt investment by the foreign parent group ($234.7 billion) in table 4 does not match the position figure ($271.8 billion), primarily because the former, unlike the latter, does not cover bank affiliates and, for nonbank affiliates, does not include retained earnings or affiliates' receivables due from the foreign parent group. Also, the external financing data are on a fiscal year basis, whereas the position data are on a calendar year basis. Table 4.— External Financial Position of Nonbank U.S. Affiliates, Transactor by Account, 1987 [Millions of Dollars] External sources of funds Total Current liabilities and long-term debt Total To banks To nonbanks Owners' equity ex- cluding re- tained earnings Receivables and financial invest- ments Total Current and non- current re- ceivables Noncurrent financial invest- ments All transactors Foreign parent group Other foreign persons U.S. persons 783,759 234,689 25,569 523,501 608,830 92,520 24,573 491,737 130,085 3,204 14,155 112,725 478,745 89,315 10,418 379,012 174,929 142,169 996 31,764 272,717 24,604 8,325 239,788 226,663 22,997 5,825 197,840 46,054 1,607 2,500 41,948 GUIDE TO BEA STATISTICS ON FDIUS 223 value of property, plant, and equipment reflects uses of funds, bea data on the gross book value of property, plant, and equipment are collected by State. Thus, they provide a measure of the extent of the operations of affiliates in a given State. However, information on the amount of foreign parent financing of affiliate operations in a State, or on how much foreign direct investors spend on property, plant, and equipment in the State, is not collected by bea. The financial and operating data are generally presented by country of ubo and the balance of payments data are, as noted earlier, presen- ted by country of foreign parent. The country of foreign parent is often the same as the coun- try of ubo. Exceptions arise when, for certain foreign tax, regulatory, or other purposes, for- eign direct investors find it advantageous to hold or finance their direct investments in the United States through third countries. For example, many Canadian ubo's hold their U.S. affiliates through affiliates in the Netherlands for tax rea- sons. In addition, a significant portion of U.S. affiliate financing, including equity capital, comes from affiliates in Caribbean offshore financial centers. Characteristics of the Data Data collection All foreign direct investments in U.S. business enterprises, including all ownership of real es- tate other than for personal use, are subject to mandatory reporting to bea under the Interna- tional Investment and Trade in Services Survey Act (P.L. 94-472, 90 Stat. 2059, 22 U.S.C. 3101- 3108, as amended). The data are collected by means of a series of surveys. Table 5 describes the types of information, the data collection pro- cedures, and the publications where the results can be found. Confidentiality Information collected by bea is protected against unauthorized public disclosure by the Interna- tional Investment and Trade in Services Survey Act. The act states that the information collected cannot be published or released in such a manner that the person or company that furnished the in- formation can be specifically identified. The act further specifies that the information collected must be used only for statistical and analytical purposes. Use of an individual company's data for tax, investigative, or regulatory purposes is prohibited. Confidentiality is crucial for maintaining the integrity of the direct investment data collection system. Confidentiality assures companies that their competitors will not gain an unfair advan- tage by having access to their data and that the data are gathered for statistical, not regulatory, purposes. If confidentiality were not guaranteed, companies would be less willing to provide accu- rate information, and the quality of the resulting statistics would suffer. To ensure confidentiality, data are tested before publication to determine if they should be sup- pressed (that is, not shown). To avoid disclosing the data of an individual company, a "(D)" is placed in the data cell. The suppression of data in a cell limits analysis by users. However, bea can do analyses based on individual company data, and it can use individual company data to do special analyses for outside researchers at cost, as long as the results do not disclose proprietary in- formation. The act also permits other Federal agencies to have access to the individual company data if they are designated to perform analytical or statistical functions under the act. Valuation of the direct investment position As noted previously, the direct investment posi- tion estimates are carried at book value. Thus, they largely reflect prices at the time of invest- ment rather than prices of the current period. As a result, the foreign direct investment position may be understated in relation to current value. Book value is used mainly because historical cost is the accepted basis for company account- ing records both in the United States and many other countries. Thus, with few exceptions, book values are the only ones readily available to com- panies required to report in bea surveys. For those companies that do have current value es- timates, the estimates differ from company to company. For example, estimates may represent an "exit" or sale value, which can be based on an independent appraisal of an affiliate or on of- fers by potential buyers; or an appraisal oriented towards tax or regulatory reporting; or some measure of specific interest to the company itself or to its shareholders, bea is investigating the feasibility of using indirect methods to estimate the current value of the foreign direct investment position. Country classification The foreign parent and ubo of a U.S. affili- ate are each classified by country. For affiliates 224 BEA STUDIES OF DIRECT INVESTMENT with more than one foreign parent or ubo, each foreign parent and ubo is classified separately. The financial and operating data and the ac- quisition and establishment data are published primarily by country of ubo because the coun- try of the person that ultimately controls, and that therefore derives the benefits from owning or controlling, the U.S. affiliate is considered the most important in analyzing these data sets. When a given affiliate has two or more ubo's, the data are shown in the country of the ubo having the largest percentage of ownership in the U.S. affiliate. The direct investment position and balance of payments data are classified by country of for- eign parent rather than by country of ubo. Any transactions with other members of the foreign parent group are assigned to the countries of the other members. This classification is consistent with the U.S. balance of payments methodology, which requires that each transaction be assigned to the foreign country with which it occurred. Industry classification Data can be classified by industry in three ways: Industry of U.S. affiliate, industry of sales, and industry of ubo. The most widely used classification is by industry of U.S. affiliate. When data are classified by industry of U.S. affiliate, bea assigns each affiliate the code of the industry that accounts for the largest percentage of the affiliate's sales. The procedure is as follows: (1) A U.S. affiliate is first classified in the major industry that accounted for the largest percent- age of its sales. Major industry groups are (a) Table 5.— BEA's Foreign Direct Investment Surveys Survey title and number Types of information Data collection procedures Survey of Current Business article and related publications Initial Report on a Foreign Person's Direct or Indirect Acquisition, Establishment, or Purchase of the Operating Assets of a U.S. Business Enterprise, Including Real Estate (BE-13) and Report by a U.S. Person Who Assists or Intervenes in the Acquisition of a U.S. Business Enter- 5 rise by, or Who enters into a Joint enture with, a Foreign Person (BE-14). Transactions of U.S. Affiliate, Except an Unincorporated Bank, with Foreign Par- ent (BE-605) and Transactions of Bank- ing Branch or Agency with Foreign Par- ent (BE-606B). Annual Survey of Foreign Direct Invest- ment in the United States (BE-15). Benchmark Survey of Foreign Direct In- vestment in the United States (BE-12). Investment outlays by foreign direct inves- tors for the direct or indirect acquisition or establishment of a new U.S. affiliate, and selected operating data of the new U.S. affiliate (total assets, sales, acres of land, net income, and employment). Changes in foreign parents' equity in their U.S. affiliates; intercompany debt trans- actions between U.S. affiliates and for- eign parent groups; foreign parents' share of affiliate net income, distributed earnings, capital gains and losses, rein- vested earnings, and interest; royalties and license fees; and other services transactions between U.S. affiliates and their foreign parent groups. U.S. affiliates' balance sheets and income statements; external financial position; property, plant, and equipment; employ- ment and employee compensation; U.S. merchandise trade; and research and development expenditures, including se- lected data items by State. Complete financial and operating data for each U.S. affiliate of foreign direct in- vestors, including selected items by State, and data on the investment posi- tion and transactions between U.S. af- filiates and their foreign parent groups. Mandatory report required when a foreign person or an existing U.S. affiliate es- tablishes or acquires a 10-percent or more voting interest in a U.S. business enterprise and when real estate is pur- chased other than for personal use. An exemption form is required if the newly acquired or established U.S. affiliate costs less than $1 million and does not own more than 200 acres of land. Mandatory quarterly survey of U.S. affili- ates, when an affiliate's assets, annual sales, or annual net income exceeds $20 million. Mandatory annual survey of U.S. affiliates, when an affiliate's assets, sales, or net income exceeds $1 million. Beginning in 1988, a long form must be filed by affiliates with assets, sales, or net in- come over $20 million, and a short form must be filed by affiliates with as- sets, sales, or net income are between $10 million and $20 million. Mandatory benchmark survey, or census, taken every 5 years of each U.S. affili- ate, when the U.S. affiliate's assets, sales, or net income exceeds $1 million or when the affiliate owns 200 or more acres of U.S. land. Affiliates below the exemption level must file an exemption claim on which they report the value of their assets, sales, and net income. Af- filiates with assets, sales, or net in- come greater than $20 million file a long form; those with assets, sales, or net income exceeds $1 million, but for which no one item exceeds $20 million, file a short form. "U.S. Business Enterprises Acquired or Established by Foreign Direct Inves- tors" in the May Survey of Current Business. Supplementary tables avail- able from BEA for 1980 forward. Quarterly data on capital, income, and other flows appear in the March, June, September and December Survey arti- cles on U.S. international transactions. Direct investment position data appear in the June Survey article on the U.S. international investment position. De- tailed tables on the position and related capital, income, and other flows be- tween parents and affiliates appear in the August Survey. "Operations of U.S. Affiliates of Foreign Companies," usually in the May Sur- vey. (In 1989, this article was replaced by an article on the 1987 benchmark survey in the July Survey (see below); the article will also appear in the July Survey in 1990.) More detailed data for 1977-85 appear in separate publica- tions available from BEA by the same title. Revised 1986 data are available from GPO. Preliminary data appeared in "U.S. Affili- ates of Foreign Companies: 1987 Benchmark Survey Results" in the July 1989 Survey. More detailed data ap- pear in a separate publication available from GPO entitled Foreign Direct In- vestment in the United States: 1987 Benchmark Survey, Preliminary Results. Final results will be available this sum- mer. GUIDE TO BEA STATISTICS ON FDIUS 225 agriculture, forestry, and fishing, (b) mining, (c) petroleum, (d) construction, (e) manufacturing, (f) transportation, communication, and public utilities, (g) wholesale trade, (h) retail trade, (i) finance, insurance, and real estate, and (j) services. (2) Within the major industry group, the U.S. affiliate is classified in the two-digit subindustry in which its sales were largest. (3) Within this two-digit industry, the U.S. af- filiate is classified in the three-digit subindustry in which its sales were largest. This procedure ensures that the U.S. affiliate is not assigned to a three-digit subindustry that is outside its major industry even if its sales in that subindustry exceed its sales in the largest three-digit subindustry within its major industry. When classified by industry of affiliate, all data for an affiliate are shown in a single industry, even if the affiliate has activities in several indus- tries. Thus, the distribution of data by industry of affiliate may differ from the distribution that would result if each of the activities of an affiliate were separately classified by industry. For ex- ample, U.S. affiliates of many foreign automobile manufacturers are classified in wholesale trade, not in transportation equipment manufacturing, because most of their sales result from the whole- sale distribution of imported cars rather than from sales of cars they manufacture in the United States. When classified by industry of sales, data in secondary industries are shown in those indus- tries rather than all data being shown in the affiliate's primary industry. The items that are available by industry of sales are employment and sales. Prior to 1987, these data were only avail- able in benchmark years, but are now available annually. Classification by industry of ubo is much less detailed than classification by industry of affiliate. Each ubo is assigned to 1 of 17 broad industry categories that is specified by the affiliate. Comparisons of Foreign Direct Investment Data With All-U.S.-Business Data This section provides examples of affiliate data and all-U.S.-business data that are reasonably comparable and that provide an indication of the foreign investment share of the U.S. economy. Table 6 shows selected U.S. affiliate and all-U.S.- business data for all industries combined, and table 7 compares total assets and sales of U.S. af- filiates and all U.S. businesses in manufacturing. Table 8 lists the sources of the all-U.S.-business data. The data in tables 6 and 7 are included here only to illustrate some of the comparisons that can be made. Additional comparisons may also be possible. As tables 6 and 7 indicate, the U.S. affiliate share of the total U.S. economy varies according to the measure used. Analyses of several meas- ures and the variations among them can be found in other bea publications. 5 It should be noted that, in cases where reason- ably comparable U.S. affiliate and all-U.S. data are available, not all measures are available for ev- ery industry. For example, for some items, such as assets and sales, comparable U.S. affiliate and all-U.S.-business data are available only for man- 5. For the most recent analysis, see "U.S. Affiliates of Foreign Compa- nies: 1987 Benchmark Survey Results" in the May 1989 Survey of Current Business. Table 6.— Selected Comparisons of Nonbank U.S. Affiliates and All Nonbank U.S. Businesses, 1986-87 1986 U.S. affiliates All U.S. busi- nesses 1987 U.S. affiliates All U.S. busi- nesses U.S. affiliates as a percent- age of all U.S. businesses 1986 1987 Employment U.S. merchandise trade: U.S. merchandise exports U.S. merchandise imports Research and development expenditures .. Expenditures for new plant and equipment Gross product Acres of land owned 2,938 49.6 125.7 5.8 28.5 148.3 Thousands of employees 84,055 3,160 Billions of dollars 226.5 365.7 61.7 379.5 3,626.0 47.9 140.6 6.2 31.6 151.9 llions of acres 2,265.2 86,584 253.9 406.3 64.9 389.7 3,875.9 2,265.2 3.5 21.9 34.4 9.4 7.5 4.1 3.6 18.5 34.6 9.6 8.1 3.9 226 BEA STUDIES OF DIRECT INVESTMENT ufacturing. For other items, such as employment, strictly comparable data are available only at the all- industries level. 6 For a few items, such as the foreign direct investment position, no readily available U.S. counterpart exists. Because the position is the most commonly used measure of direct invest- ment, many users would like to relate it to a comparable figure for all U.S. businesses. How- ever, the position, as explained earlier, is the cumulation of capital flows between U.S. affili- ates and members of the foreign parent group, and it is a concept relevant only in a balance of payments context. Regardless of the measure used, comparisons of the U.S. affiliate and all-U.S.-business data should be made with caution because of definitional and conceptual differences in the data series, such as differences in valuation, industry classification, and coverage. 6. However, reasonable comparisons below that level can be made using all-U.S. employment data disaggregate by industry of establishment and af- filiate data disaggregated by industry of sales. See the subsection on industry classification below and the article cited in footnote 5 for further explanation. Valuation. — Comparisons of U.S. affiliate assets and all-U.S.-business data on assets may be af- fected by the use of book rather than current value. When a company is acquired, whether by foreign or U.S. buyers, its assets are often reval- ued to reflect the new, generally higher value implicit in the acquisition price. Because much of the growth in foreign direct investment in re- cent years has involved acquisitions, the share of affiliates' assets that has been revalued is proba- bly much higher than that for all U.S. businesses. Thus, affiliates' assets may tend to be overstated relative to assets of all U.S. businesses. Industry classification. — Comparisons of U.S. af- filiate and all-U.S.-business data at detailed in- dustry levels are not appropriate when the affili- ate data are classified by industry at the enterprise (company) level and the all-U.S.-business data are classified by industry at the establishment level. For example, when affiliate employment is classified by industry of enterprise but all-U.S.- business employment is classified by industry Table 7.— Total Assets and Sales of U.S. Affiliates and All U.S. Businesses in Manufacturing, 1986-87 Millions of dollars U.S. affiliates as a per- centage of all U.S. busi- U.S. affiliates All U.S. businesses nesses 1986 1987 1986 1987 1986 1987 Total assets 12.2 243,429 276,764 1,994,119 2,135,266 13.0 11,610 15,016 46,784 48,057 24.8 31.2 70,709 75,552 217,166 244,446 32.6 30.9 15,231 14,975 73,942 78,678 20.6 19.0 51,003 58,352 334,952 338,384 15.2 17.2 2,406 5,875 41,329 43,956 5.8 13.4 21,029 27,689 219,791 235,690 9.6 11.7 20,156 20,121 173,262 190,363 11.6 10.6 11,124 10,521 94,154 99,617 11.8 10.6 4,419 7,652 62,943 78,988 7.0 9.7 7,199 7,820 84,491 86,746 8.5 9.0 5,264 6,027 69,082 85,279 7.6 7.1 10,433 12,171 211,901 213,658 4.9 5.7 1,188 1,417 26,729 30,817 4.4 4.6 6,897 7,412 251,406 276,740 2.7 2.7 4,761 6,164 86,187 83,847 5.5 10.0 7.4 Sales 222,025 262,343 2,220,931 2,378,212 11.0 11,602 12,075 52,901 54,338 21.9 22.2 60,120 70,238 205,778 225,200 29.2 31.2 16,283 18,259 85,523 93,627 19.0 19.5 31,408 41,641 226,519 248,324 13.9 16.8 2,885 6,546 60,596 63,293 4.8 10.3 21,676 27,751 317,523 340,135 6.8 8.2 23,579 25,704 193,892 210,870 12.2 12.2 8,627 9,049 107,552 116,587 8.0 7.8 4,493 6,802 63,152 74,171 7.1 9.2 8,819 8,879 115,694 123,994 7.6 7.2 5,170 6,350 74,844 95,576 6.9 6.6 10,857 13,087 201,284 206,438 5.4 6.3 1,588 1,840 46,226 48,284 3.4 3.8 10,034 8,253 322,438 324,117 3.1 2.5 4,884 5,869 147,009 153,258 3.3 3.8 Manufacturing Stone, clay, and glass products .. Chemicals and allied products .... Primary metal industries Petroleum and coal products Rubber and plastics products Food and kindred products ' Electric and electronic equipment Printing and publishing Instruments and related products Fabricated metal products Paper and allied products Machinery, except electrical Textile products Transportation equipment Other Manufacturing Stone, clay, and glass products .. Chemicals and allied products .... Primary metal industries Petroleum and coal products Rubber and plastics products Food and kindred products ' Electric and electronic equipment Printing and publishing Instruments and related products Fabricated metal products Paper and allied products Machinery, except electrical Textile products Transportation equipment Other Note.— In this table, unlike most other tables on direct investment published here and else- where, petroleum and coal products is included in manufacturing in order to be consistent with the industry classification of the all-U.S.-business data. 1. Includes tobacco manufacturing. GUIDE TO BEA STATISTICS ON FDIUS 227 of establishment, comparisons of the affiliate share of U.S. employment can only be made for broad industry groups, such as petroleum, manufacturing, or wholesale trade. In benchmark years and in future annual pub- lications, comparisons of employment can be made using data classified by industry of sales. Affiliate employment classified by industry of sales should approximate that classified by indus- try of establishment (plant) because an affiliate that has an establishment in an industry usually also has sales in the industry. Another differ- ence in industry classification between affiliate data and all-U.S.-business data is the treatment of the petroleum and coal products industry. In the affiliate data, companies in this indus- try are classified in petroleum, whereas in the all-U.S.-business data, they are classified in man- ufacturing. However, in this instance, the affiliate data can be easily reclassified to be comparable to the all-U.S.-business data. Coverage. — The data for U.S. affiliates can be compared with data for all U.S. businesses at fairly detailed industry levels by using all-U.S.- business data classified at the enterprise level. However, differences in coverage between the two data sets may preclude comparisons for some industries. The Census Bureau's Quar- terly Financial Report for Manufacturing, Mining, and Trade Corporations (qfr) contains data on total assets and sales by U.S. manufacturing subindustry. The comparisons made with these all-U.S.-business data are limited to manufactur- ing because the qfr data for mining and trade cover only corporations with assets over $25 mil- lion, whereas the universe estimates for U.S. affiliates cover U.S. business enterprises with as- sets, sales, or net income over $1 million. Also, the exclusion of unincorporated businesses from the qfr mining and trade data means that a sig- nificant portion of the all-U.S.-business activity in these industries is missing, kjjj Table 8.— AII-U.S.-Business Data Sources Comparable to Foreign Direct Investment in the United States Data Item All-U.S.-business data source Comments Employment Employment by industry of sales Manufacturing employment by State. Total assets Sales Expenditures for new plant and equipment. Gross product Merchandise trade Research and development ex- penditures. Table 6.6B, "National Income and Product Accounts Tables," July Survey of Current Business. Same as above Employment and Earnings, May 1988, Bureau of Labor Statistics, U.S. Department of Labor. Quarterly Financial Report tor Manufacturing, Mining, and Trade Cor- porations, Census Bureau, U.S. Department of Commerce. Same as for total assets "Plant and Equipment Expenditures, Third Quarter 1989," Commerce News Release (CB-89-199), December 1989, Census Bureau, U.S. Department of Commerce. Table 6.1, "National Income and Product Accounts Tables," July Survey of Current Business. Highlights of U.S. Export and Import Trade (publication FT990), Cen- sus Bureau, U.S. Department of Commerce. Research and Development in Industry, National Science Foundation Acres of land owned Geography Division, Census Bureau, U.S. Department of Commerce Employment of government and government enterprises, banks, and private households must be subtracted from all-U.S. data. FDIUS data are classified by industry of enterprise; all-U.S. data are clas- sified by industry of establishment. Thus, comparisons can only be made for major industries. FDIUS data available for 1980 and 1987 and will be available annu- ally for 1988 forward. Comparison is limited to manufacturing because of differences in coverage. Same as for total assets. These data have been collected and published by the Census Bu- reau since August 1988. Data for years prior to 1987 are avail- able in the June issues of the Survey of Current Business. All-U.S. data are classified by industry of establishment. Govern- ment, banking, and private household figures should be sub- tracted from all-U.S. data for a closer comparison. FDIUS tables are available from BEA. Although the totals in the two data sets are comparable, industry comparisons are limited because of differences in industry classi- fication. For a given industry, all-U.S. data include R&D performed by companies in that industry and exclude R&D performed for companies in that industry by others; FDIUS data include R&D performed for the companies in that industry by others and ex- clude R&D performed by the companies in that industry for oth- ers. FDIUS Foreign direct investment in the United States. Methodologies 229 METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 231 Methodology for U.S. Direct Investment Abroad This methodology was first published in 1998 in U.S. Direct Investment Abroad: 1994 Benchmark Survey, Final Results. The 1994 benchmark Survey of U.S. Direct Investment Abroad was conducted by the Bureau of Economic Analysis (bea) to obtain complete and accurate data on U.S. direct invest- ment abroad in 1994. Reporting in the survey was mandatory under the International Investment and Trade in Services Survey Act. 1 The publication presents 243 tables that contain nearly all of the data collected in the benchmark survey. Three related types of data are presen- ted: (1) Foreign-affiliate financial and operating data, (2) U.S.-parent financial and operating data, and (3) direct investment position and balance of payments data. The financial and operating data cover balance sheets and income statements; property, plant, and equipment; employment and compensation of employees; U.S. trade in goods; sales of goods and services; gross product; technology; taxes; and external financial position. The direct investment position and balance of payments data cover positions and transactions between foreign affiliates and their U.S. parents. These data are the source of the official esti- mates of direct investment that enter the U.S. national income and product accounts (nipa's) and the U.S. international investment position and balance of payments (or "international trans- actions") accounts. Balance of payments data include data on capital flows between U.S. par- ents and their foreign affiliates, receipts of income by U.S. parents from their foreign affiliates, and U.S. parents' receipts and payments of royalties and license fees and charges for other services from and to their foreign affiliates. 2 The direct investment income and position data collected in the benchmark survey and shown in this publi- cation are on a historical-cost basis; prior to their inclusion in the international accounts and the nipa's they are adjusted to reflect current-period prices. The amount and type of data collected in the survey differed, depending on whether the U.S. parents or foreign affiliates were banks or non- banks and, for nonbank affiliates, depending on whether they were majority or minority owned. 3 In this publication, data for foreign affiliates and for their U.S. parents are presented separately for five affiliate groups: (1) All affiliates of all U.S. parents, (2) nonbank affiliates of nonbank U.S. parents, (3) majority-owned nonbank affiliates of nonbank U.S. parents, (4) nonbank affiliates of U.S. parents in banking, and (5) bank affiliates of all U.S. parents. A variety of table formats are used: Some tables present data for several related items disaggre- gated by country or by industry; others present data for a single item disaggregated by country (or industry) and cross- classified by industry (or country). The data in this publication supersede the pre- liminary estimates that appeared in U.S. Direct Investment Abroad: 1994 Benchmark Survey, Pre- liminary Results and that were summarized in "Operations of U.S. Multinational Companies: Preliminary Results from the 1994 Benchmark Survey" in the December 1996 issue of the Survey of Current Business. The financial and operating data in this pub- lication are part of an annual time series that covers 1982-95. Benchmark surveys were con- ducted for 3 years in the series — 1982, 1989, and 1994 — and they will continue to be conducted ev- ery 5 years. In nonbenchmark survey years, a sample survey is conducted to derive universe es- timates that are comparable with the benchmark survey data. 4 The estimates for all years are avail- able in publications, and the estimates for 1983-95 are also available on diskettes. Ordering infor- mation for the publications and diskettes is at the back of this publication. Some data items pres- ented here — service charges by type and selected asset and liability positions of U.S. parents — were collected for the first time in the 1994 benchmark survey. Other data items — such as employment of U.S. parents by industry of sales, U.S. trade 1. Public Law 472, 94th Cong., 90 Stat. 2059, 22 U.S.C. 3101-3108, as amended. 2. Benchmark survey data on U.S. trade in goods of parents and affili- ates are grouped under financial and operating data rather than balance of payments data, because they are not the source of the official trade in goods statistics in the U.S. balance of payments accounts. 3. In this publication, the term "bank" is used to describe parents and affiliates that are classified as "depository institutions," which includes savings institutions and credit unions, as well as commercial banks. 4. The sample of affiliates for nonbenchmark surveys is determined by size. The sample for the nonbenchmark survey covering 1995, for example, consisted of affiliates that had total assets, sales, or net income (or loss) greater than $20 million. 232 BEA STUDIES OF DIRECT INVESTMENT Table 1.— Comparison of Tables in This Publication With Those in the Publications for 1990-93 and the Publications for 1995-98 Table in this publication Comparable table in publications for 1990-93 Comparable table in publications for 1995-98 Table in this publication Comparable table in publications for 1990-93 Comparable table in publications for 1995-98 Nonbank Foreign Affiliates of Nonbank U.S. Parents Group A. Selected Data H.A1 II.A 1 .. II.A 1 II.A 2 II.A 2 .. II.A 2 Group B. Balance Sheet II.B 1— II.B 4. II.B 5 II.B 5 .. II.B 5 II.B 6 II.B 6 . II.B 6 II.B 7-II.B 12. II.B 13 II.B 15 .. II.B 1C Group D. Property, Plant, and Equipment II.D 6-II.D 7. Group E. Income Statement II.E HI.E 2. II.E 3 II.E 3 .. II.E 3 II.E 4 II.E 4 .. II.E 4 II.E 5. II.E 6 II.E 6 . II.E 6 II.E 7 II.E 7 . II.E 7 II.E 8. II.E 9 II.E 9 . II.E 9 II.E 10— ILE 11. Group F. Sales II.F 24. Group H. Employment and Compensation of Employees II.H 3 II.G 3 . II.H 3 II.H 4 II.G 4 . II.H 4 II.H 6 II.G 6 . II.H 6 II.H 7 II.G 7 . II.H 7 II.H 11 II.G 11 . I.H 11 II.H 12. Group 1. U.S. Trade in Goods II. 1 1-H.I 2. Il.l 5 II.H 5 . Il.l 5 II. 1 6 II.H 6 . Il.l 6 Il.l 9. Il.l 19 II.H 22 . Il.l 19 Il.l 20 II.H 23 . Il.l 20 Il.l 23. Nonbank U.S. Parents Group L Selected Data 111 1 ILK 1 . Ill 1 Group M. Balance Sheet II.M 1-11. M 2. Group N. Asset and Liability Positions II.N 1. Group O. Property, Plant, and Equipment II.O 1— ll.O 2. Group P. Income Statement IIP 1. Group Q. Sales II.Q 1 11.0 1 11.0 2 . II.Q 1 II.Q 2 . II.Q 2 Group R. Gross Product II.R.1 . IIP 1 Group S. Employment and Compensation of Employees II.S 1— II.S 2. Group T. U.S. Trade in Goods ll.T 1 II.Q 1 ll.T 2-4I.T 3. ll.T 4 II.Q 4 I.T1 I.T4 ll.T 5-II.T 6. Group U. Technology II.U 1— II.U 2. Group V. Other Financial and Operating Data II.V 1. Majority-Owned Nonbank Affiliates of Nonbank U.S. Parents Group A. Selected Data III.A 1 III.A 1 .... III.A 1 III.A 2 III.A 2 .... III.A 2 Group B. Balance Sheet III.B 1 — III.B 2 III.B 1-2 .... III.B 1-2 III.B 3 — III.B 4 III.B 3-4 .... III.B 3-4 III.B 5 III.B 5 .... III.B 5 III.B 6 III.B 6 .... III.B 6 III.B 7 III.B 7 .... III.B 7 III.B a — III.B 10. III.B 1 1 — III.B 12 III.B 13-14 .... III.B 11-12 III.B 13 III.B 15 .... III.B 13 Group C. External Financial Position III.C 1 III.C 1 .... III.C 1 III.C 2— III.C 10. Group D. Property, Plant, and Equipment III.D WILD 8 .... III.D 6— III.D 8 Group E. Income Statement IH.E 1 IH.E 1 .... HI.E 1 HI.E 2 IH.E 2 .... III.E 2 HI.E 3 IH.E 3 .... II1.EE 3 IH.E 4 IH.E 4 .... III.E 4 HI.E 5 HI.E 5 .... III.E 5 IH.E 6 IH.E 6 .... III.E 6 HI.E 7 IH.E 7 .... III.E 7 IH.E 8 IH.E 8 .... III.E 8 HI.E 9 HI.E 9 .... III.E 9 HI.E 10— III.EE 11. Group F. Sales III.F 1 III.F 1 ... III.F 1 IH.F 2 III.F 2 „ ... III.F 2 III.F 3 III.F 3 ... III.F 3 III.F 4 III.F 4 ... III.F 4 III.F 5— III.F 6. III.F 7 III.F 7 ... III.F 7 III.F 8 III.F 8 ... III.F 8 III.F 9 III.F 9 ... III.F 9 III.F 10— III.F 12. III.F 13 III.F 13 ... III.F 13 III.F 14 III.F 14 ... III.F 14 III.F 15. III.F 16 III.F 16 ... III.F 16 III.F 17 III.F 17 ... III.F 17 III.F 18 III.F 18 ... III.F 18 III.F 19. III.F 20 III.F 20 ... III.F 20 III.F 21. III.F 22 III.F 22 ... III.F 22 III.F 23. III.F 24 III.F 24 ... III.F 24 Group G. Gross Product IH.G 1-HI.G 9 ... IH.G 1-HI.G 9 Group H. Employment and Co HI.H 1 — III.H 2. HI.H 3 mpensation of Employees IH.G 3 IH.G 4 ... III.H 3 III.H 4 ... III.H 4 III.H 5. III.H 6 IH.G 6 ... III.H 6 III.H 7 .... IH.G 7 ... III.H 7 III.H 8— III.H 10. III.H 11 IH.G 11 ... III.H 11 III.H 13-III.H 20. METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 233 Table 1.— Comparison of Tables in This Publication With Those in the Publications for 1990-93 and the Publications for 1995-98— Continued Table in this publication Comparable table in publications for 1990-93 Comparable table in publications for 1995-98 Table in this publication Comparable table in publications for 1990-93 Comparable table in publications for 1995-98 Group I. U.S. Trade in Goods Hl.l 1 ... IH.H 1 lll.l 1 lll.l 2 lll.l 5 lll.l 9 lll.l 19 lll.l 23 Group J. Technology HI.J 1 HI.J 2 HI.J 3 partly in lll.l 3. partly in lll.l 2-5 partly in lll.l 2-5 Operating Data Ill I 2 HI.H 2 partly in HI.J 12 . III.J 3 Illl 3 — III I 4. IH.H 5 Hl.l 5 HI.J 4. HI.J. 5 III.J6-IH.J 11. Group K. Other Financial and IH.K MILK 3. Hl.l e — in 1 8. iii.i 9 IH.H 9 partly in III.J 12 Hl.l 10 — 111 I 18. lll.l 19 IH.H 22 III.I 20— lll.l 22. Hl.l 23 IH.H 26 Hl.l 24-III.I 25. Note.— This publication contains tables (in general subject matter groups W, X, Y, and Z) that show direct invest- ment position and balance of payments data, as well as tables that show financial and operating data. The tables that snow direct investment position and balance of payments data are not listed here, because they are outside the scope of the publications lor 1990-93 and 1995-98, which cover only financial and operating data. Direct invest- ment position and balance of payments data comparable with those in this publication, which are on a fiscal year basis, are not available (see text for discussion). However, direct investment position and balance of payments data are available on a calendar year basis lor 1950-96 in other BEA publications. Also not listed here are tables covering the financial and operating data of all foreign affiliates of all U.S. parents, nonbank affiliates of parents in banking, and bank affiliates of all parents. These data are also outside the scope ol the publications for 1990-93 and 1995-98, which cover only financial and operating data of nonbank parents and their nonbank affiliates. in goods of parents and affiliates by product and by destination or origin, compensation of and hours worked by production workers of manu- facturing affiliates, sales by affiliates by country of destination — were collected in the last (1989) benchmark survey, but not in the annual surveys for nonbenchmark years. Table 1 lists the tables in this publication and gives the comparable tables in the annual survey publications for 1990-93 and for 1995-98. To aid comparisons with the publications presenting the annual survey estimates for subsequent years, the table numbers in this publication are identical to those used in the annual survey publications for 1995-98. Many of the tables that appear in this publication do not have counterparts in the publications for 1990-93 or for 1995-98, primar- ily because the 1994 benchmark survey collected data for some items that were not collected in the annual surveys. If a comparable table for the other years is not available, no table numbers ap- pear in table 1 in the columns for the other years' publications. In some instances, data items collected sepa- rately in the benchmark survey may have been combined with other items in the annual survey. Thus, two or more items that were combined in a table in the annual survey publications may be shown separately in a table in this publication. Coverage The benchmark survey covered every U.S. person (as defined below) having a foreign affiliate — that is, having direct or indirect ownership or control of 10 percent or more of the voting securities of an incorporated foreign business enterprise or an equivalent interest in an unincorporated foreign business enterprise — at any time during its 1994 fiscal year. Reports were required even though the foreign business enterprise may have been es- tablished, acquired, liquidated, sold, or otherwise inactivated during the year. Each benchmark survey report consisted of (1) Form BE-iOA, which requested the data for the U.S. parent company, and (2) one or more Form be-iob's, which requested the data for each of the parent's foreign affiliates that had total assets, sales, or net income (or loss) greater than $3 mil- lion or that owned another foreign affiliate for which a Form be-iob had to be filed regardless of the size of its own assets, sales, or net income (or loss). On a supplement to Form be-ioa, U.S. parents had to list all foreign affiliates that were exempt from being reported on Form be-iob and give a few selected data items — percentage owner- ship, total assets, sales, net income, employment size class, and direct investment position — for each. If all foreign affiliates of a U.S. parent were exempt from being reported on Form be-iob, the U.S. parent was only required to file Part I, items 1-4 of Form be-ioa (to identify itself) and the Form be-ioa Supplement (to identify its exempt foreign affiliates). U.S. parents and foreign affiliates in banking — that is, parents and affiliates that had over 50 percent of their total revenues generated by ac- tivities characteristic of depository institutions (banks, savings and loans, and credit unions) — were permitted to report less detailed financial and operating data than nonbank parents and af- filiates. Less detail was required because most of the information on bank parents and affili- ates that was needed for policymaking purposes already had to be reported to other U.S. Gov- ernment agencies. Shorter, specialized forms for bank parents (Form be-ioa bank) and for bank affiliates (Form be-iob bank) were substituted for the standard forms. 234 BEA STUDIES OF DIRECT INVESTMENT The reporting criteria for banks are similar to those for nonbanks; however, foreign bank affili- ates that were owned indirectly 50 percent or less by their U.S. parents and that did not own a non- bank foreign affiliate for which a Form be-iob had to be filed were exempt from being reported even if their total assets, sales, or net income (or loss) were greater than $3 million. Based on the above criteria, complete be-ioa forms were filed by 2,727 U.S. parents, of which 60 were banks; 709 U.S. parents filed partial be- ioa forms because all their foreign affiliates were exempt, be-iob forms were received for 22,332 foreign affiliates, of which 571 were banks; 7,328 foreign affiliates were listed by their U.S. parents as exempt from being reported on Form be-iob. In table 2, foreign affiliates for which be-iob forms were filed are compared with all foreign affiliates in the 1994 direct investment universe. Affiliates for which be-iob forms were filed ac- counted for 75.3 percent of the universe in terms of numbers. However, because of the relatively low exemption level on the form, they accounted for almost the entire universe in terms of value — 99.9 percent of total assets, 99.7 percent of sales, 100.2 percent of net income, and 99.9 percent of the historical-cost U.S. direct investment position Table 2.— Foreign Affiliates for Which BE-10B Forms Were Filed in the 1994 Benchmark Survey and the Universe of Foreign Affiliates Number of affili- ates Millions of dollars Total assets Sales Net income U.S. direct invest- ment position abroad on a histori- cal cost basis Universe of foreign affiliates: Total Nonbanks Banks Foreign affiliates for which BE-10B forms were filed: Total Nonbanks Banks Foreign affiliates exempt from being reported on the BE-10B form: Total Nonbanks Banks Addenda— Affiliates for which BE-10B forms were filed as a percentage of the universe: Total Nonbanks Banks 29,660 28,669 991 22,332 21,436 896 7,328 7,233 95 75.3 74.8 90.4 3,385,656 2,381,523 1,004,133 3,380,983 2,376,902 1,004,081 4,673 4,621 52 99.9 99.8 100.0 1,835,601 1,762,216 73,385 1,830,744 1,757,388 73,356 4,857 4,828 29 99.7 99.7 100.0 101,636 93,831 7,805 101,792 93,986 7,806 -156 -155 -1 100.2 100.2 100.0 607,149 581,257 25,892 606,393 580,508 25,885 756 749 7 99.9 99.9 100.0 abroad. Thus, in terms of value, coverage of the universe is virtually complete. Nonbank affiliates for which be-iob forms were filed accounted for 99.8 percent of total assets, 99.7 percent of sales, 100.2 percent of net in- come, and 99.9 percent of the historical- cost U.S. direct investment position of the nonbank affili- ate universe. The corresponding percentages for bank affiliates were 100.0, 100.0, 100.0, and 100.0 percent, respectively. Except for table 2, all tables in this publica- tion cover only foreign affiliates for which be-iob forms were filed and their U.S. parents. Thus, when the term "all foreign affiliates" is used, it refers to all foreign affiliates for which be-iob forms were filed, not to the universe of affiliates shown in table 2. Basic Concepts and Definitions This section describes the basic concepts and definitions used in the 1994 benchmark survey. Major differences between these concepts and definitions and those used in bea's last bench- mark survey, which covered 1989, and in other bea surveys of U.S. direct investment abroad since 1989 are noted. Direct investment Direct investment implies that a person in one country has a lasting interest in, and a degree of influence over the management of, a business enterprise in another country. For the United States, in accordance with international guide- lines, ownership or control by a single person of 10 percent or more of an enterprise's voting se- curities or the equivalent is considered evidence of such a lasting interest or degree of influence over management. 5 Thus, U.S. direct investment abroad is the ownership or control, directly or in- directly, by one U.S. person of 10 percent or more of the voting securities of an incorporated foreign business enterprise or an equivalent interest in an unincorporated foreign business enterprise. Only U.S. investment abroad that is direct investment was covered by the 1994 benchmark survey. Direct investment in a foreign business enter- prise can result from direct or indirect ownership by a U.S. person. In direct ownership, the U.S. person holds the ownership interest in the foreign business enterprise. In indirect ownership, one 5. See International Monetary Fund (imf), Balance of Payments Manual 5th ed. (Washington, dc: imf, 1993); and Organisation for Economic Co- operation and Development (oecd), oecd Benchmark Definition of Foreign Direct Investment, 3rd ed. (Paris: oecd, 1996) METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 235 or more tiers of ownership exist between the for- eign business enterprise and the U.S. person. A U.S. person's percentage of indirect voting own- ership in a given foreign business enterprise is equal to the direct- voting- ownership percentage of the U.S. person in the first foreign business en- terprise in the ownership chain multiplied by that first enterprise's direct- voting-ownership percent- age in the second foreign business enterprise in the chain multiplied by the corresponding per- centages for all other intervening enterprises in the chain multiplied by the last intervening en- terprise's direct-voting-ownership percentage in the given foreign business enterprise. If more than one ownership chain exists, the percent- ages of direct and indirect ownership in all chains are summed to determine the U.S. person's ownership percentage. Direct investment refers to ownership by a sin- gle person, not to the combined ownership of all persons in a country. A "person" is broadly defined to include any individual, branch, part- nership, associated group, association, estate, trust, corporation or other organization (whether organized or not under the laws of any State), and any government (including a foreign gov- ernment, the U.S. Government, a State or local government, and any agency, corporation or fi- nancial institution, or other entity or instrumen- tality thereof, including a government-sponsored agency). An associated group consists of two or more persons who exercise their voting privileges in a concerted manner by the appearance of their actions, by agreement, or by understanding in order to influence the management of a business enterprise. The following are deemed to be asso- ciated groups: (1) Members of the same family, (2) a business enterprise and one or more of its officers and directors, (3) members of a syndicate or joint venture, and (4) a corporation and its domestic subsidiaries. Thus, direct investment is considered to exist as long as the combined own- ership interests of all members of the group is at least 10 percent, even if no member owns 10 per- cent or more. The definition assumes, in effect, that the members' influence over management is comparable to that of a single person with the same ownership interest. Investment by a U.S. person of less than 10 percent in a foreign business enterprise is not considered direct investment, even if another U.S. person has an interest of a least 10 percent in the enterprise. Thus, if one U.S. person owns 11 per- cent and another owns 9 percent, the 11-percent interest is included, but the 9-percent interest is excluded. However, if two or more U.S. persons each hold an interest of at least 10 percent, each such interest is included. Determination of residency For purposes of the benchmark survey (and bea's other direct investment surveys), the "United States" means the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, and all U.S. territories and possessions. U.S. off- shore oil and gas sites are also considered to be in the United States. "Foreign" means that which is situated out- side the United States or that belongs to, or is characteristic of, a country other than the United States. The country of residence, rather than the coun- try of citizenship, of a person is used to determine whether a direct investor or the business enter- prise owned by a direct investor is U.S. or foreign. A U.S. person is any person who resides in, or is subject to the jurisdiction of, the United States, and a foreign person is any person who resides outside the United States or who is subject to the jurisdiction of a country other than the United States. A person is considered a resident of, or is sub- ject to the jurisdiction of, the country in which the person is located if the person resides or ex- pects to reside in that country for 1 year or more. Under this rule, persons who reside or expect to reside outside their country of citizenship for less than 1 year are considered residents of their coun- try of citizenship, whereas persons who reside or expect to reside outside their country of citizen- ship for 1 year or more are considered residents of the country in which they are residing. There are two exceptions to this rule. First, individuals (and their immediate families) who either own or are employed by a business in their country of citizenship and who are residing out- side of that country for 1 year or more in order to conduct business for the enterprise are con- sidered residents of their country of citizenship if they intend to return within a reasonable period of time. Second, individuals who reside outside their country of citizenship because they are gov- ernment employees (such as diplomats, consular officials, members of the armed forces, and their immediate families) are considered residents of their country of citizenship regardless of their length of stay. 236 BEA STUDIES OF DIRECT INVESTMENT The U.S. parent A U.S. parent is a U.S. person who has direct investment — that is, a 10-percent-or-more direct or indirect ownership interest — in a foreign busi- ness enterprise. Because a U.S. parent is a "person" in the broad sense defined above, it may be a business enterprise; a religious, charitable, or other nonprofit organization; an individual; a government; an estate or trust; and so forth. Most U.S. parents are business enterprises. A business enterprise is any organization, associa- tion, branch, venture, or the ownership of any real estate that exists to make a profit or to otherwise secure economic advantage. 6 If incorporated, the U.S. parent is the fully con- solidated U.S. enterprise that consists of (1) the U.S. parent corporation whose voting securities are not owned more than 50 percent by another U.S. corporation, and (2) proceeding down each ownership chain from that U.S. corporation, any U.S. corporation (including Foreign Sales Corpo- rations located within the United States) whose voting securities are more than 50 percent owned by the U.S. corporation above it. All other U.S. corporations and all foreign business enterprises owned by the U.S. parent are excluded from the full consolidation. Where a U.S. individual or other nonbusi- ness person (such as a nonprofit organization or a government) owns more than 50 percent of a U.S. business enterprise that, in turn, owns a foreign business enterprise, the U.S. business enterprise, not the individual or other nonbusi- ness person, is considered the parent. This treatment ensures that financial and operating data of the U.S. business enterprise are included in the U.S.-parent data and that data on the transactions and positions of the U.S. business enterprise with the foreign business enterprise are included in the foreign-affiliate data reported to bea. Any direct transactions or positions of the individual or other nonbusiness person with the foreign business enterprise must be reported by the U.S. business enterprise and are, therefore, also included in the direct investment accounts. Although the U.S. Government may have eq- uity investment in a foreign business enterprise, such investment is not covered by bea's direct investment surveys. Data on such investment are reported to other agencies and are included 6. Ownership of real estate for profit-making purposes is defined to be a business enterprise, but ownership of real estate exclusively for personal use is not. A residence that is leased to others by an owner who intends to reoccupy it is considered real estate held for personal use and not a business enterprise. by bea in the U.S. Government accounts, rather than in the direct investment accounts, of the U.S. international transactions accounts. In the case of a U.S. estate, the estate itself, not its beneficiary, is considered the U.S. parent. For a U.S. trust, however, either the beneficiary or the creator of the trust may be considered the U.S. parent with respect to any investments of the trust, depending on the circumstances. The creator is considered the parent if there is a re- versionary interest — that is, if the interest in the trust may be returned to the creator after a pe- riod of time — or if the creator is a corporation or other organization that designates its own share- holders or members as beneficiaries. In all other cases, the beneficiary is considered the parent. The foreign affiliate A foreign affiliate is a foreign business enterprise in which there is U.S. direct investment; that is, it is a foreign business enterprise that is directly or indirectly owned or controlled by one U.S. person to the extent of 10 percent or more of the voting securities for an incorporated business enterprise or an equivalent interest for an unincorporated business enterprise. The affiliate is called a foreign affiliate to denote that it is located outside the United States. A business enterprise, and therefore an affiliate, may be either incorporated or unincorporated. Unincorporated business enterprises primarily take the form of branches and partnerships. A foreign affiliate that is a branch consists of operations or activities in a foreign country that a U.S. person conducts in its own name rather than through an entity separately incorporated abroad. By definition, a branch is wholly owned. If a company is incorporated in the United States but carries out substantially all of its operations abroad, its foreign operations are treated, by bea as a branch (and, therefore, as a foreign affiliate) even though the U.S. company itself may con- sider the operations to be an integral part of, and would normally consolidate them with, its own operations and accounts. In general, the foreign operations or activities of a U.S. person are considered to be a for- eign affiliate if they are legally or functionally separable from the domestic operations or ac- tivities of the U.S. person. In most cases, it is clear whether the foreign operations or activities constitute a foreign affiliate. If an operation or activity is incorporated abroad — as most are — it is always considered a foreign affiliate. The situ- ation is not always so clear with unincorporated METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 237 foreign operations or activities. Most are legally or functionally separable from those of the U.S. person, but some are not clearly separable, and the determination of whether they constitute a foreign affiliate is made on a case-by- case basis, depending on the weight of the evidence. The following characteristics would indicate that the unincorporated operation or activity is probably a foreign affiliate: • It pays foreign income taxes. • It has a substantial physical presence abroad, as evidenced by plant and equipment or by employees that are permanently located abroad. • It has separate financial records that would allow the preparation of financial statements, including a balance sheet and income state- ment. (A mere record of disbursements to, or receipts from, the foreign operation or activity would not constitute a "financial statement" for this purpose.) • It takes title to the goods it sells and re- ceives revenues from the sale, or it receives funds from customers for its own account for services it performs. The following characteristics would indicate that the unincorporated operation or activity is probably not a foreign affiliate: • It engages only in sales promotion or pub- lic relations activities on behalf of the U.S. person. • It conducts business abroad only for the U.S. person's account, not for its own account. • It has no separate financial records that allow the preparation of financial statements. • Its expenses are paid by the U.S. parent. • It pays no foreign income taxes. • It has limited physical assets or few employees permanently located abroad. Consistent with these guidelines, the foreign stations, ticket offices, and terminal or port facili- ties of a U.S. airline or ship operator that provide services only to the airline's or ship operator's own operations are not considered foreign af- filiates, because most of the revenues, such as passenger fares and freight charges, collected by these facilities are generated by the travel and transportation services rendered by the airline or ship operator of which they are a part, not by the activities of these facilities. However, if the facili- ties provide services to unaffiliated persons rather than to the U.S. airline or ship operator that owns them, they are considered foreign affiliates. In general, each foreign affiliate was required to be reported separately. However, consolidation of affiliates in the same country was permitted if the affiliates were in the same three-digit industry or were integral parts of the same business oper- ation. 7 (As an example of the latter, if Mexican affiliate A manufactured automobile engines and a majority of its sales were to Mexican affiliate B, which assembled automobiles, then affiliates A and B could have been consolidated.) Under no circumstances were affiliates in different countries permitted to be consolidated. A majority-owned foreign affiliate (mofa) is a foreign affiliate in which the combined direct and indirect ownership interest of all U.S. parents ex- ceeds 50 percent. Data for mofa's rather than for all foreign affiliates are required in order to examine the foreign investments over which U.S. parents exert unambiguous control. 8 Addition- ally, some aspects of affiliate operations can only be analyzed from the perspective of mofa oper- ations, because the necessary data items are not collected for other affiliates. A small percentage of mofa's are majority owned by a group of U.S. parents in which none of the parents has a majority stake. The group usually influences or controls the management of the affiliate as a single parent that has the same total ownership interest would. Most of these jointly owned mofa's are in the petroleum indus- try, where parents sometimes pool their resources in order to raise capital or to mitigate risk. Accounting Principles Use of generally accepted accounting principles Data in the 1994 benchmark survey were re- quired to be reported as they would have been for stockholders' reports rather than for tax or other purposes. Thus, U.S. generally accepted ac- counting principles (gaap) were followed unless otherwise indicated by the survey instructions. The survey instructions departed from gaap in cases where the departure would result in data that were conceptually or analytically more useful or more appropriate for direct investment pur- poses. One major departure from gaap was the 7. For a description of the industry codes used, see bea's Guide to Industry and Foreign Trade Classifications for International Surveys in the appendix. 8. However, the U.S. parent(s) may be under the control of a foreign parent company. In 1994, U.S. parents that were ultimately controlled by for- eign parents accounted for 11 percent of all U.S. parents, and they accounted for 11 percent of the assets and for 14 percent of the sales of all U.S. parents. 238 BEA STUDIES OF DIRECT INVESTMENT use of the unique consolidation rules (see the pre- ceding discussions of consolidated reporting in "The U.S. Parent" and in "The Foreign Affiliate" in the section "Basic Concepts and Definitions"). Currency translation Monetary amounts were reported to bea in U.S. dollars. The report forms specified that when a foreign affiliate's assets, liabilities, revenues, and expenses were denominated or measured in the affiliate's financial statements in a foreign currency, they must be translated into dollars in accordance with gaap, specifically Financial Accounting Standards Board Statement No. 52 (fasb 52). Under fasb 52, all assets, liabilities, revenues, and expenses are translated at current exchange rates. For assets and liabilities, the exchange rate as of the balance sheet date is used. For rev- enues and expenses, weighted- average exchange rates for the period are used. Under fasb 52, exchange gains and losses re- sulting from remeasuring the foreign affiliates' assets and liabilities that are denominated in for- eign currencies other than the affiliate's principal, or functional, currency into the functional cur- rency at exchange rates that differ from those used in the prior period are included in affiliates' net income. However, exchange gains and losses that result from translating opening balances for foreign affiliates' assets and liabilities from the functional currency into U.S. dollars at exchange rates different from those for closing balances are taken directly to a separate component of owners' equity, entitled "translation adjustments," rather than being included in net income. The effects of translating foreign affiliates' revenues and ex- penses from their functional currency into U.S. dollars at exchange rates different from those in the prior period are reflected in net income, but they are not separately identified, and because they do not represent changes in the values of as- sets or liabilities, they are not regarded as capital gains or losses. (For a more complete description of translation procedures, refer to fasb 52.) Valuation The 1994 benchmark survey data are, for the most part, valued in the prices and exchange rates of 1994. Because 1994 prices and exchange rates may differ from those of other years, changes in U.S.- parent and foreign-affiliate data over time may reflect changes in prices and exchange rates rather than real changes. In addition, the accuracy of intercountry comparisons of foreign affiliate data may be affected if the market exchange rates used to translate foreign-affiliate data to U.S. dollars do not reflect the relative purchasing power of different currencies. 9 Some benchmark survey items — such as prop- erty, plant and equipment, and the direct in- vestment position — are valued at historical cost rather than in 1994 prices. For these items, the values shown largely reflect prices at the time the asset was acquired or the investment was made rather than prices of 1994. 10 Fiscal Year Reporting Data for foreign affiliates and U.S. parents were required to be reported on a fiscal year basis. The 1994 fiscal year was defined to be the affiliate's or parent's financial-reporting year that ended in calendar year 1994. The fiscal year data from the benchmark sur- vey that are presented in this publication are not comparable with the calendar year estimates of transactions between foreign affiliates and their U.S. parents that appear in the U.S. interna- tional transactions accounts or with the calendar year estimates of the U.S. direct investment po- sition abroad. The benchmark survey data must be adjusted to a calendar year basis before they are entered into the U.S. direct investment po- sition abroad and the international transactions accounts. The extent of noncomparability between the benchmark survey data presented here and the direct investment estimates that will be presen- ted in the U.S. direct investment position and balance of payments accounts depends on the number and size of foreign affiliates and U.S. par- ents whose fiscal years do not correspond to the calendar year. Figures on the number of foreign affiliates and U.S. parents that have fiscal years that do not correspond to the calendar year and on the portion of the benchmark survey data ac- counted for by these foreign affiliates and U.S. parents are shown in tables 3-5. Confidentiality Under the International Investment and Trade in Services Survey Act, the direct investment data 9. For further discussion of valuation issues and for the results of an ini- tial bea attempt to remove valuation effects from its measures of the activities of U.S. multinational companies, see "Real Gross Product of U.S. Companies' Majority-Owned Foreign Affiliates in Manufacturing," Survey of Current Business 77 (April 1997): 8-17. 10. For further discussion of historical-cost valuation of the direct investment position see the section "U.S. direct investment position abroad." METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 239 collected by bea are confidential; they cannot be published in such a manner "that the person to whom the information relates can be specifically identified" without the prior written permission of the respondent. For this publication, each cell in a table was tested to determine whether the data it contained should be suppressed (that is, not shown) for confidentiality reasons. A "(D)" in a cell indicates that the data were suppressed to avoid the disclosure of information on an in- dividual company. For employment data, a letter representing a size range was entered in place of a "(D)." The act further stipulates that the data must be used for statistical and analytical purposes only; the use of an individual company's data for tax, investigative, or regulatory purposes is prohibited. Access to the data is limited to of- ficials and employees (including consultants and contractors and their employees) of Government agencies designated by the President to perform functions under the act. Private individuals may obtain access to the data only in the capacity of experts, consultants, or contractors whose services are procured by bea, usually on a temporary or intermittent basis, for purposes of carrying out projects under the act — for example, to perform research on U.S. direct investment abroad. These people are sub- ject to the same confidentiality requirements as regular employees of bea or other government agencies performing functions under the act. Classification of Data by Country and by Industry Country classification Each foreign affiliate is classified by its country of location — that is, the country in which the af- filiate's physical assets are located or in which its primary activity is carried out. In most cases, the country of location of a business enterprise is the same as its country of organization or in- corporation. However, in some cases, a business enterprise is incorporated in one country, but part or all of its physical assets are located, or its activities carried out, in a second country. If all its physical assets or operations are located in a single foreign country outside its country of incorporation, the enterprise is treated as an in- corporated foreign affiliate in the country where its physical assets and operations are located. If, however, an enterprise has some physical assets or operations in each country, it is considered two separate affiliates — an incorporated affiliate located in the country of incorporation and an unincorporated affiliate (a branch) located in the other country. There are two exceptions to these general rules. First, if a business enterprise incorporated in one foreign country has physical assets or operations in more than one other foreign country, an in- corporated foreign affiliate is deemed to exist in the country of incorporation, even though the enterprise may have no physical assets or oper- ations in that country. Unincorporated foreign affiliates (branches) are deemed to exist in the other foreign countries. In effect, the affiliate in the country of incorporation is considered a Table 3.— Selected Data for All Foreign Affiliates and All U.S. Parents by Fiscal Year Ending Date Fiscal year ending date otal January 1 to April 1 to July 1 to October 1 to Addendum: March 31 June 30 September 30 December 31 December 31 22,332 1,099 2,124 1,896 17,213 14,408 3,380,983 79,476 119,449 86,507 3,095,550 2,728,127 1,830,744 78,472 145,736 81,642 1,524,894 1,317,440 101,792 1,574 4,281 2,628 93,309 78,727 7,240.5 327.1 635.4 426.6 5,851.5 4,952.2 230,629 10,451 17,354 12,484 190,339 161,459 606,393 15,085 34,024 29,182 528,102 467,840 67,596 1,026 3,432 2,290 60,848 52,947 2,727 221 306 288 1,912 1,722 8,636,571 199,776 215,709 185,211 8,035,874 7,556,632 4,148,552 245,185 277,540 220,838 3,404,989 3,183,907 214,352 3,259 10,750 4,633 195,710 182.419 19,330.0 1,504.4 1,400.4 1,234.6 15,190.6 13,981.9 840,608 28,852 51,748 49,998 710,009 653,746 Affiliate data Number of affiliates Total assets (millions of dollars) Sales (millions of dollars) Net income (millions of dollars) Number of employees (thousands) Compensation of employees (millions of dollars) U.S. direct investment position abroad on a historical-cost basis (millions of dollars) Direct investment income (millions of dollars) U.S. parent data Number of U.S. parents Total assets (millions of dollars) Sales (millions of dollars) Net income (millions of dollars) Number of employees (thousands) Compensation of employees (millions of dollars) 240 BEA STUDIES OF DIRECT INVESTMENT Table 4.— Number and Total Assets of All Foreign Affiliates, Industry and Country of Affiliate by Fiscal Year Ending Date Total Fiscal year ending date January 1 to March 31 April 1 to June 30 July 1 to September 30 October 1 to December 31 Number of affiliates Total By industry Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals Industrial machinery and equipment Electronic and other electric equipment Transportation equipment Other manufacturing Wholesale trade Depository institutions Finance (except depository institutions), insurance, and real estate Services Other industries By country Canada Europe Of which: France Germany Netherlands United Kingdom Latin America and Other Western Hemisphere Of which: Brazil Mexico Africa Middle East Asia and Pacific Of which: Australia Japan International Total By industry Petroleum Manufacturing Food and Kindred products Chemicals and allied products Primary and fabricated metals Industrial machinery and equipment Electronic and other electric equipment Transportation equipment Other manufacturing Wholesale trade Depository institutions Finance (except depository institutions), insurance, and real estate Services Other industries By country Canada Europe Of which: France Germany Netherlands United Kingdom Latin America and Other Western Hemisphere Of which: Brazil Mexico Africa Middle East Asia and Pacific Of which: Australia Japan International 22,332 1,508 8,018 796 1,917 717 1,016 844 449 2,279 5,058 571 2,981 2,705 1,491 2,094 10,781 1,262 1,403 1,013 2,546 3,603 448 846 516 354 4,877 864 1,042 107 3,380,983 253,947 678,637 91,439 148,707 30,376 98,608 53,152 118,136 138,218 180,874 895,428 1,099,206 106,493 166,398 237,490 1,837,846 133,496 225,964 128,555 913,546 468,889 52,036 59,905 23,708 66,486 731,380 98,585 291,922 15,184 1,099 12 402 25 77 20 60 72 20 128 348 2 71 185 79 139 520 79 46 131 101 18 27 23 7 302 44 148 7 2,124 30 784 146 159 62 79 85 11 242 699 2 190 254 165 192 1,155 130 145 153 256 269 37 79 31 20 451 1,896 90 817 132 155 65 105 118 52 190 604 1 121 195 68 197 1,016 128 139 102 237 237 27 72 33 12 85 104 2 Total assets (millions of dollars) 79,476 440 43,631 10,574 2,296 463 3,239 3,177 h 7,237 ( D ) 12,005 7,578 ID\ 13,768 23,693 1,585 2,520 1,303 12,232 5,972 608 486 430 ( D ) 35,272 962 26,246 ( D ) 119,449 3,088 50,628 13,345 14,307 1,436 5,828 3,814 473 11,425 18,200 ( D ) 19,994 9,664 ( D ) 9,684 64,898 7,554 7,452 13,345 17,309 10,091 2,301 2,124 1,243 655 32,784 11,214 7,018 95 86,507 2,332 39,594 9,142 5,259 1,636 9,729 6,061 ( D ) 16,228 ft 15,219 8,899 ( D ) 7,073 53,747 10,400 7,304 8,005 11,468 7,221 1,389 1,410 714 ( D ) 17,296 1,757 9,522 ( D ) 17,213 1,376 6,015 493 1,526 570 772 569 366 1,719 3,407 566 2,549 2,071 1,179 1,566 8,090 935 1,040 712 1,922 2,996 366 668 429 315 3,725 637 710 92 3,095,550 248,086 544,785 58,378 126,845 26,842 79,813 40,100 98,030 114,777 139,210 894,818 1,051,987 80,352 136,313 206,965 1,695,508 113,957 208,689 105,902 872,537 445,605 47,738 55,886 21,322 65,383 646,027 84,652 249,137 14,740 D Suppressed to avoid disclosure ol data ol individual companies. METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 241 holding company whose assets are the equity it holds in the unincorporated affiliates in the other countries. Second, if a business enterprise in- corporated abroad by a U.S. person conducts its operations from, and has all of its physical as- sets in, the United States, it is treated as an incorporated foreign affiliate in the country of incorporation, even though it has no operations or physical assets there. This treatment ensures that the foreign entity is reported to bea. Balance of payments transactions between par- ents and affiliates are recorded against the coun- try of the affiliate with which the U.S. parent had a direct transaction, even if the transaction may reflect indirect claims on, liabilities to, or income from indirectly held affiliates in third countries. For example, suppose that a U.S. parent com- pany acquires all of the equity of a German manufacturer for $100 million, channeling the purchase through its holding-company affiliate in the Netherlands. Both the direct investment cap- ital flow and the direct investment position would be recorded against the Netherlands, because that is the country of the affiliate with which the U.S. parent had a direct transaction. (By contrast, the financial and operating data — such as em- ployment and sales data — of the newly acquired affiliate would be shown in Germany because that is where the operations are located.) Transactions with third-country transactors in- volving a given affiliate are classified in the affiliate's country of location. For example, sup- pose a U.S. parent purchases a Japanese affiliate's capital stock from a French resident; the re- sulting direct investment capital flow would be classified in Japan because such flows change the U.S. direct investment position in that country. (However, the associated settlement flows, which would be included in other capital accounts of the U.S. international transactions accounts, would likely be classified in France.) Unless otherwise specified, the designation "by country" in a table title in this publication indi- cates that the data in the table are disaggregated by country of foreign affiliate. If a different method of country disaggregation is used, it is specified in the table title; for example, trade data could be disaggregated either by country of affiliate or by country of origin or destination. In table ii.ai, selected data for all nonbank foreign affiliates of nonbank U.S. parents are classified by country of affiliate; each individ- Table 5.— Number and Total Assets of All U.S. Parents, Industry of U.S. Parent by Fiscal Year Ending Date Total Fiscal-year ending date January 1 to March 31 April 1 to June 30 July 1 to September 30 October 1 to De- cember 31 Addendum: December 31 All industries Petroleum Manufacturing Food and Kindred products > Chemicals and allied products Primary and fabricated metals Industrial machinery and equipment , Electronic and other electric equipment Transportation equipment Other manufacturing Wholesale trade Depository institutions Finance (except depository institutions), insurance, and real estate Services Other industries All industries Petroleum Manufacturing Food and kindred products Chemicals and allied products Primary and fabricated metals : Industrial machinery and equipment Electronic and other electric equipment Transportation equipment Other manufacturing Wholesale trade Depository institutions Finance (except depository institutions), insurance, and real estate Services Other industries D Suppressed to avoid disclosure ol data ot individual companies. 2,727 106 1,552 80 207 187 274 211 82 511 250 60 230 281 248 8,636,571 529,129 2,296,314 246,480 416,463 104,978 232,323 308,979 534,200 452,891 126,043 1,918,568 2,512,799 227,916 1,025,802 Number of parents 221 1 113 5 14 12 22 19 3 38 44 11 33 19 306 6 193 16 15 21 36 31 7 67 29 11 47 20 288 13 193 19 13 21 38 38 11 53 28 10 31 13 Total assets (millions of dollars) 199,776 ( D ) 50,917 10,701 5,018 4,254 3,228 10,188 2,347 15,181 32,945 43,734 12,437 215,709 8,354 136,032 52,111 30,756 5,932 9,293 10,812 5,326 21,802 6,826 3,952 37,606 22,942 185,211 119,833 27,098 12,631 4,351 29,934 23,038 6,574 16,207 13.529 34 31,226 1,912 86 1,053 40 165 133 178 123 61 353 149 60 198 170 196 8,035,874 510,880 1,989,535 156,570 368,058 90,442 189,869 264,942 519.952 399,702 72,743 1,918.568 2,465.079 146.647 932,423 1,722 82 923 34 147 124 154 105 53 306 137 60 192 149 179 7,556,632 510.793 1.826.345 150,334 341,750 88.379 149,803 244.892 502.867 348.320 67,490 1.918.568 2.195.192 135.282 902.963 242 BEA STUDIES OF DIRECT INVESTMENT ual country in which U.S. direct investment in 1994 was reported is shown separately and is grouped by geographic area. (Table iii.ai presents similar information for majority-owned foreign affiliates.) Primarily because of confiden- tiality requirements, many countries could not be shown separately in the other tables in this publication. However, the individual countries included in a country group shown in the other tables may be determined, and their relative sizes assessed, by referring to table ii.ai. In this publication, the "International" cate- gory consists of affiliates that have operations spanning more than one country and that are engaged in petroleum shipping, other water transportation, or offshore oil and gas drilling. Affiliates in these industries that have opera- tions entirely in one country are classified in that specific country. Thus, an affiliate engaged in shipping goods among countries is classified in "International," whereas one engaged in lo- cal coastal or inland shipping is classified in the country along whose coast or on whose water- ways it is operating. Similarly, an oil rig that was moved from place to place during the year is classified in "International," but one that was stationary for the entire year is classified in the country where it was located. Industry classification Each U.S. parent or foreign affiliate was classified by industry on the basis of its sales (or of its total income, for holding companies) in a three-stage procedure. First, a given U.S. parent or foreign affiliate was classified in the major industry that accounted for the largest percentage of its sales." Second, within the major industry, the U.S. parent or foreign affiliate was classified in the two-digit industry in which its sales were largest; a two-digit industry was defined to consist of all three-digit subindustries that have the same first two digits in their three-digit code. 12 Third, within its two-digit industry, the U.S. parent or foreign affiliate was classified in the three-digit subindustry in which its sales were largest. This procedure ensured that the U.S. parent or for- eign affiliate was not assigned to a three-digit subindustry outside either its major industry or its two-digit industry. The following example illustrates the three- stage classification procedure. Suppose a parent's or an affiliate's sales were distributed as follows: Industry code 35 351 352 353 36 367 50 508 Percentage of total sales All industries 100 Manufacturing 55 Industrial machinery and equipment 30 Engines and turbines 5 Farm and garden machinery 10 Construction, mining, and materials handling machinery 15 Electronic and other electric equipment 25 Electronic components and accessories 25 Wholesale trade 45 Durable goods 45 Machinery, equipment, and supplies 45 11. The major industries used were agriculture, forestry, and fishing; mining; petroleum; construction; manufacturing; transportation, communi- cation, and public utilities; wholesale trade; retail trade; finance, insurance, and real estate; and services. 12. The only exceptions to this rule were that codes 401, 449, 450, 462, 472, and 477 were treated as being in the same two-digit industry-transportation. Because 55 percent of the parent's or affiliate's sales were classified in manufacturing and only 45 percent were classified in wholesale trade, the parent's or affiliate's major industry is manufac- turing. Within manufacturing, 30 percent of its sales were accounted for by sales in two-digit industry 35 (industrial machinery and equip- ment) (the sum of the percentages in 351, 352, and 353), and 25 percent were in two-digit industry 36 (electronic and other electric equipment); there- fore, the parent's or affiliate's two-digit industry is 35. Finally, because its sales within industry 35 were largest in subindustry 353, the parent's or affiliate's three-digit subindustry is 353. Thus, be- cause of the three-stage classification procedure, the parent or affiliate was assigned to subindus- try 353, even though its sales in that subindustry were smaller than its sales in either subindustries 508 or 367. Unless otherwise specified, the desig- nation "by industry" in the title of a table in this publication indicates that the data in the table are disaggregated by industry of foreign affiliate. Exceptions to this rule are specified in the table title; for example, in some tables, affiliate data are disaggregated by industry of their U.S. parent. The direct investment data are collected at the enterprise level, and each enterprise is clas- sified in a single industry on the basis of its major activity. In contrast, the Standard Indus- trial Classification (sic) is designed for classifying individual establishments (or plants) within an enterprise. Because many direct investment en- terprises are active in several industries, it is not meaningful to classify all their data in a single industry if that industry is defined too narrowly. Accordingly, bea has limited the detail in which it classifies U.S. parents and foreign affiliates by industry to a subset of the detail that is available in the sic system. METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 243 In bea's direct investment statistics, including those presented in this publication, petroleum is presented as a "major industry" that consolidates all the activities associated with petroleum pro- duction, transportation, and distribution. Con- sequently, these activities are excluded from the major industries in which they would other- wise be included. In particular, manufacturing excludes petroleum and coal products manu- facturing, mining excludes oil and gas extrac- tion, wholesale trade excludes petroleum whole- sale trade, retail trade excludes gasoline service stations, and transportation excludes petroleum tanker operations, pipelines, and storage. Beginning with the 1994 benchmark survey and reflecting a change in the 1987 sic, savings institutions and credit unions are included in the industry "depository institutions," which also includes banks. Thus, the data for savings insti- tutions and credit unions appear in the tables for "bank parents and affiliates" rather than in those for "nonbank parents and affiliates." Previously, these entities were classified as "nonbank parents and affiliates" in the industry "finance, except banking." This change has no material effect on comparisons of the data for 1993 and 1994, be- cause in 1993, only one U.S. parent was classified as a savings institution or a credit union. U.S. parents that are individuals, estates, or trusts were classified in the industry "nonbusiness entities, except government," which, in this pub- lication, is treated as part of the major industry "finance, insurance, and real estate." This indus- try is included in tables that disaggregate affiliate data by industry of U.S. parent. It is not included in tables containing U.S.-parent data, because U.S. parents that were individuals, estates, or trusts were not required to report financial and operating data. Table 11.A2 presents selected data for nonbank foreign affiliates and nonbank U.S. parents clas- sified by industry; each three-digit subindustry except depository institutions is shown separately and is grouped by the major industry to which it belongs. Table 111.A2 presents similar data for majority-owned nonbank affiliates. Primarily be- cause of confidentiality requirements, many of the three-digit industry categories are not shown in the other tables in this publication. How- ever, each industry included, but not identified, in an industry group in the other tables may be ascertained by referring to table 11.A2 or 111.A2. Each U.S. parent and foreign affiliate was clas- sified in a single industry, even though many parents and affiliates had activities in more than one industry. As a result, the distribution of data by industry of U.S. parent or foreign affiliate differs from the distribution that would result if each activity of a parent or an affiliate was classi- fied by industry. In the benchmark survey, sales by U.S. parents and foreign affiliates and employ- ment by U.S. parents were classified by activity. Specifically, each U.S. parent was required to dis- tribute its sales and employment among the eight three-digit subindustries in which its sales were largest and to distribute the sales of each foreign affiliate among the five three-digit subindustries in which the affiliate's sales were largest. Unspec- ified sales and employment are shown in the "not specified by industry" row or column in the tables that display data by industry of sales. Because a parent or affiliate that has an establishment in an industry usually also has sales in that industry, the distribution by industry of sales roughly ap- proximates the distribution that would result if the data were reported and classified by industry of establishment. In table 6, U.S. parents' sales and employment disaggregated by industry of sales are compared with their sales and employment disaggregated by industry of parent, and foreign affiliates' sales disaggregated by industry of sales are compared with their sales disaggregated by industry of affil- iate. (For nonbank parents of nonbank affiliates, data by industry of sales cross-classified by indus- try of parent are shown in table 11.Q2 for sales and table 11.S2 for employment; for nonbank affili- ates of nonbank parents and for majority-owned nonbank affiliates of nonbank parents, sales by industry of sales cross-classified by industry of affiliate are shown in tables 11.F24 and 111.F24, respectively.) For sales, differences between the distribution by industry of enterprise and the distribution by industry of sales were much larger for U.S. parents than for foreign affiliates, primarily be- cause U.S. parents are more diversified than their affiliates. Their greater diversity partly reflects the much greater degree of consolidation of U.S. parents. Estimation and General Validity of the Data A completed benchmark survey form was re- quired for affiliates that had total assets, sales, or net income (or losses) greater than $3 mil- lion. Either a long form or a short form was required, depending on the size of the affiliate. 13 13. Facsimiles of these forms appear in the appendix. 244 BEA STUDIES OF DIRECT INVESTMENT Table 6.— Sales by All Foreign Affiliates and Sales by, and Employment of, All U.S. Parents, by Industry of Enterprise and by Industry of Sales Affiliate data U.S. parent data Sales (millions of dollars) Sales (millions of dollars) Number of employees (thousands) By industry of affiliate By industry of sales By industry of U.S. parent By industry of sales By industry of U.S. parent By industry of sales ' 1,830,744 1,830,744 4,148,552 4,148,552 19,330.0 19,330.0 294,223 285,400 368,949 327,322 510.3 365.5 51,310 50,284 8,832 13,084 45.1 59.2 46,659 45,319 5,079 8,383 11.5 16.7 4,651 4,965 3,753 4,701 33.6 42.5 108,691 106,097 272,270 213,673 396.1 216.6 33,070 33,144 255,049 188,858 362.1 184.6 73,395 70,704 15,092 19,822 26.6 13.6 2,225 2,250 2,129 4,993 7.4 18.5 108,785 105,277 76,749 79,491 41.4 24.8 25,438 23,743 11,099 21,073 27.7 64.9 4,107 4,253 482 721 3.1 7.5 1,450 1,995 O 13,839 24.2 25.2 671 802 1 636 .4 2.6 19,210 16,693 5,877 29.6 847,721 811,184 1,903,437 1,717,380 9,049.3 7,889.4 104,978 103,346 264,097 206,956 1,269.9 821.4 23,724 23,731 53,820 49,489 276.8 173.4 20,006 20,249 35,076 36,150 195.7 83.2 3,718 3,483 18,744 13,339 81.1 90.2 34,128 32,385 93,567 44,298 546.7 182.1 47,126 47,230 116,709 113,169 446.4 466.0 3,182 4,197 72,205 32,681 246.1 158.2 4,531 5,050 8,104 13,550 25.6 42.0 7,322 6,718 15,281 21,423 82.1 83.4 32,091 31,266 21,120 45,515 92.6 182.3 153,806 148,713 300,381 261,172 1,119.2 801.5 62,286 59,407 118,997 110,100 427.8 307.9 40,039 39,673 100,097 68,345 392.2 242.4 31,395 27,703 48,547 33,683 170.1 100.2 4,303 5,511 7,009 13,949 20.3 36.3 15,783 16,418 25,731 35,096 108.8 114.7 30,188 31,029 107,109 103,405 562.7 529.0 10,180 10,175 64,616 54,685 293.2 211.0 1,919 1,808 27,925 30,120 121.2 117.1 8,261 8,367 36,691 24,565 172.0 93.9 20,009 20,854 42,493 48,720 269.5 318.0 6,791 6,893 16,385 13,188 79.6 56.2 4,231 4,122 9,560 9,409 63.1 77.0 2,273 2,495 8,950 9,895 67.0 67.3 6,714 7,343 7,599 16,228 59.8 117.5 129,300 116,693 214,730 194,393 1,050.6 918.7 4,874 5,470 16,882 13,566 70.2 51.9 13,511 13,391 27,390 24,550 130.6 116.1 84,594 70,785 106,680 79,279 430.2 298.5 26,321 27,046 63,778 76,998 419.7 452.1 5,506 6,094 8,468 23,293 39.5 102.7 2,103 2,094 7,356 6,325 48.0 40.5 3,798 3,955 6,727 10,012 41.3 55.9 6,843 6,818 19,747 15,941 143.5 121.6 5,738 5,662 18,073 17,036 123.8 101.9 2,333 2,423 3,408 4,389 23.5 29.6 73,308 73,259 199,241 173,555 946.3 967.6 10,715 10,344 14,375 19,302 73.9 96.0 15,259 15,243 27,958 54,137 113.5 268.8 35,955 35,707 102,743 62,028 407.5 336.5 11,378 11,964 54,165 38,088 351.3 266.3 206,848 189,477 424,137 357,502 1,615.9 1,318.3 202,518 184,653 309,635 257,698 957.3 768.9 4,329 4,825 114,502 99,804 658.6 549.4 149,294 148,666 393,742 420,397 2,484.7 2,532.9 15,481 15,481 8,921 24,688 32.3 49.6 9,113 9,261 32,378 38,896 325.2 386.8 3,029 3,138 16,740 16,860 159.3 159.2 6,084 6,123 15,638 22,037 166.0 227.6 9,023 9,058 36,633 38,720 225.0 230.2 4,143 4,275 17,341 24,682 72.8 121.7 4,880 4,783 19,292 14,037 152.1 108.5 27,385 28,122 97,338 76,313 456.1 369.3 8,511 8,051 36,612 32,566 152.4 147.8 18,875 20,071 60,726 43,747 303.8 221.5 All industries Petroleum Oil and gas extraction Crude petroleum extraction (no refining) and natural gas Oil and gas field services Petroleum and coal products Integrated petroleum refining and extraction Petroleum refining without extraction Petroleum and coal products, not elsewhere classified Petroleum wholesale trade Other Petroleum tanker operations Petroleum and natural gas pipelines Petroleum storage for hire Gasoline service stations Manufacturing Food and kindred products Grain mill and bakery products Grain mill products Bakery products Beverages Other Meat products Dairy products Preserved fruits and vegetables Other food and kindred products Chemicals and allied products Industrial chemicals and synthetics Drugs Soap, cleaners, and toilet goods Agricultural chemicals Chemical products, not elsewhere classified Primary and fabricated metals Primary metal industries Ferrous Nonferrous Fabricated metal products Metal cans, forgings, and stampings Cutlery, hand tools, and screw products Heating and plumbing equipment and structural metal products .... Fabricated metal products not elsewhere classified, ordnance, and services Industrial machinery and equipment Farm and garden machinery Construction, mining, and materials handling machinery Computer and office equipment Other _ Engines and turbines Metalworking machinery Special industry machinery General industry machinery and equipment Refrigeration and service industry machinery Industrial machinery and equipment not elsewhere classified Electronic and other electric equipment Household appliances Household audio and video, and communications equipment Electronic components and accessories Electronic and other electric equipment, not elsewhere classified Transportation equipment Motor vehicles and equipment Other Other manufacturing Tobacco products Textile products and apparel Textile mill products Apparel and other textile products Lumber, wood, furniture, and fixtures Lumber and wood products Furniture and fixtures Paper and allied products Pulp, paper, and board mills Other paper and allied products METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 245 Table 6.— Sales by All Foreign Affiliates and Sales by, and Employment of, All U.S. Parents, by Industry of Enterprise and by Industry of Sales- Continued Affiliate data U.S. parent data Sales (millions of dollars) Sales (millions of dollars) Number of employees (thousands) By industry of affiliate By industry By industry By industry By industry of U.S. parent By industry of U.S. parent of sales of sales ' 7,194 6,877 55,362 55,929 391.1 374.3 245 240 17,061 16,341 122.4 134.0 4,770 4,713 27,383 27,505 180.6 141.7 2,179 1,925 10,918 12,082 88.2 98.6 12,132 11,530 26,033 22,706 152.1 135.2 14,648 13,580 16,653 28,252 104.8 173.8 5,510 6,318 11,909 11,761 81.7 80.7 5,535 5,308 15,551 14,058 85.4 75.5 35,708 34,785 79,578 81,588 536.1 503.4 5,124 5,885 36,562 33,284 274.8 237.3 12,213 13,133 21,758 32,382 145.7 204.3 18,371 15,767 21,258 15,922 115.5 61.7 7,564 8,347 13,386 27,487 95.0 154.1 548 574 1,529 3,591 12.0 35.2 7,016 7,773 11,857 23,896 83.0 118.9 310,932 323,800 263,717 329,332 491.2 577.0 194,748 202,491 152,346 173,879 247.7 316.4 25,220 39,769 18,138 24,511 35.4 47.1 1,132 1,079 5,222 7,889 11.5 9.3 99,001 90,329 28,303 41,515 56.5 97.5 3,955 4,264 47,229 28,861 17.2 12.2 31,704 33,023 34,562 34,429 69.9 62.6 3,858 3,897 3,587 3,217 9.7 7.0 19,502 19,446 6,565 17,588 24.1 41.9 10,375 10,683 8,741 15,871 23.3 38.7 116,184 121,309 111,371 155,453 243.5 260.7 3,741 4,970 12,806 17,029 33.6 34.4 26,072 24,077 30,684 23,194 55.3 31.8 7,615 7,916 8,441 10,002 28.8 29.8 16,579 18,691 30,176 38,669 79.9 92.0 25,127 28,476 19,958 32,630 17.6 17.7 37,051 37,179 9,307 33,928 28.2 54.9 64,362 64,459 158,539 140,170 764.6 684.9 ( D ) 64,291 158,539 137,220 764.6 660.2 ( D ) 169 2,950 24.7 98,997 102,268 471,207 552,232 1,098.5 1,200.5 49,750 53,109 105,810 171,335 273.3 448.2 647 1,747 4,123 14.3 49,103 51,362 105,810 167,212 273.3 433.9 47,646 47,720 362,007 372,755 811.1 727.0 17,359 16,811 126,299 124,420 221.9 187.8 6,900 8,125 8,504 43,860 17.3 101.6 23,387 22,784 227,204 204,475 571.9 437.5 1,393 1,438 3,387 8,142 13.7 24.5 208 3 .4 .7 86,230 109,610 171,243 252,146 2,116.8 2,658.7 3,501 3,956 11,950 11,687 236.6 202.3 50,224 69,058 60,451 111,999 953.1 1,249.7 6,497 6,434 4,735 7,591 30.4 37.7 2,939 3,590 1,720 6,998 12.5 31.6 31,917 47,724 28,307 65,471 196.1 422.8 4,596 4,815 ( D ) 16,373 K 143.9 869 875 ( D ) 1,715 H 8.9 26,452 42,034 22,954 47,383 141.7 269.9 8,871 11,311 25,690 31,939 714.0 757.6 234 304 5,948 4,717 118.7 105.4 4,048 4,081 9,270 9,038 360.7 361.3 4,589 6,926 10,472 18,184 234.6 291.0 2,596 2,590 6,751 8,067 65.6 64.8 7,844 7,770 32,482 23,619 169.9 91.6 554 639 24,604 30,364 315.1 361.4 7,463 7,959 9,720 20,903 73.7 144.7 5,243 5,306 7,768 10,971 57.8 100.5 8,806 12,332 17,517 34,537 245.0 443.8 121 295 ( D ) 2,878 H 43.4 1,152 4,129 ( D ) 4,904 G 36.7 1,791 1,585 2,627 6,841 42.3 100.9 234 248 2,178 2,295 11.3 12.4 371 365 971 1,199 17.1 19.2 478 484 6,791 5,942 76.1 69.5 1,829 2,268 647 4,617 6.5 60.8 2,831 2,959 3,896 5,860 87.7 100.9 128,279 131,073 811,459 793,060 5,299.4 5,546.9 2,827 3,060 4,433 7,526 32.1 48.4 1,695 1,781 3,236 4,638 17.5 19.7 680 798 ( D ) 2,283 1 20.1 ! D I 91 pj 280 1 6.7 ( D ) 261 ( D ) F 130 130 ( D ) G Printing and publishing Newspapers Miscellaneous publishing Commercial printing and services Rubber products Miscellaneous plastics products Glass products Stone, clay, and nonmetallic mineral products Instruments and related products Measuring, scientific, and optical instruments Medical instruments and supplies and ophthalmic goods Photographic equipment and supplies Other Leather and leather products Miscellaneous manufacturing industries Wholesale trade Durable goods Motor vehicles and equipment Lumber and construction materials Professional and commercial equipment and supplies Metals and minerals Electrical goods Hardware, plumbing, and heating equipment and supplies Machinery, equipment and supplies, not elsewhere classified Durable goods, not elsewhere classified Nondurable goods Paper and paper products Drugs, proprietaries, and sundries Apparel, piece goods, and notions Groceries and related products Farm product raw materials Nondurable goods, not elsewhere classified Depository institutions Banks Savings institutions and credit unions Finance (except depository institutions), insurance, and real estate Finance, except depository institutions Business franchising Other Insurance Life insurance Accident and health insurance Other Real estate Holding companies Services Hotels and other lodging places Business services Advertising Equipment rental (except automotive and computers) Computer and data processing services Computer processing and data preparation services Information retrieval services Computer related services, not elsewhere classified Business services, not elsewhere classified Services to buildings Personnel supply services Other Automotive rental and leasing Motion pictures, including television tape and film Health services Engineering, architectural, and surveying services Management and public relations services Other Automotive parking, repair, and other services Miscellaneous repair services Amusement and recreation services Legal services Educational services Accounting, auditing, and bookkeeping services Research, development, and testing services Other services provided on a commercial basis Other industries Agriculture, forestry, and fishing Agricultural production— crops Agricultural production— livestock Agricultural services Forestry Fishing, hunting, and trapping] 246 BEA STUDIES OF DIRECT INVESTMENT Table 6.— Sales by All Foreign Affiliates and Sales by, and Employment of, All U.S. Parents, by Industry of Enterprise and by Industry of Sales- Continued Affiliate data Sales (millions of dollars) By industry of affiliate By industry of sales U.S. parent data Sales (millions of dollars) By industry of U.S. parent By industry of sales Number of employees (thousands) By industry of U.S. parent By industry of sales ' Mining Metal mining Iron ores Copper, lead, zinc, gold, and silver ores Other metallic ores Metal mining services Nonmetallic minerals Coal Coal mining services Nonmetallic minerals, except fuels Nonmetallic minerals services, except fuels Construction Transportation Railroads Water transportation Transportation by air Pipelines, except petroleum and natural gas Passenger transportation arrangement Transportation and related services, not elsewhere classified Communication Telephone and telegraph communications Other communications services Electric, gas, and sanitary services Retail trade General merchandise stores Food stores Apparel and accessory stores Eating and drinking places Retail trade, not efsewhere classified 11,365 8,105 ( D ) 6,195 966 ( D ) 3,260 2,501 4 8,881 17,898 412 3,836 ( D ) 472 ( D ) 9,161 21,377 19,890 1,488 16,791 49,140 8,183 11,602 1,975 11,170 16,210 Unspecified 11,274 7,974 805 6,065 989 114 3,300 2,607 ( D ) 4 8,987 18,311 374 3,926 ( D ) 472 ( D ) 9,501 21,292 19,858 1,434 16,850 51,297 8,344 11,555 2,074 10,302 19,022 2,951 14,079 7,774 ( D ) 7,336 O ( D ) 6,305 3,735 2,570 33,676 125,594 28,046 6,348 48,399 5,335 37,466 235,928 215,186 20,742 94,996 302,753 173,002 41,191 32,854 13,323 42,384 23,415 6,680 ( D ) 5,636 ■ 347 ( D ) 16,735 11,055 1 ( D ) 28,924 129,103 20,518 9,155 46,892 10,586 41,953 196,958 170,152 26,806 94,262 312,873 149,805 42,442 35,794 28,325 56,507 36,909 57.6 30.0 G 27.2 .3 F 27.6 16.4 11.2 179.6 992.9 161.3 29.2 330.0 24.7 447.7 1,055.6 949.6 105.9 304.2 2,677.5 1,362.2 318.2 415.1 269.6 312.4 116.4 29.3 5.2 21.2 1.9 1.0 87.1 59.1 K G 157.5 987.9 120.2 41.7 322.2 24.9 478.9 805.2 707.0 98.2 295.2 3,136.3 1,312.1 326.6 417.3 702.9 377.3 407.1 D Suppressed to avoid disclosure of data of individual companies. 1 . Bank parents, unlike nonbank parents, were not required to disaggregate their employment by industry of sales. The distribution of employment by industry of sales for bank parents was, therefore, estimated by multiplying each parenrs total employment by the percentage of sales that were in each industry. Note.— Size ranges are given in employment cells that are suppressed. The size ranges are A— 1 to 499; F— 500 to 999; G— 1.000 to 2,499; H-2,500 to 4,999; 1-5,000 to 9,999; J— 10,000 to 24,999; K— 25,000 to 49,999; L— 50,000 to 99,999; M-100,000 or more. To present financial and operating data in the same detail for all nonbank affiliates, be a esti- mated the items that appeared only on the long form for the affiliates that were reported on the short form. Estimates were also made for some affiliates that failed to report on the benchmark survey but for which data could be obtained from other direct investment surveys. The long form (be-iob(lf)) — which was filed by U.S. parents for nonbank foreign affiliates with total assets, sales, or net income (or loss) greater than $50 million — collected detailed data. The most detail was collected for majority- owned nonbank affiliates. The short form (be-iob(sf)) — which was filed by nonbank U.S. parents for nonbank foreign affiliates with to- tal assets, sales, or net income (or losses) of $50 million or less and by bank parents for their non- bank affiliates regardless of size — collected most balance of payments items but only selected fi- nancial and operating data items. For a given short-form affiliate, long-form items were gener- ally estimated on the basis of relationships among data items for the most comparable panel of long-form affiliates that could be constructed; specifically, the panel comprised affiliates that had total assets of between $50 million and $250 million and that were in the same industry group as the affiliate whose data were being estimated. A total of 13,557 nonbank affiliates of nonbank parents filed short forms. Although these affil- iates accounted for 60.7 percent of all nonbank affiliates of nonbank parents, they accounted for only a modest portion of the universe of nonbank affiliates of nonbank parents in terms of value — 8.0 percent of total assets, 12.0 percent of sales, and 24.0 percent of employment. bea also made estimates of the data for some nonbank affiliates that did not file a benchmark survey report even though they met the crite- ria for filing. For the 567 affiliates covered by these estimates, bea had a report in another di- rect investment survey that served as a basis for estimation. These affiliates, most of which were small, accounted for only a minor portion of the nonbank universe in terms of value — 1.7 percent of total assets, 1.6 percent of sales, and 3.2 per- cent of employment. The estimation of data for these affiliates ensured that the 1994 data were as complete as possible. All data reported for U.S. parents and foreign affiliates were required to pass a number of com- puterized edit checks. Where possible, the data for a parent or an affiliate were reviewed for METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 247 their consistency with related data for the parent or affiliate from other parts of the report form, with data provided in related report forms, with comparable data reported by other parents or af- filiates, and with comparable data from outside sources. As a result of this edit and review pro- cess, a number of changes to the reported data were made, often after consultation with survey respondents. In some cases, usually involving small parents and affiliates, estimates based on industry averages or on other information were substituted for missing or erroneously reported data. For some data items — such as those pertaining to trade by product and by country of destination and origin — survey respondents had difficulty in supplying the required information because the data were not easily accessible or were unavail- able from their standard accounting records. In these cases, respondents often made estimates, the quality of which is difficult to assess. Number of U.S. Parents and Foreign Affiliates Table 7 shows the number of parents and af- filiates covered by the 1994 benchmark survey. Table 11.A2 shows the number of nonbank foreign affiliates by country, and table 111.A2 shows the number of nonbank U.S. parents and nonbank foreign affiliates by industry. The counts of non- bank parents and affiliates are comparable with the counts shown in the previous annual survey publications. The counts of parents and affiliates should be used cautiously because with the exception of those shown in table 2, they exclude the nu- merous very small affiliates (and parents of only very small affiliates) that were exempt from filing a benchmark survey report. In addition, some parents and affiliates that were required to file a report did not do so. Because of limited re- sources, bea's efforts to ensure compliance with Table 7.— Selected Data for Foreign Affiliates and Their U.S. Parents, by Group of Affiliate or Parent Panel A.— Affiliate Data All affiliates Nonbank affiliates Bank affiliates Of all parents (1) Of nonbank parents (2) Of bank par- ents (3) Of all parents Of nonbank parents Of bank parents Of all parents (13) Of nonbank parents (14) Total (4) Majority- owned nonbank af- filiates ' (5) Other nonbank af- filiates 2 (6) Total (7) Majority- owned nonbank af- filiates ' (8) Other nonbank af- filiates 2 (9) Total (10) Majority- owned nonbank af- filiates ' (11) Other nonbank af- filiates 2 (12) Of bank parents (15) Number of affiliates Total assets (millions of dollars) Sales (millions of dollars) Net income (millions of dollars) Number of employees (thousands) Compensation of employees (millions of dollars) 22,332 3,380,983 1,830,744 101,792 7,240.5 230,629 606,393 67,596 21,487 2,412,982 1,759,8% 94,348 7,112.6 224.722 571,799 62,687 845 968,001 70,848 7,444 128.0 5,906 34,594 4,909 21,761 2,485,555 1,766,382 95,760 7,128.4 225,157 580,508 63,546 19,196 2,118,657 1,442,009 82,273 5,717.8 184,245 546,530 61,416 2,565 366,898 324,373 13,487 1,410.6 40,912 33,978 2,130 21,436 2,376,902 1,757,388 93,986 7,104.6 224,275 569,317 62,422 18,929 2,022,677 1,435,901 81,095 5,707.1 183,591 536,298 60,449 2,507 354,225 321,487 12,891 1,397.5 40.684 33,019 1,973 325 108,653 8,994 1,774 23.8 882 11,191 1,124 267 95,980 6,108 1,178 10.7 654 10,232 967 58 12,673 2,886 596 13.1 228 959 157 571 895,428 64,362 6,032 112.2 5.471 25,885 4,050 51 36.080 2,508 362 8.0 447 2,482 265 520 859,348 61,854 5,670 1045 5 024 U.S. direct investment position abroad on a historical-cost basis (millions of dollars) Direct investment income (millions of dollars) 23,403 3,785 Panel B.— U.S. Parent Data Parents of all affiliates Parents of nonbank affiliates Parents of bank affiliates All parents (D Nonbank parents (2) Bank parents (3) All parents Nonbank parents Bank parents All parents 3 (13) Nonbank parents 3 (14) Total 3 (4) Of majority- owned nonbank af- filiates 24 (5) Of other nonbank af- filiates ' * (6) Total 3 (7) Of majority- owned nonbank af- filiates ' " (8) Of other nonbank af- filiates 24 (9) Total 3 (10) Of majority- owned nonbank af- filiates ' " (11) Of other nonbank af- filiates 2 4 (12) Bank parents 3 (15) Number of U.S. parents ... Total assets (millions of dollars) Sales (millions of dollars) Net income (millions of dollars) Number of employees (thousands) Compensation of employees (millions of dollars) 2,727 8,636,571 4,148,552 214,352 19,330.0 840,608 2,667 6,718,003 3,990,013 191,154 18,565.4 805,372 60 1,918.568 158,539 23,199 764.6 35,235 2,690 7,952.491 4,096,101 206,063 19,026.4 828.461 2,549 7,770,715 3,936,312 201,904 18,073.3 811,496 714 5,308,184 2,678,509 145,811 11,398.1 525.262 2,667 6,718,003 3,990,013 191,154 18,565.4 805,372 2,529 6,622,513 3,837,699 188,247 17,647.4 790,074 699 4,254.700 2,589.660 133,368 11,045.0 506.714 23 1,234,488 106,088 14,909 460.9 23,088 20 1,148,202 98.613 13.656 425.9 21,422 15 1,053,484 88.849 12.443 353.1 18,548 74 2,657.477 298,275 31,612 1,121.1 57,768 16 754.510 141.510 8.580 363.7 22.838 58 1.902,967 157,275 23.032 757.3 34 930 1. A majority-owned nonbank affiliate is a nonbank affiliate in which the combined direct and indirect ownership and 14. and columns 10 and 15 contain duplication and do not equal the totals in columns I, 2, and 3. repecrjvely, interest of all U.S. parents exceeds 50 percent. in panel B. 2. Other nonbank affiliates are nonbank affiliates that are not majority-owned nonbank affiliates, as described in 4. Because some parents have both majority- and minority-owned affiliates, the sum of columns 5 and footnote 1. 8 and 9, and columns 11 and 12 contain duplication and do not equal the totals in columns 4, 7, and 3. Because some parents have both nonbank and bank affiliates, the sum of columns 4 and 13, columns 7 lively, in panel B. 6. columns 10. respec- 248 BEA STUDIES OF DIRECT INVESTMENT reporting requirements focused mainly on large parents and affiliates. As a result, some of the parents of small affiliates that were not aware of the reporting requirements and that were not on bea's mailing list may not have filed reports. The omission of these parents and their affili- ates from the benchmark survey results probably has not significantly affected the aggregate value of the various data items collected, but it could have caused an unknown, but possibly signifi- cant, understatement of the number of parents or affiliates. Even an exact count of parents or affiliates would be difficult to interpret because each re- port covers a consolidated business enterprise. The number of consolidated business enterprises varies according to the degree of consolidation used and the differences in the organizational structure of the companies. Financial and Operating Data for Foreign Affiliates and U.S. Parents Financial and operating data focus on the over- all operations of U.S. parents and their affiliates. Among the items covered by these data are the following: Balance sheets and income statements; gross product; sales of goods and services; ex- ternal financial position; taxes; property, plant, and equipment; employment and compensation of employees; U.S. trade in goods; and research and development expenditures. Only a few of these items were obtained for bank parents and affiliates; consequently, most of the tables that present financial and operating data cover only nonbank parents and affiliates. The financial and operating data for foreign af- filiates are not adjusted for the ownership share of the U.S. parents. Thus, for example, the employment data include all employees of each affiliate, including affiliates in which the U.S. par- ent's ownership share is less than 100 percent. To help address issues for which control is relevant, many tables cover only majority- owned foreign affiliates. Most of the concepts and definitions used in reporting the financial and operating data can be found on the be-io forms or in the Instruction Booklet to the forms, all of which are reproduced in the appendix. The following discussion fo- cuses on the concepts, definitions, and statistical issues that require further explanation or that are not covered in either the forms or the Instruction Booklet. Gross product Gross product measures the contributions of for- eign affiliates to the gross domestic product (gdp) of foreign countries and the contribution of U.S. parents to U.S. gdp. Often referred to as "value added," gross product can be measured as gross output (sales or receipts and other operating in- come plus inventory change) minus intermediate inputs (purchased goods and services). Alterna- tively, it can be measured as the sum of the costs incurred (except for intermediate inputs) and the profits earned in production. The estimates pres- ented in this publication for U.S. parents and majority-owned foreign affiliates were calculated as the sum of costs and profits. Estimates of gross product rather than sales or other measures are generally preferred in as- sessing the impact of parents or affiliates on the entire host economy as well as on individual in- dustries. Using gross product permits a more focused analysis of the economic impact of par- ents and affiliates because it measures only the parents' and affiliates' own production, whereas sales do not distinguish between internal produc- tion and production originating elsewhere. In addition, gross product measures the value added to the economy during a specific period. In con- trast, some sales in a given period may represent production from earlier periods. The measure of profits from current produc- tion used to compute gross product is profit-type return. Unlike the net income item in the income statement, profit-type return measures profits be- fore income taxes, and it excludes nonoperating items (such as special charges and capital gains and losses) and income from equity investments. Tables included in this publication show profit- type return of majority-owned foreign affiliates by detailed country and industry. External financial position The 1994 benchmark survey was the first bea survey to collect data on the external financial position of U.S. parent companies. These new data for parents are similar to the data collected for majority-owned foreign affiliates in the 1994 and previous benchmark surveys and in bea's an- nual surveys of U.S. direct investment abroad. For parents, the benchmark survey obtained a breakdown of most financial- asset and liability positions with affiliated and unaffiliated persons and with U.S. or foreign persons. For affiliates, a similar breakdown was collected for current li- METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 249 abilities and long-term debt, owners' equity, and receivables and financial investments. These new data for U.S. parents provide a more complete picture of the parents' international commercial and financial activities than had been available. In past benchmark surveys, detail on U.S. parents' transactions with unaffiliated for- eigners had been limited to trade in goods, sales of goods and services, and receipts and payments of fees and royalties. The new data fill a gap by providing information on parents' financial relationships — asset and liability positions — with unaffiliated foreigners. They also permit better integration of the data for U.S. parents in the in- ternational accounts with the data on financial and commercial claims and liabilities of all U.S. companies collected by the Treasury Department. Sales of goods and services For U.S. parents and majority-owned foreign affiliates, the 1994 benchmark survey collected data on sales (or gross operating revenues) that were disaggregated into goods, services, and investment income and by type of customer — by affiliated and unaffiliated parties — and by destination — sales to the United States, local sales, and sales to other foreign countries. 14 As a general rule, sales of goods are defined as sales generated by activities that are charac- teristic of establishments in the following major industries: Agriculture (except agricultural serv- ices), forestry, and fishing; mining (except mining services); petroleum (except petroleum services); construction; manufacturing; and wholesale and retail trade. However, a parent or an affiliate that is not classified in one of these industries may have sales of goods. As a general rule, sales of services are defined as sales generated by activities that are character- istic of establishments in the following industries: The "services" division of the Standard Industrial Classification (and the International Surveys In- dustry Classification) system; petroleum services; finance, insurance, and real estate; agricultural services; mining services; transportation; com- munication; and public utilities. However, a parent or an affiliate that is not classified in one of these industries may have sales of services. One exception to these rules occurs when goods are among the products of services indus- tries or services are among the products of goods 14. Sales are defined as gross sales (or, for holding companies, gross op- erating revenues) minus returns, allowances, and discounts. They are net of sales taxes and consumption taxes levied directly on consumers, value-added taxes, and excise taxes levied on manufacturers, wholesalers, and retailers. industries. For example, sales of mass-produced prepackaged computer software are recorded as sales of goods even if the software is sold directly by a software producer (classified in a services industry). Similarly, sales of structures are sales of goods regardless of whether they are sold by a company in a goods industry (such as a construc- tion firm) or by a company in a services industry (such as a real estate firm). Another exception is that finance and insurance companies that include investment income in to- tal sales (or gross operating revenues) reported such income as investment income rather than as sales of services. In most other industries, com- panies generally consider investment income an incidental revenue source and include it in the income statement in a separate "other income" category rather than in sales. When a sale consisted of both goods and services and the two components could not be unbundled, because for example, the goods and services were not separately billed, the total sale was classified as a good or as a service on the ba- sis of whether the good or the service accounted for the most value. Employment and compensation of employees In the benchmark survey, data on employment and compensation of employees were collected for U.S. parents and foreign affiliates. For U.S. parents and majority-owned foreign affiliates, data were also collected on the number of em- ployees engaged in research and development activities and on the components of compen- sation of employees — wages and salaries and employee benefits. For majority-owned foreign affiliates in manufacturing, data were also col- lected on the number of production workers and on the compensation of, and hours worked by, those workers. Survey respondents were asked to report em- ployment as the number of full-time and part- time employees on the payroll at the end of fiscal year 1994. However, a count taken during the year was accepted if it was a reasonable proxy for the end-of-year number. In addition, if employ- ment at the end of the year was unusually high or low because of temporary factors, such as sea- sonal variations or a strike, a number reflecting normal operations was requested. Employment by U.S. parents is classified both by industry of parent and by industry of sales. The classification by industry of sales is based on information supplied by each U.S. parent on em- 250 BEA STUDIES OF DIRECT INVESTMENT ployment in the individual three-digit industries in which it had sales. Employment by foreign affiliates is classified both by industry of affiliate and by industry of U.S. parent. It is not classified by industry of sales because the necessary data were not col- lected. (Earlier surveys had indicated that most affiliates had employment in only one three-digit industry.) Worker compensation rates were not directly collected in the benchmark survey, but the data needed to derive hourly compensation of produc- tion workers of majority-owned foreign affiliates in manufacturing were collected. Such data were collected only for production workers be- cause data on hours worked by nonproduction workers are generally not maintained by sur- vey respondents and because data on aggregate hourly compensation and wage rates for the United States and foreign countries that might be comparable with the benchmark survey data are limited to data for production workers. Data that could be used to compute compen- sation per employee and wages and salaries per employee of U.S. parents and foreign affiliates also were collected. However, the computed rates may not accurately reflect the compensation rates normally paid by parents and affiliates (and, thus, are not shown in this publication). The com- puted rates may be distorted by the inclusion of part-time employment, because a part-time employee is counted the same as a full-time em- ployee, or they may be distorted by data that cover only part of the year — for example, data for a parent or affiliate that was newly established during the year. U.S. trade in goods In the benchmark survey, data were collected on several aspects of the U.S. trade in goods of U.S. parents and foreign affiliates. For U.S. parents, data were collected by country of destination or origin, by affiliation (that is, whether or not the trade was with affiliated parties), and by prod- uct. For all foreign affiliates, data were collected by affiliation. For majority-owned foreign affili- ates, data were also collected by product and, for exports, by intended use. The concepts and definitions underlying the data collected on trade in goods are nearly iden- tical to those used for the data on total U.S. trade in goods compiled by the Census Bureau. How- ever, because of certain reporting problems, the 1994 benchmark survey data are not completely comparable with the Census Bureau trade data. In the benchmark survey, U.S. trade in goods data were requested on a "shipped" basis — that is, on the basis of when, where, and to (or by) whom the goods were shipped — in order for them to be comparable with the data on total U.S. trade. However, most survey respondents keep their ac- counting records on a "charged" basis — that is, on the basis of when, where, and to (or by) whom the goods were charged. The two bases are usu- ally the same, but differences between them can be substantial. 15 On the basis of its review, bea believes most data were reported on a shipped basis rather than on a charged basis. However, some survey respondents had difficulty obtaining data on a shipped basis, which usually required using ship- ping department invoices rather than accounting records. If bea determined that the data were reported on a charged basis and that these data were likely to differ materially from data reported on a shipped basis, it required revised reports to be filed. However, some cases of erroneous reporting were probably not identified. Additional differences between the bea trade data and those of the Census Bureau may have resulted simply because the data come from two different sources: The bea data are based on company records, whereas those of the Census Bureau are compiled from export and import documents filed by the shipper with the U.S. Customs Service on individual transactions. The timing, valuation, origin or destination, shipper, and product involved in a given export or import transaction may be recorded differently on com- pany records than on customs export and import documents. In the 1994 benchmark survey, exports and im- ports of U.S. parents and majority-owned foreign affiliates are disaggregated into 12 product cate- gories on the basis of the Standard International Trade Classification, Revision 2 (United Nations Statistical Papers, Series M, No. 34, New York: United Nations, 1975). (See pages 21-24 i n the Guide to Industry and Foreign Trade Classifica- tions for International Surveys in the appendix for a description of the categories used.) U.S. exports of goods shipped to majority- owned foreign af- filiates were also disaggregated by intended use into three categories: Capital equipment, goods 15. For example, if a U.S. parent buys goods from an affiliate in country A and sells them to an affiliate in country B and if the goods are shipped directly from country A to country B, the parent's accounting records would show a purchase from country A and a sale to country B. If the parent's trade data were reported on a charged basis, the purchase and sale would have appeared as a U.S. import and a U.S. export, respectively; however, the goods never entered or left the United States, and on a shipped basis, they are not included in either U.S. imports or U.S. exports. METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 251 for further manufacture, and goods for resale without further manufacture. Total trade of a given U.S. parent with all of its foreign affiliates combined was reported on the parent survey form (be-ioa), and trade of a for- eign affiliate with its U.S. parent was reported on the affiliate survey form (be-iob). However, the total trade of a U.S. parent with all of its affiliates combined may not equal the sum of the trade with the U.S. parent that was reported for the affiliates, because of differences in timing and val- uation and because the parent's survey form may include data for affiliates that are exempt from being reported on the affiliates' survey forms. Research and development The 1994 benchmark survey collected data on two technology- related items — research and de- velopment (r&d) expenditures and the number of employees engaged in r&d- related activities — for U.S. parents and majority-owned foreign affiliates, r&d includes basic and applied re- search in science and engineering and design and development of prototypes and processes. The data on r&d expenditures were collected on two bases: r&d that is performed by the parent or affiliate (whether the r&d was for its own use or for use by others) and r&d that is funded by the parent or affiliate (whether the r&d was performed internally or by others), r&d on the performance basis is consistent with the data on r&d performed by all U.S. companies that are compiled by the National Science Foun- dation, r&d on the funding basis is consistent with guidelines of the Financial Accounting Stan- dards Board for accounting for the costs of r&d. Both r&d measures provide some indication of the production or use of technology by parents and affiliates; however, the connection between r&d activity and technology is imprecise. Direct Investment Position and Balance of Payments Data Direct investment position and direct investment balance of payments data measure the value of U.S. parents' investment positions in, and the value of their transactions with, their foreign af- filiates. In contrast, the financial and operating data of parents and affiliates, discussed earlier, provide measures of the overall operations of par- ents and affiliates, including their transactions and investment positions with persons outside of the U.S. multinational company. For example, the U.S. direct investment position in a foreign affiliate is equal to its U.S. parents' equity in, and net outstanding loans to, the affiliate; in contrast, a foreign affiliate's total assets are equal to the sum of (1) the total owners' equity in the affil- iate that is held by its U.S. parents and by all other persons and (2) the total liabilities owed by the affiliate to its U.S. parents and to all other persons. 16 For U.S. direct investment abroad, the follow- ing major items appear in the U.S. international transactions accounts: • Direct investment capital outflows, • Direct investment income, • Direct investment royalties and license fees, and • Other direct investment services. Two adjustments are made to the data be- fore they are entered into the U.S. international accounts and the national income and product accounts, but these adjustments are made only at the global level; the data required to make them for countries and industries are not avail- able. The data from the benchmark survey are adjusted from a fiscal year basis to a calendar year basis. In addition, income and capital outflows are adjusted to ensure that depreciation charges re- flect current-period prices and to more closely align income earned in a given period with charges against income in the same period, as re- quired by economic accounting principles. The adjustment is accomplished in a three-step pro- cess. First, a capital consumption adjustment is made to convert depreciation charges from a historical-cost basis to a current- or replacement- cost basis. Second, earnings are raised by the amount of the charges for depletion of natural resources, because these charges are not treated as production costs in the national income and product accounts. Third, expenses for min- eral exploration and development are reallocated across periods to ensure that they are written off over their economic lives rather than all at once. The adjusted data for 1994 will be extrapo- lated forward to derive universe estimates for calendar years after 1994 on the basis of sam- ple data collected in bea's quarterly surveys for those years, bea is evaluating the need to revise 16. For example, suppose that an affiliate is owned 80 percent by its U.S. parent and that the affiliate has total owners' equity of $50 million and total liabilities of $100 million, of which S20 million is owed to the parent. In this case, the affiliate's total assets would be S150 million (total owners' equity of $50 million plus total liabilities of sioo million), and the parents' position in the affiliate would be S60 million (80 percent of the S50 million of owners' equity plus the $20 million of intercompany debt). 2§2 BEA STUDIES OF DIRECT INVESTMENT previously published data for 1990-93 to incorpo- rate information obtained in the 1994 benchmark survey. Two changes, discussed in more detail below, have been introduced to make bea's data more consistent with the international standards rec- ommended in the International Monetary Fund's Balance of Payments Manual and in the United Nations System of National Accounts. First, intercompany debt transactions and positions and associated interest transactions with affili- ates that are financial intermediaries other than depository institutions are excluded from direct investment in accordance with the methodology used for depository institutions (see the dis- cussion in the section "U.S. direct investment position abroad"). Second, data on intercom- pany service charges are disaggregated by type of service (see the discussion in the section "Other direct investment services"). U.S. direct investment position abroad The U.S. direct investment position abroad at historical cost is equal to the net book value of U.S. parents' equity in, and net outstanding loans to, their foreign affiliates. The position may be viewed as the U.S. parents' contribu- tions to the total assets of their foreign affiliates or as the financing provided in the form of equity or debt by U.S. parents to their for- eign affiliates. The data are derived from the accounting records of the foreign affiliates at yearend. The direct investment position data in this publication are valued at historical cost and are not adjusted to current value. Thus, they largely reflect prices at the time of investment rather than prices of the current period. Be- cause historical cost is the basis used for val- uation in company accounting records in the United States, it is the only basis on which companies can report data in bea's direct in- vestment surveys. It is also the only basis on which detailed estimates of the position are avail- able by country, by industry, and by account. However, bea does provide aggregate estimates of the position valued on two current-period- price bases — current cost and market value. 17 The direct investment position at current cost 17. For the estimates of the position at current cost and at market value for U.S. direct investment abroad (and for foreign direct investment in the United States), see Russell B. Scholl, "The International Investment Position of the United States in 1996," Survey of Current Business 77 (July 1997): 24—33. F° r a discussion of concepts and estimating procedures, see J. Steven Landefeld and Ann M. Lawson, "Valuation of the U.S. Net International Investment Position," Survey 71 (May 1991): 40-49. revalues that portion of the position that repre- sents U.S. parents claims on the tangible assets of foreign affiliates (such as plant, equipment, and inventories), using price indexes appropri- ate to each of a few broad asset classes. The direct investment position at market value reval- ues both the tangible assets and the intangible assets on which U.S. parents have claims, us- ing aggregate stock price indexes for foreign countries. U.S. parents' equity in incorporated foreign af- filiates can be broken down into U.S. parents' holdings of capital stock in, and other capital contributions to, their affiliates and U.S. parents' equity in the retained earnings of their affili- ates. Capital stock includes all stock of affiliates, whether the stock is common or preferred or is voting or nonvoting. Other capital contribu- tions by U.S. parents, also referred to as the "U.S. parents' equity in additional paid-in capital," con- sist of invested or contributed capital that is not included in capital stock; these contributions in- clude the amount paid for stock in excess of its par or stated value, the capitalization of inter- company accounts (conversions of debt to equity) that do not result in the issuance of capital stock, and donations. U.S. parents' equity in retained earnings is the U.S. parents' shares of the cumula- tive undistributed earnings of their incorporated foreign affiliates. Although the owners' equity of some unincor- porated affiliates could not be disaggregated by type, the data on U.S. parents' equity in affiliates by type cover both incorporated and unincorpo- rated affiliates. For unincorporated affiliates for which no breakdown of owners' equity by type was available, the parents' total equity was in- cluded in capital stock. The U.S. parents' share in total owners' equity (not broken down by type) is shown for incorporated affiliates and for unincorporated affiliates in addenda to the tables. U.S. parents' net outstanding loans to their for- eign affiliates, also referred to as "U.S. parents' net intercompany debt receivables from foreign affiliates," consist of trade accounts and trade notes payable, other current liabilities, and long- term debt that is owed by the affiliates to their U.S. parents and that is net of similar items due to the affiliates from their U.S. parents. Intercompany debt includes the value of capi- tal leases and of operating leases of more than 1 year between U.S. parents and their foreign affil- iates. The value of property leased to a foreign affiliate by its U.S. parent is included in affiliates' payables, and the value of property leased by a METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 253 foreign affiliate to its U.S. parent is included in affiliates' receivables. 18 For affiliates that are depository institutions or other financial intermediaries, certain types of funding received from, or provided to, their parents are excluded from direct investment in accordance with international guidelines. For affiliates that are depository institutions, the di- rect investment position is defined to include only their U.S. parents' permanent equity and debt investment in them; similarly, the direct investment flows that enter the U.S. interna- tional transactions accounts for these affiliates include only the transactions related to such per- manent investment. All other transactions and positions — mainly claims and liabilities arising from the parents' and affiliates' normal banking business, which are reported to the U.S. Treas- ury Department rather than to bea, are excluded from the direct investment accounts, but they are included with other banking claims and liabilities in the portfolio investment accounts. Beginning with the 1994 benchmark survey, a similar treatment has been adopted for affili- ates that were financial intermediaries other than depository institutions: The direct investment position in, and capital and income flows with, these affiliates are defined to include only the U.S. parents' permanent investment in them. Other U.S. -parent positions in, and flows with, these affiliates — positions and flows associated with the affiliates intermediation activity — are included in the portfolio investment accounts. This change was made in order to make bea's data more consistent with the international standards rec- ommended in the International Monetary Fund's Balance of Payments Manual. 19 The industrial classification system used in the 1994 benchmark survey separately classified de- pository institutions, but it did not provide a separate classification for other financial inter- mediaries. Instead, financial intermediaries and other nonbank financial affiliates are classified in the "other finance" industry (international sur- veys industry code 612 in the Guide). A review 18. Under a capital lease, like an installment sale, it is anticipated that title to the leased property will be transferred to the lessee at the termination of the lease. The term of an operating lease is significantly shorter than the expected useful life of the tangible property being leased, and the leased property is usually returned to the lessor at the termination of the lease. For capital leases, the value of the leased property is calculated according to U.S. generally accepted accounting principles (gaap); under gaap, the lessee records either the present value of the future lease payments or the fair market value of the property, whichever is lower, and the lessor records the sum of all future lease receipts. For operating leases of more than 1 year, the value is the original cost of the leased property less accumulated depreciation. 19. This new treatment will be incorporated in the U.S. international transactions accounts beginning with the estimates to appear in the July 1998 issue of the Survey of Current Business. of the affiliates in that industry identified three groups of affiliates that have characteristics of fi- nancial intermediaries: (1) Those located in the Netherlands Antilles, (2) those whose parents were depository institutions, and (3) those whose parents were securities dealers. 20 The Netherlands Antilles affiliates were identi- fied as financial intermediaries because according to international guidelines, financial intermedi- aries include affiliates set up abroad to raise and channel funds to their U.S. parent com- panies. Such affiliates are part of a broader category referred to as special purpose entities (spe's), which "are enterprises that engage pri- marily in international transactions and do little or no local business." 21 Until mid-1984, U.S. par- ents were prompted to borrow indirectly through nonbank financial affiliates in the Netherlands Antilles rather than directly from foreign capital markets, because the interest payments on their borrowings from affiliates were exempt from U.S. withholding taxes under a tax treaty between the United States and the Netherlands Antilles. The repeal of the withholding tax in 1984 caused most borrowing from these affiliates to cease and the repayment of previous borrowings to increase, but some U.S. parents continue to borrow indi- rectly through their nonbank financial affiliates in the Netherlands Antilles. As a practical matter, permanent investment in affiliates that are financial intermediaries other than depository institutions has been defined to be equivalent to the parents' equity investment in the affiliates. Thus, intercompany debt positions in these affiliates are excluded from the direct investment position; changes in these positions are excluded from direct investment capital flows; and interest payments and receipts are excluded from direct investment income. This treatment was necessary because data were not collected separately on the parents' permanent investment in these affiliates. 22 A U.S. parent and its foreign affiliate may have a two-way financial relationship — that is, each may have debt and equity investment in the other. Thus, a U.S. parent may have investment in a foreign affiliate that, in turn, has investment in 20. Outside sources were used to determine which U.S. parents were se- curities dealers because the industrial classification system used in the 1994 benchmark survey did not provide a separate classification for them. 2i. International Monetary Fund (imf), Report on the Measurement of International Capital Flows (Washington, dc: imf, September 1992): 28. 22. The data collected for depository institutions suggest that the distinc- tion between permanent investment and other investments is largely based on the form of the investment-equity or debt; equity was generally reported as permanent investment, and intercompany debt was generally excluded from permanent investment. 254 BEA STUDIES OF DIRECT INVESTMENT the U.S. parent as a result of the affiliate's lending funds to, or acquiring voting securities or other equity interest in, the U.S. parent. In the inter- company debt portion of the position, affiliates' receivables from their U.S. parents (reverse debt investment) are netted against affiliates' payables to their U.S. parents. 23 Reverse equity invest- ment by foreign affiliates in their U.S. parents is included in foreign portfolio investment in the United States if the affiliate's ownership is less than 10 percent, or it is included in the foreign direct investment position in the United States if the affiliate's ownership of its U.S. parent is 10 percent or more. The direct investment position at the end of the year is equal to the position at the end of the previous year plus the change in the position dur- ing the year. The change during the year is the sum of direct investment capital flows (see the next section) and valuation adjustments. Valua- tion adjustments are broadly defined to include all changes in the position other than capital flows. They primarily reflect differences between transactions values, which are used to record di- rect investment capital flows, and the book values on foreign affiliates' accounting records, which are used to record the position and, therefore, changes in the position. For example, valua- tion adjustments include differences between the sale value and book value of foreign affiliates that are sold by U.S. parents. Valuation ad- justments also include capital gains and losses and currency-translation adjustments. Currency- translation adjustments to the position are made to reflect changes in the exchange rates that are used to translate foreign affiliates' foreign- currency- denominated assets and liabilities into dollars, according to the guidelines in fasb 52 (see the section "Currency translation" ). Direct investment capital outflows Direct investment capital outflows consist of eq- uity capital outflows, reinvested earnings, and intercompany debt outflows. This section first defines these components and then discusses the coverage, measurement, and presentation of direct investment capital outflows. Equity capital outflows. — Equity capital outflows are net increases in U.S. parents' equity in their 23. In the extremely rare case in which a foreign affiliate and its U.S. parent own 10 percent or more of each other, a foreign affiliate's debt investment in its U.S. parent is not netted against the parents' debt investment in it. In order to avoid double-counting, the U.S. parents' debt investment in the affiliate is included in the U.S. direct investment position abroad, and the affiliate's debt investment in the parent is included in the foreign direct investment position in the United States. foreign affiliates; equity capital inflows (decreases in equity) are netted against equity capital out- flows (increases in equity) to derive the net out- flow. Equity capital outflows exclude changes in equity that result from the reinvestment of earn- ings, which are recorded as a separate component of direct investment capital outflows. Equity capital outflows to foreign affiliates re- sult from U.S. parents' establishment of new foreign affiliates, from their initial acquisitions of 10-percent-or-more ownership interests in ex- isting foreign business enterprises, from their acquisitions of additional ownership interests in existing foreign affiliates, and from capital contri- butions to their foreign affiliates. Equity capital inflows result from liquidations of foreign affil- iates, from partial or total sales of ownership interests in foreign affiliates, and from the return of capital contributions. Equity capital inflows also include liquidating dividends, which are a return of capital to U.S. parents. Equity capital outflows are recorded at trans- actions values on the basis of the accounting records of the U.S. parents rather than on the ba- sis of the accounting records of the affiliates. The data are based on the accounting records of the parent partly because some transactions — such as when a U.S. parent purchases or sells capital stock from or to an unaffiliated third party — are not recorded in the accounting records of the foreign affiliates. In addition, the transactions values that are required for balance of payments accounting are sometimes available only from the parent's accounting records; for example, the equity capi- tal of a foreign affiliates that is newly acquired or sold by its U.S. parent is carried at book value in the accounting records of the foreign affiliate, but it is carried at transaction value — including any premium or discount — in the accounting records of the U.S. parent. Reinvested earnings. — Reinvested earnings of for- eign affiliates are earnings less distributed earn- ings. Earnings are U.S. parents' shares in the net income of their foreign affiliates after the pro- vision for foreign income taxes. Earnings are from the accounting records of the foreign affili- ate. A U.S. parent's share in net income is based on its directly held equity interest in the foreign affiliate. The earnings and reinvested earnings estimates in this publication are not adjusted to reflect current-period prices, because the source data needed to adjust the estimates by detailed country and industry are not available. Earnings are a part of the direct investment in- come account because they are income to the U.S. METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 255 parent, whether they are reinvested in the affili- ate or remitted to the parent. However, because reinvested earnings are not actually transferred to the U.S. parent, they increase the parent's invest- ment in its affiliate. Thus, an entry equal to the value of reinvested earnings is made in the direct investment income account, and a similar entry, but with the opposite sign, is made in the direct investment capital account. For incorporated foreign affiliates, distributed earnings are dividends on common and preferred stock of the affiliates that are held by their U.S. parents before the deduction of foreign with- holding taxes. Distributions can be paid out of current or past earnings. Dividends exclude stock and liquidating dividends. Stock dividends are excluded because they are a capitalization of retained earnings — a substitution of one type of equity (capital stock) for another (retained earnings); they reduce the amount of retained earnings available for distribution but leave total owners' equity unchanged. Thus, stock dividends do not give rise to entries in the international transactions accounts. 24 Liquidating dividends are excluded because they are a return of capital rather than a remittance of earnings (liquida- ting dividends are included instead as inflows in the direct investment equity capital account). For unincorporated affiliates, distributed earn- ings are earnings distributed to U.S. parents out of current or past earnings. Distributed earnings are based on the account- ing records of U.S. parents. Because they are on an accrual basis, they are reported as of the date that they are either received from foreign affili- ates or entered into intercompany accounts with foreign affiliates. Thus, for example, a dividend declared by a foreign affiliate, but not remitted because of exchange controls, would be recorded in the direct investment capital account as a dis- tributed earnings inflow when the dividend is entered into intercompany accounts; an offsetting intercompany debt outflow would be recorded at the same time. Distributed earnings are in- cluded whether they are paid in cash, through debt creation, or in kind. Intercompany debt outflows. — Intercompany debt outflows consist of the increase in U.S. parents' net intercompany debt receivables from their for- eign affiliates during the year, as they are recorded in the financial records of the U.S. parents. 25 The increase for a given period is derived by sub- tracting the net outstanding intercompany debt balance (that is, U.S. -parent receivables less U.S.- parent payables) at the end of the previous period from the net outstanding balance at the end of the current period. When a U.S. parent lends funds to its foreign affiliate, the balance of the U.S. parents' receiv- ables (amounts due) from the affiliate increase; subsequently, when the affiliate repays the prin- cipal owed to its U.S. parent, the balance of the U.S. parent's receivables from the affiliate is re- duced. Similarly, when a U.S. parent borrows funds from its foreign affiliate, the balance of the U.S. parent's payables (amounts owed) to the affiliate increase; subsequently, when the U.S. parent repays the principal owed to its affiliate, the balance of the U.S. parent's payables to the affiliate are reduced. Increases in U.S. parents' receivables from, or reductions in parents' payables to, their foreign affiliates result in outflows on intercompany debt accounts. Reductions in U.S. parents' receivables from, or increases in U.S. parents' payables to, their affiliates result in inflows on intercompany debt accounts. Not all intercompany debt transactions reflect actual flows of funds. For example, when dis- tributed earnings, interest, or royalties and license fees from a foreign affiliate accrue to its U.S. par- ent, the full amount is included as an income or royalty and license fee receipt (an inflow) on U.S. direct investment abroad. If all or part of that amount is not actually transferred to the U.S. parent, the amount not transferred is en- tered into intercompany debt as an increase in the U.S. parent's receivables from its affiliate (an outflow). The net change in intercompany debt includes changes in the value of capital leases and oper- ating leases of more than 1 year between U.S. parents and their foreign affiliates. When prop- erty is leased by a foreign affiliate from its U.S. parent, the value of the leased property is recorded as an intercompany debt outflow be- cause it increases the U.S. parent's receivables. The subsequent payment of principal on a capi- tal lease or of depreciation on an operating lease is a return of capital and is recorded as an inter- company debt inflow because it reduces the U.S. parent's receivables. When property is leased to 24. The concept of "stock dividends" used here is essentially the same as that in the International Monetary Fund's Balance of Payments Manual under the heading of "bonus shares." bea has retained its terminology because it is better understood by survey respondents. 25. For foreign affiliates that are depository institutions, debt outflows that are not permanendy invested are excluded. For foreign affiliates that are financial intermediaries other than depository institutions, all debt outflows are excluded. 256 BEA STUDIES OF DIRECT INVESTMENT a U.S. parent by its foreign affiliate, the flows recorded are the reverse of the preceding. Coverage, measurement, and presentation. — All intercompany debt flows result from transactions between U.S. parents and their foreign affiliates. Equity capital flows, however, may result from transactions between U.S. parents and either their foreign affiliates or unaffiliated foreign persons. An example of an equity capital flow resulting from a transaction between a U.S. parent and an unaffiliated foreign person is the parent's pur- chase of an affiliate's capital stock from such a person. Direct investment capital outflows exclude transactions between two U.S. persons because transactions between U.S. persons are not inter- national transactions. Thus, if one U.S. person purchases a direct investment interest in a foreign affiliate from another U.S. person, the new owner will establish or increase its ownership interest in the foreign affiliate, but no equity capital out- flow is recorded, because the transaction occurs entirely within the United States. In addition, there is no net increase in U.S. claims on foreign countries; instead, one U.S. person's claims have merely been substituted for those of another. 26 However, if a U.S. person has a portfolio (less- than-io-percent) investment interest and if, as a result of the purchase of an additional interest, the combined interests qualify as a direct invest- ment, a direct investment capital outflow and offsetting portfolio investment capital inflow are recorded to change the status of the original in- vestment. Similarly, if a U.S. parent's interest in an affiliate falls below 10 percent, a direct invest- ment capital inflow is recorded to eliminate the direct investment interest, and an offsetting port- folio investment capital outflow is recorded for the new portfolio interest. In cases of reverse investment, treatment of re- verse equity capital and intercompany debt flows is the same as that for the analogous accounts in the direct investment position (see the section "U.S. direct investment position abroad" ). Equity capital and intercompany debt outflows are disaggregated into several subaccounts in this publication. Equity capital outflows, which are recorded as a net amount, are disaggre- gated to show increases in equity separately from decreases. Intercompany debt outflows are dis- aggregated to show flows resulting from changes in U.S. parents' receivables separately from flows resulting from changes in U.S. parents' payables. Certain transactions may affect two of these sub- accounts simultaneously and by exactly offsetting amounts. Such transactions are "grossed up"; that is, the outflows and the offsetting inflows are recorded in the affected subaccounts rather than being netted to zero and not recorded in any subaccount. However, because such gross flows are offsetting, they have no effect on net capital outflows. For example, the capitaliza- tion of intercompany debt, which gives rise to an intercompany debt inflow and an offsetting eq- uity capital outflow, results in gross, but not net, flows. Direct investment income Direct investment income is the return on the U.S. direct investment position abroad; that is, it is the U.S. parents' return on their debt and equity investment in foreign affiliates. Direct in- vestment income consists of earnings (that is, U.S. parents' shares in the net income of their for- eign affiliates) and interest on intercompany debt between U.S. parents and foreign affiliates (where interest is defined as interest received by U.S. par- ents from their foreign affiliates, net of interest paid by U.S. parents to their foreign affiliates). Direct investment income is recorded as ac- crued. When funds are not actually transferred to U.S. parents, offsetting entries are made in the direct investment capital account. Direct investment income and earnings ex- clude all capital gains and losses whether or not such gains and losses are included in net income for income statement purposes. This treatment is intended to make income and earnings re- flective of the current operating performance of foreign affiliates, as recommended by interna- tional guidelines for the compilation of balance of payments accounts. Direct investment income (and the reinvested earnings component of capital outflows) are ad- justed to reflect current-period prices prior to being entered into the international transactions accounts (see the introduction to the section "Direct Investment Position and Balance of Pay- ments Data" for details). However, these adjust- ments are made on a global basis only and do not appear in the tables in this publication, which are disaggregated by country or by industry. Direct investment income is measured before deduction (that is, gross) of all withholding taxes. 27 This treatment views taxes as being levied 26. Any revaluation of the investment by the new U.S. parent is treated as a valuation adjustment to the U.S. direct investment position abroad. 27. Withholding taxes are taxes withheld by governments on income or other funds that are distributed or remitted. METHODOLOGY FOR U.S. DIRECT INVESTMENT ABROAD 257 on the recipient of the distributed earnings or interest and thus as being paid across borders, even though, as an administrative convenience, the taxes are actually paid by the affiliate (or par- ent) whose disbursement gave rise to them. Thus, foreign withholding taxes on distributed earnings and on interest received by the U.S. parent are recorded as if they were paid by the parent, not by the foreign affiliate. Similarly, U.S. withhold- ing taxes on interest payments by the U.S. parent are recorded as if they were paid by the foreign affiliate, not by the U.S. parent. Counter entries for these taxes are made in the U.S. international transactions accounts under unilateral transfers. bea collects data on withholding taxes on dis- tributed earnings on its quarterly survey of U.S. direct investment abroad, but withholding taxes on interest — and on royalties and license fees and other private services, discussed in the next two sections — are only collected in benchmark sur- veys. Withholding taxes on these items must be estimated for nonbenchmark years; the estimates are only prepared on a global basis and are not disaggregated by country or industry. Interest is recorded on a net basis, which is in- terest paid or credited to U.S. parents on debt owed to them by their foreign affiliates less in- terest paid or credited by U.S. parents on debt owed by them to their foreign affiliates. 28 Inter- est payments are netted against interest receipts because in the intercompany debt component of the U.S. direct investment position abroad, debt owed by U.S. parents to foreign affiliates is net- ted against debt owed by foreign affiliates to U.S. parents. Interest includes interest paid through debt creation or in kind, as well as interest paid in cash. Interest includes net interest payments on cap- ital leases between U.S. parents and foreign affil- iates because the outstanding capitalized value of such leases is included in the intercompany-debt component of the direct investment position. Direct investment royalties and license fees Direct investment royalties and license fees con- sist of receipts by U.S. parents from, and pay- ments by U.S. parents to, their foreign affili- ates of fees for the use or sale of intangible property or rights, such as patents, industrial processes, trademarks, copyrights, franchises, de- signs, expertise, formulas, techniques, manu- 28. For foreign affiliates that are depository institutions, interest payments other than those on permanently invested capital are excluded. For foreign affiliates that are financial intermediaries other than depository institutions, all interest payments are excluded. facturing rights, and other intangible assets or proprietary rights. U.S. parents' receipts and U.S. parents' pay- ments, for royalties and license fees are entered separately into the U.S. international transactions accounts; U.S. parents' receipts are recorded as exports of services, and U.S. parents' payments are recorded as imports of services. Both receipts and payments are measured before deduction, or gross, of (foreign or U.S.) withholding taxes. Receipts and payments of royalties and li- cense fees are based on the accounting records of the U.S. parents and are reported as accrued. When funds are not actually transferred, offset- ting entries are made in the intercompany debt account. Other direct investment services Transactions in other direct investment services consist of receipts by U.S. parents from, and pay- ments by U.S. parents to, their foreign affiliates of service charges, of charges for the use of tan- gible property, and for film and television tape rentals. U.S. parents' receipts and U.S. parents' pay- ments are entered separately into the U.S. in- ternational transactions accounts; U.S. parents' receipts are recorded as exports of services, and U.S. parents' payments are recorded as imports of services. Both receipts and payments are meas- ured before deduction, or gross, of (foreign or U.S.) withholding taxes. Receipts and payments for other direct invest- ment services are based on the accounting records of the U.S. parents and are reported as accrued. When funds are not actually transferred, offset- ting entries are made in the intercompany debt account. Service charges. — Service charges consist of fees for services — such as management, professional, or technical services — rendered between U.S. par- ents and their foreign affiliates. The service charges may represent sales of services or reim- bursements. Sales of services are receipts for services rendered that are normally included in sales or gross operating revenues in the income statement of the seller. Normally, such receipts are included in sales if the performance of the service is a primary activity of the enterprise. (For example, if a U.S. management consulting firm provides management-consulting services to its foreign affiliates, the resulting revenues are included in its sales.) 258 BEA STUDIES OF DIRECT INVESTMENT Reimbursements are receipts for services ren- dered that are normally included in "other income" rather than in sales in the income state- ment of the provider of the service. Normally, the performance of the service is not a primary activity of the enterprise; however, the service may facilitate or support the conduct of the en- terprise's primary activities. (For example, if a U.S. manufacturer provides management services to its foreign manufacturing affiliate, the asso- ciated charges would be recorded in its income statement under "other income" and reported to bea as a reimbursement.) Reimbursements may be allocated expenses or direct charges for the services rendered. Allocated expenses are overhead expenses that are appor- tioned among the various divisions or parts of an enterprise. An example would be r&d as- sessments on foreign affiliates by a U.S. parent for r&d the parent performs and shares with its affiliates. Data on intercompany service charges are dis- aggregated into six categories — insurance serv- ices, financial services, transportation services, computer and information services, communica- tion services, and "other services" — for the first time in this publication; these data are presented in table n.z8. The new data were collected on the 1994 benchmark survey to allow all U.S. in- ternational transactions in private services — with both affiliated and unaffiliated foreigners — to be disaggregated by the categories specified in the International Monetary Fund's Balance of Pay- ments Manual. The new data complement data from other bea surveys that collect data on U.S. international transactions in private services. (See the footnotes to table n.z8 for the defini- tions used on the 1994 benchmark survey for each category of intercompany service charges.) The data on intercompany service charges by category indicate that 83.0 percent of U.S. par- ents' receipts and 74.9 percent of U.S. parents' payments were "other" services. These high per- centages may result because survey respondents do not have the necessary information in their standard accounting records to provide a break- down of their allocated expenses or of other services transactions with their foreign affiliates by type of service. The share for "other" services may also be large because many services (such as advertising, management, research and develop- ment, and accounting services) are not covered by the other five categories. 29 Charges for the use of tangible property. — Charges for the use of tangible property include total lease payments under operating leases of 1 year or less and net rent on operating leases of more than 1 year. From the lessors' viewpoint, total lease payments for operating leases consist of two components: (1) Net rent, which covers inter- est, administrative expenses, and profit, and (2) depreciation, which is a return of capital. For operating leases of more than 1 year, net rent is included in "other direct investment services," and depreciation is included as an in- tercompany debt flow in the direct investment capital account. For operating leases of 1 year or less, total lease payments — both net rent and depreciation — are included in "other direct in- vestment services." Because the value of property leased to or from foreigners for 1 year or less is excluded from U.S. exports and imports of goods in the U.S. international transactions accounts, no export or import by U.S. parents is recorded in the trade-in-goods account; thus, no subse- quent return of capital to or by U.S. parents in the form of depreciation is recorded in the direct investment capital account. Instead, such depre- ciation is considered part of rentals — a receipt for services rendered by, rather than a return of capital to, the lessor. Film and television tape rentals. — Film and tele- vision tape rentals are rentals received by U.S. parents from, and rentals paid by U.S. parents to, their foreign affiliates for the sale or use of film and television tapes. Except for mass- produced films and tapes, such as prerecorded video cassettes (which are recorded in the U.S. trade-in-goods), such film and television tapes are treated as if they were being rented rather than sold, and payments for the tapes are consid- ered payments for services rather than payments for goods. This treatment is used because the value of the tapes is derived mostly from the services — entertainment, education, and so on — that they provide, not from the value of the media on which they are recorded. Thus, the cost of the film and television tapes is excluded from the U.S. trade-in-goods account and is included instead in "other direct investment services." C3 29. The five categories were chosen on the basis of the detail recommended in the International Monetary Fund's Balance of Payments Manual. METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 259 Methodology for Foreign Direct Investment in the United States This methodology was first published in 1995 in Foreign Direct Investment in the United States: 1992 Benchmark Survey, Final Results. The 1992 benchmark Survey of Foreign Di- rect Investment in the United States was conducted by the Bureau of Economic Analysis (be a) to obtain complete and accurate data on foreign direct investment in the United States in 1992. Reporting in the survey was mandatory under the International Investment and Trade in Services Survey Act. 1 This publication presents 166 tables that con- tain nearly all the data collected in the benchmark survey. Two related types of data for U.S. af- filiates of foreign companies are presented: (1) Financial and operating data, and (2) direct in- vestment position and balance of payments data. The financial and operating data provide a va- riety of indicators of the overall operations of U.S. affiliates, including balance sheets and in- come statements; gross product; sales of goods and services; external financial position; taxes; property, plant, and equipment; employment and employee compensation; U.S. merchandise trade; research and development activities; and U.S. land owned and leased. The direct investment position and balance of payments data cover transactions and positions between U.S. affiliates and their foreign parent groups. These data are the source of the of- ficial estimates of direct investment that enter the U.S. national income and product accounts and the U.S. international investment position and balance of payments (or "international trans- actions") accounts. Balance of payments data include data on direct investment capital and income flows between U.S. affiliates and their for- eign parent groups and on receipts and payments of royalties, license fees, and charges for other services between U.S. affiliates and their foreign parent groups. Data are presented for three groups of U.S. af- filiates of foreign companies: (1) All affiliates, (2) nonbank affiliates, and (3) bank affiliates. 2 Most of the tables cover nonbank affiliates; bank affil- iates, which report extensive data to other U.S. 1. Public Law 472, 94th Cong., 90 Stat. 2059, 22 U.S.C. 3101-3108, as amended. 2. In this publication, the term "bank affiliates" is used to describe all the affiliates that are classified as "depository institutions," which includes savings institutions and credit unions, as well as commercial banks. Government agencies, were required to report only a limited amount of data in the benchmark survey. Most of the tables for each group cover all the U.S. affiliates in the group irrespective of the degree of foreign ownership. For non- bank affiliates, however, a few tables covering only majority- owned affiliates also are provided. A variety of table formats are used: Some ta- bles present data for several related items, each of which is disaggregated by industry, country, or State; other tables present data for a single item disaggregated by industry cross-classified by country, by country cross- classified by industry, or by State cross-classified by country. The data in this publication supersede the pre- liminary estimates that appeared in Foreign Direct Investment in the United States: 1992 Bench- mark Survey, Preliminary Results and, in more summary form, in the article "Foreign Direct Investment in the United States: 1992 Bench- mark Survey Results" in the July 1994 issue of the Survey of Current Business. The financial and operating data for nonbank affiliates presented in this publication are compa- rable with bea's universe estimates for previous benchmark years — the most recent being 1987. Estimates for nonbenchmark years from bea's annual surveys provide similar information, but are less detailed. For information about how to obtain the earlier benchmark data and annual survey estimates, see appendix C. To aid comparisons among the estimates for the various years, table 1 on the next page pro- vides cross-references between the table numbers used in this publication and those used in the publications for other years. As it indicates, the table-numbering scheme of this publication also will be used in publications for 1993 forward. Certain tables in this publication do not have counterparts in the earlier publications, because they cover items that were first collected in 1992. Other tables have counterparts in the earlier benchmark survey publications, but not in the annual survey publications, because they cover items that are not collected in the annual surveys. For example, the benchmark surveys collect direct investment position and balance of 260 BEA STUDIES OF DIRECT INVESTMENT payments data in addition to the financial and operating data collected in the annual surveys for nonbenchmark years. In a few instances, an item collected in the benchmark survey was combined with one or more other items in the annual surveys. Thus, two items that are shown in a table in this publication may be shown as only one item in the corresponding table in the annual survey publications. The data in this publication are based on data collected at the enterprise — or company — level. Establishment — or plant — level data on foreign direct investment in the United States are also available as a result of an ongoing project to link bea's enterprise data on foreign direct in- vestment in the United States with more detailed Census Bureau establishment data for all U.S. companies. 3 3. Publications presenting the establishment data are available for 1987- 91 (see appendix C). The 1987 publication presents data on the number, employment, payroll, and shipments or sales of the establishments of U.S. affiliates in both manufacturing and nonmanufacturing industries. Summary data and an analysis appeared in "Foreign Direct Investment in the United States: Establishment Data for 1987" in the October 1992 Survey of Cur- rent Business. The 1988-91 publications present data on the manufacturing Coverage The benchmark survey covered every U.S. busi- ness enterprise that was a U.S. affiliate of a foreign person. A U.S. affiliate is a U.S. busi- ness enterprise in which a foreign person owns or controls, directly or indirectly, at least 10 percent of the voting securities if the enterprise is incor- porated or an equivalent interest if the enterprise is unincorporated. establishments of U.S. affiliates for most of the items covered by the Census Bureau's Annual Survey of Manufactures, including value added, shipments, employment, total employee compensation, employee benefits, hourly wage rates of production workers, cost of materials and energy used, inventories by stage of fabrication, and expenditures for new plant and equipment. Sum- mary data for 1990 and an analysis of the data appeared in "Characteristics of Foreign-Owned U.S. Manufacturing Establishments" in the January 1994 Survey. A parallel project has also linked bea's data on foreign direct investment in the United States to Bureau of Labor Statistics (bls) data on all U.S. businesses. That link resulted in data, released by bls, for 1989-91 on the number, employment, and payroll of establishments of U.S. affiliates for both manufacturing and nonmanufacturing industries. In addition, bls data are available on the occupational structure of manufacturing establishments of U.S. affiliates in 1989. For information on these data, call bls at (202) 606- 6568. Data from the two projects differ, particularly at the most detailed in- dustry levels, because of differences in coverage, classification, timing, and definitions. Table 1.— Comparison of Tables for Nonbank U.S. Affiliates in This Publication With Those in the Publications for 1993 Forward, the 1987 Benchmark Survey Publication, and the Publications for 1988-91 Table in this publication ' Comparable table in annual publications for 1993 forward Comparable table in 1987 benchmark survey publication Comparable table in 1988-91 publications Table in this publication ' Comparable table in annual publications for 1993 forward Comparable table in 1987 benchmark survey publication Comparable table in 1988-91 publications Group A. Selected Data A-1-A-2 A-1-A-2 A-6 A-6 A-7-A-9 A-7-A-9 Group B. Balance Sheet B-1-B-6 B-1-B-6 B-7-B-8 B-9 A-1-A-2 A-6-A-8 B-1-B-6 B-7-B-8 B-10 Group C. Composition of External Financial Position C-1 C-1 C-1 C-2-C-7 C-2-C-7 C-8 C-9 Group D. Property, Plant, and Equipment D-1-D-3 D-1-0-3 D-4-0-5 D-6-D-7 D-6-0-7 D-8 D-9-0-13 D-9-0-13 D-14-0-15 D-16-0-17 D-18-D-20 D-18-O-20 D-21-0-27 D-21-0-27 D-1-0-3 .... D-5-D-6 .... D-8-D-9 .... D-7 D-10-O-14 D-15-D-16 D-18-0-19 D-20-D-22 D-24-D-30 E-1-E-4 E-5-E-6 E-7-E-8 E-9 Group E. Income Statement E-1-E-4 E-1-E-4 E-5-E-6 E-7-E-8 E-7-E-8 E-9 E-10-E-15 E-10-E-15 E-10-E-15 E-16-E-17 E-16-E-17 Group F. Gross Product F-1-F-3 F-1-F-3 F-4 F-5-F-6 F-5-F-6 A-1-A-2 A-6-A-8 B-1-B-6 C-1 D-1-0-3 D-8-D-9 D-10-D-14 D-20-D-22 D-24-O-30 E-1-E-4 E-7-E-8 E-10-E-15 E-16-E-17 Group G. Employment and Employee Compensation G-1-G-4 G-1-G-4 F-1-F-4 F-1-F-4 G-5 F-5 G-6 G-6 F-6 G-7-G-8 G-7-G-8 F-7-F-8 F-7-F-8 G-9 F-9 G-10-G-11 G-10-G-11 F-10-F-11 F-10-F-11 G-12 F-12 G-13 G-13 F-14 F-14 G-14 F-15 G-15 G-15 G-16-G-17 G-16-G-17 F-16-F-17 F-16-F-17 G-18 G-18 F-19 F-19 Group H. U.S. Merchandise Trade H-1-H-3 H-1-H-3 G-1-G-3 G-1-G-3 H-4 H-5 H-6 H-7 H-8-H-36 . H-37 H-4 H-6. H-7. G-4 G-5 G-6 G-7 G-8-G-36 G-6 H-37 Group I. Interest, Dividends, Taxes Other Than Income Taxes, and Research and Develop- ment Expenditures 1-1-1-2 1-1-1-2 H-1-H-2 H-1-H-2 I-3 H-3 I-4-I-5 I-6 I-6 H-4 Group J. Selected Data for Majority-Owned Affiliates J-1-J-3 J-W-3 J-4 J-5 J-5 1. This publication also contains tables on the direct investment position and balance ol payments data (Groups K, L, M, and N). but these tables are not listed, because they are outside the scope of the annual publications lor 1993 forward and tor 1988-91, which cover only financial and operating data of U.S. affiliates. METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 26l The financial and operating data cover every U.S. business enterprise that was a U.S. affiliate at the end of its 1992 fiscal year. In addition, the direct investment position and balance of pay- ments data cover U.S. businesses that were U.S. affiliates sometime during their 1992 fiscal year but that were not affiliates at the end of the year, because the foreign parents' interest in them had been liquidated or sold. The U.S. affiliates that were liquidated or sold during the year are cov- ered so that the coverage of the direct investment position and balance of payments data in this publication is consistent with that of the U.S. in- ternational investment position and balance of payments accounts. 4 Because these former affili- ates were not required to report in the benchmark survey, estimates for them were made, based on information from other bea surveys. As a result of this difference in coverage, some balance of payments data items may not be fully comparable with their counterparts in the finan- cial and operating data. For example, the total for net income shown in the financial and operat- ing data excludes the net income of these former affiliates, but the foreign parents' shares of this income is included in the balance of payments measure of income on foreign direct investment in the United States. In 1992, the direct investment universe con- sisted of 18,233 U.S. affiliates (table 2). Affiliates with total assets, sales, or net income greater than $1 million were required to complete a bench- mark survey report; 12,672 affiliates were required to report. The 5,551 affiliates that did not meet these criteria were exempt from reporting, but they had to file an exemption claim on which they indicated the value of their total assets, sales, and net income and the amount of U.S. land that they owned. Of the total number of affiliates in the direct investment universe, affiliates that were required to report accounted for 70 percent and 4. Because these affiliates were sold or liquidated during 1992, they are excluded from the investment position at yearend 1992. However, some tables present data on the position at yearend 1991, when these affiliates were still included in the foreign direct investment universe and, hence, in the estimates. Table 2.— Selected Data for the Universe of U.S. Affiliates, by Whether or Not Reported in the Benchmark Survey Num- ber of affili- ates Millions of dollars Thou- sands of hectares of land owned Total assets Sales Net income Universe of U.S. affiliates U.S. affiliates that reported in the survey U.S. affiliates that were ex- empt from reporting 18,223 12,672 5,551 3,000,127 2,998,593 1,534 1,334,485 1,333,867 618 -20,702 -20,575 -127 5,871 5,739 132 those that were exempt from reporting, for 30 percent. However, because only very small affil- iates were exempt from reporting, affiliates that were required to report accounted for virtually all of the universe in terms of value. In table 3, the data for exempt affiliates are disaggregated by country of ultimate beneficial owner. Except for tables 2 and 3, all the tables cover only U.S. affiliates that were required to complete a benchmark survey report. Concepts and Definitions This section gives the basic concepts and defini- tions used in the 1992 benchmark survey. Special mention is made of changes that were introduced in the survey. Direct investment Direct investment implies that a person in one country has a lasting interest in, and a degree of influence over the management of, a business enterprise in another country. For the United States, in accordance with international guide- lines, ownership or control of 10 percent or more of an enterprise's voting securities, or the equiv- alent, is considered evidence of such a lasting interest or degree of influence over management. 5 Thus, foreign direct investment in the United States is ownership or control, direct or indi- rect, by one foreign person of 10 percent or more of the voting securities of an incorporated U.S. business enterprise or an equivalent inter- est in an unincorporated U.S. business enterprise. Only foreign investment in the United States that is direct investment was covered by the 1992 benchmark survey. Direct investment in a U.S. business enterprise can result from direct or indirect ownership by a foreign person. In direct ownership, the foreign person itself holds the ownership interest in the U.S. business enterprise. In indirect ownership, one or more tiers of ownership exist between the U.S. business enterprise and the foreign per- son. For example, a U.S. business enterprise may be directly owned by another U.S. business en- terprise that is, in turn, owned by the foreign person. A foreign person's percentage of indi- rect voting ownership in a given U.S. business enterprise is equal to the direct-voting-ownership percentage of the foreign person in the first U.S. 5. See International Monetary Fund (imf), Balance of Payments Manual, 5th ed. (Washington, dc: imf, 1993); and Organisation for Economic Co- operation and Development (oecd), Detailed Benchmark Definition of Foreign Direct Investment, 2nd ed. (Paris: oecd, 1992). 262 BEA STUDIES OF DIRECT INVESTMENT business enterprise in the ownership chain, times the first enterprise's direct-voting-ownership per- centage in the second U.S business enterprise in the chain, times the corresponding percentages for all intervening enterprises in the chain, times Table 3.— Data for U.S. Affiliates That Were Exempt From Reporting in the Benchmark Survey, by Country of UBO All countries Canada Europe Austria Belgium Denmark Finland France Germany Ireland Italy Liechtenstein Luxembourg Netherlands Norway Spain Sweden Switzerland United Kingdom Other Latin America and Other Western Hemisphere South and Central America Brazil Mexico Panama Venezuela Other Other Western Hemisphere Bahamas Bermuda Netherlands Antilles U.K. Islands, Caribbean Other Africa South Africa Other Middle East Israel Kuwait Lebanon Saudi Arabia United Arab Emirates Other Asia and Pacific Australia China Hong Kong Indonesia Japan Korea, Republic of Malaysia New Zealand Philippines Singapore Taiwan Other United States Addenda: European Communities (12) OPEC Note.— See "Notes to the Tables." Num- ber of affili- ates 5,551 1,124 2,234 31 43 19 5 302 753 8 95 65 12 118 15 32 28 283 380 45 746 548 34 190 135 50 139 198 18 21 82 58 19 22 2 20 103 21 13 4 33 11 21 1,273 71 10 72 4 992 21 4 7 17 15 33 27 49 1,771 132 Millions of dollars Total assets 1,534 252 627 10 18 4 2 63 213 2 36 21 4 31 4 9 7 96 96 10 253 180 10 62 41 18 50 73 7 5 36 19 6 5 1 4 35 8 6 1 12 2 6 348 17 2 20 1 269 6 1 1 9 5 13 5 14 480 Sales 618 286 2 8 3 1 43 71 2 14 3 1 16 3 6 4 38 63 7 2 3 139 10 1 11 ,11 228 12 Net income -127 -14 -54 -1 -2 -1 -3 1 -1 -2 (*) -5 -2 -1 -2 -4 -23 -1 -14 -11 -2 -2 -4 -1 -2 -3 fl -1 -2 (') -1 -1 -2 R (') -1 -42 -1 -8 -41 -3 Thou- sands of hectares of land owned 132 28 2 2 1 7 34 4 2 3 10 1 1 3 3 (*) 1 (') 1 n 2 (') n Q 68 2 the last intervening enterprise's direct-voting- ownership percentage in the given U.S. business enterprise. If more than one ownership chain exists, the percentages of direct and indirect own- ership in all chains are summed to determine the foreign person's ownership percentage. Direct investment refers to ownership by a single person, not to the combined ownership by all the persons in a country. A "person" is broadly defined to include any individual, branch, partnership, associated group, associa- tion, estate, trust, corporation, or other organi- zation (whether or not organized under the laws of any State), and any government (including a foreign government, the U.S. Government, a State or local government, or any corporation, fi- nancial institution, or other entity or instrumen- tality thereof, including a government-sponsored agency). An associated group, although comprised of two or more persons, is treated in this definition as a single person. An associated group con- sists of two or more persons who exercise their voting privileges in a concerted manner by the appearance of their actions, by agreement, or by an understanding, in order to influence the man- agement of a business enterprise. The following are deemed to be an associated group: (1) Mem- bers of the same family, (2) a business enterprise and one or more of its officers or directors, (3) members of a syndicate or joint venture, or (4) a corporation and its domestic subsidiaries. Thus, direct investment is considered to exist as long as the combined ownership interest of all members of the group is at least 10 percent, even if no one member owns 10 percent or more. The definition assumes, in effect, that the members' influence over management is comparable to that of a single person with the same ownership interest. Investment by a foreign person of less than 10 percent in a U.S. business enterprise is not considered direct investment, even if another for- eign person — of the same country or of another country — has an interest of at least 10 percent in the enterprise. Thus, if one foreign person owns 11 percent and another owns 9 percent, the 11-percent interest is included, but the 9-percent interest is excluded. However, if two or more foreign persons each hold an interest of at least 10 percent, each such interest is included. Determination of residency For purposes of the benchmark survey (and bea's other direct investment surveys), the "United States" means the 50 States, the District of METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 263 Columbia, the Commonwealth of Puerto Rico, and all U.S. territories and possessions. U.S. off- shore oil and gas sites are also considered to be in the United States. "Foreign" means that which is situated out- side the United States or which belongs to, or is characteristic of, a country other than the United States. The country of residence, rather than the coun- try of citizenship of a person is used to determine whether a direct investor or the business enter- prise owned by a direct investor is U.S. or foreign. A U.S. person is any person who resides in, or is subject to the jurisdiction of, the United States, and a foreign person is any person who resides outside the United States or who is subject to the jurisdiction of a country other than the United States. A person is considered a resident of, or subject to the jurisdiction of, the country in which the person is located if the person resides or expects to reside in it for 1 year or more. Under this rule, individuals who reside or expect to reside outside their country of citizenship for less than 1 year are considered residents of their country of citizenship, whereas individuals who reside or expect to reside outside their country of citizen- ship for 1 year or more are considered residents of the country in which they are residing. There are two exceptions to this rule. First, individuals (and their immediate families) who either own or are employed by a business enter- prise in their country of citizenship and who are residing outside of that country for 1 year or more in order to conduct business for the enterprise are considered residents of their country of citizen- ship if they intend to return within a reasonable period of time. Second, individuals who reside outside their country of citizenship because they are government employees (such as diplomats, consular officials, members of the armed forces, and their immediate families) are considered res- idents of their country of citizenship regardless of their length of stay elsewhere. The U.S. affiliate A U.S. affiliate is a U.S. business enterprise in which there is foreign direct investment. The af- filiate is called a U.S. affiliate to denote that it is located in the United States. A business enterprise is any organization, asso- ciation, branch, or venture and the ownership of any real estate that exists for profitmaking pur- poses or to otherwise secure economic advantage. Therefore, by definition, a business enterprise ex- cludes the ownership of real estate exclusively for personal use; a residence that is leased to others by an owner who intends to reoccupy it is con- sidered real estate held for personal use and not a business enterprise. A business enterprise, and therefore an affiliate, may be either incorporated or unincorporated. Unincorporated affiliates primarily take the form of branches and partnerships. They may also include directly held commercial property. A U.S. affiliate that is a branch consists of op- erations or activities in the United States that a foreign person conducts in its own name rather than through an entity separately incorporated in the United States. By definition, a branch is wholly owned. In general, the U.S. operations or activities of a foreign person are considered to be a U.S. affiliate if they are legally or functionally separable from the foreign operations or activities of the foreign person. In most cases, it is clear whether the U.S. operations or activities constitute a U.S. affiliate. If an operation or activity is incorporated in the United States — as most are — it is always consid- ered a U.S. affiliate. The situation is not always so clear with unincorporated U.S. operations or activities. Although most are legally or function- ally separable from those of the foreign person and thus are considered U.S. affiliates, some are not clearly separable, and the determination of whether they constitute U.S. affiliates is made on a case-by-case basis, depending on the weight of evidence. The following characteristics would indicate that the unincorporated operation or activity probably is a U.S. affiliate: (1) The unincorporated operation or activity pays U.S. income taxes. (2) It has a substantial physical presence in the United States, as evidenced by plant and equipment or employees that are permanently located in the United States. (3) It has separate financial records that allow the preparation of financial statements, includ- ing a balance sheet and income statement. (A mere record of disbursements to, or receipts from, the U.S. operation or activity would not constitute a "financial statement" for this purpose.) (4) It takes title to the goods it sells and re- ceives revenues from the sale, or it receives funds from customers for its own account for services it performs. 264 BEA STUDIES OF DIRECT INVESTMENT The following characteristics would indicate that the unincorporated operation or activity probably is not a U.S. affiliate: (1) It pays no U.S. income taxes. (2) It has limited physical assets or few em- ployees permanently located in the United States. (3) It has no separate financial records that allow the preparation of financial statements. (4) It conducts business in the United States only for the foreign person's account, not for its own account. (5) It engages only in sales promotion or public relations activities. (6) Its expenses are paid by the foreign parent. Consistent with these guidelines, the U.S. sta- tions, ticket offices, and terminal or port facilities of a foreign airline or ship operator that provide services only to the airline's or ship operator's operations are not considered U.S. affiliates be- cause most of the revenues, such as passenger fares and freight charges, collected by these facili- ties are generated by the travel and transportation services rendered by the airline or ship operator of which they are a part, not by the activities of these facilities. However, if the facilities provide services to unaffiliated persons rather than to the foreign airline or ship operator that owns them, they are considered U.S. affiliates. Each U.S. affiliate was required to report on a fully consolidated domestic (U.S.) basis. The full consolidation includes all other U.S. affiliates of the foreign parent in which the affiliate directly or indirectly owned more than 50 percent of the outstanding voting interest. The consolidation excludes all other U.S. business enterprises and all foreign business enterprises owned by the U.S. affiliate. There were two exceptions to this general con- solidation rule. First, a given U.S. affiliate may have been excluded from full consolidation be- cause of the lack of effective control. Second, a U.S. affiliate in which a direct ownership interest was held by one foreign person and an indirect ownership interest was held by another foreign person was not permitted to be consolidated in the report of another U.S. affiliate; this rule en- sured that data on transactions and positions of both owners could be obtained from the affiliate. The foreign owners The existence of direct investment in a U.S. affili- ate is determined solely on the basis of the voting shares (or the equivalent) held by its foreign par- ent. To more completely describe the foreign ownership of a U.S. affiliate, however, reference must be made to two additional entities — the foreign parent group and the ultimate beneficial owner (ubo). All three concepts are necessary to identify fully the owners of U.S. affiliates. The foreign parent of a U.S. affiliate must be identified to establish that foreign direct investment does in fact exist. The ubo of each U.S. affiliate is identi- fied to ascertain the person that ultimately owns or controls and, therefore, ultimately derives the benefits from owning or controlling the U.S. af- filiate. 6 Members of the foreign parent group are identified to distinguish foreign persons that are affiliated with a U.S. affiliate from those that are not. The affiliate's transactions with all these per- sons are included in the investment income, services, and capital accounts of the U.S. balance of payments, and the direct positions in the af- filiate that are held by all members of the foreign parent group, not only by its foreign parent, are included in the foreign direct investment position in the United States. 7 A given U.S. affiliate may have more than one ownership chain above it, if it is owned at least 10 percent by more than one foreign person. In such cases, the affiliate may have more than one foreign parent, ubo, and foreign parent group. Foreign parent. — A foreign parent is the first per- son outside the United States in a U.S. affiliate's ownership chain that has a direct investment in- terest in the affiliate. By this definition, the foreign parent consists only of the first person outside the United States in the affiliate's owner- ship chain; all other affiliated foreign persons are excluded. Ultimate beneficial owner. — The ubo of a U.S. af- filiate is that person, proceeding up the affiliate's ownership chain beginning with and including the foreign parent, that is not owned more than 50 percent by another person. The ubo excludes other affiliated persons. If the foreign parent is not owned more than 50 percent by another per- son, the foreign parent and the ubo are the same. Unlike the foreign parent, the ubo may be either 6. ubo's that were individuals were not required to be identified by name; however, their countries of location were required. 7. Another type of transaction — trade in goods between affiliates and members of their foreign parent groups — is also included in the U.S. bal- ance of payments accounts, but it is not shown separately. Separate data on such trade, however, were obtained in the benchmark survey as part of the U.S.-affiliate financial and operating data; see the section on "Financial and Operating Data." METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 265 a U.S. person or a foreign person (though most are foreign). Both the foreign parent and the ubo are "per- sons." Thus, they may be business enterprises; religious, charitable, or other nonprofit organiza- tions; individuals; governments; estates or trusts; associated groups; and so forth. In the case of a foreign estate, the estate, not its beneficiary, is considered the foreign parent or ubo. For the in- vestments of a foreign trust, either the creator or the beneficiary of the trust may be considered the foreign parent or ubo, depending on the cir- cumstances. The creator is considered the foreign parent or ubo if the creator is a corporation or other organization that designates its own share- holders or members as beneficiaries or if there is a reversionary interest — that is, the interest in the trust may later be returned to the creator. In all other cases, the beneficiary of the trust is considered the foreign parent or ubo. Foreign parent group. — A foreign parent group consists of (1) the foreign parent, (2) any foreign person, proceeding up the foreign parent's own- ership chain, that owns more than 50 percent of the person below it, up to and including the ubo, and (3) any foreign person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it. Accounting Principles In most cases, data in the 1992 benchmark sur- vey were required to be reported as they would have been for stockholders' reports rather than for tax or other purposes. Thus, U.S. generally accepted accounting principles (gaap) were fol- lowed unless otherwise indicated by the survey instructions. The survey instructions departed from gaap in cases where the departure would re- sult in data that were conceptually or analytically more useful or appropriate for direct investment purposes. One major departure from gaap was the use of unique consolidation rules (see the pre- ceding discussion of consolidated reporting for "The U.S. affiliate" in the section "Concepts and Definitions"). Fiscal Year Reporting Data for U.S. affiliates were required to be filed on a fiscal year basis. An affiliate's 1992 fiscal year was denned to be the affiliate's financial reporting year that ended in calendar year 1992. The fiscal year data from the benchmark sur- vey that are presented in this publication are not comparable with the calendar year estimates of transactions between U.S. affiliates and their for- eign parents that appear in the U.S. balance of payments accounts or to the calendar year esti- mates of the foreign direct investment position in the United States. The benchmark survey data must be adjusted to a calendar year basis before they are entered into the foreign direct in- vestment position and the balance of payments accounts. The extent of the noncomparability between the benchmark survey data presented here and the direct investment estimates that will be pres- ented in the foreign direct investment position and balance of payments accounts depends on the number and size of the U.S. affiliates whose fis- cal years do not correspond to the calendar year. Figures on the number of affiliates that have fis- cal years that do not correspond to the calendar year and on the portion of the benchmark survey data accounted for by these affiliates are shown in table 4. Unlike the direct investment position and bal- ance of payments data, financial and operating data in all bea surveys are consistently collected and published on a fiscal year basis. Confidentiality Under the International Investment and Trade in Services Survey Act, the direct investment data collected by bea from individual respondents are confidential; thus, they cannot be published in such a manner "that the person to whom the in- formation relates can be specifically identified." For this publication, each cell in a table was tested to determine whether the data it contained should be suppressed (that is, not shown) for confidentiality reasons. A "(d)" in a cell indicates that the data were suppressed to avoid the disclo- sure of information on an individual company. For employment data, a letter representing a size range is entered in lieu of a "(d)". The act further specifies that the data must be used for statistical and analytical purposes only; the use of an individual company's data for tax, investigative, or regulatory purposes is prohib- ited. Access to the data is limited to officials and employees (including consultants and contractors and their employees) of government agencies des- ignated by the President to perform functions under the act. In addition, the Foreign Direct Investment and International Financial Data Im- 266 BEA STUDIES OF DIRECT INVESTMENT provements Act of 1990 granted access to certain other government agencies for limited statistical purposes. For example, the act granted access to the Bureau of the Census and the Bureau of Labor Statistics for the purpose of linking bea's enterprise-, or company-, level data for for- eign direct investment to their establishment-, or plant-, level data for all U.S. companies to ob- tain their more detailed data, by industry and by State, for the foreign-owned enterprises that report to bea. Private individuals may obtain access to the data only in the capacity of experts, consultants, or contractors whose services are procured by bea, usually on a temporary or intermittent basis, for purposes of carrying out projects under the act — for example, to perform research on foreign direct investment. These people are subject to the same confidentiality requirements as regular employees of bea or other government agencies performing functions under the act. Classification of Data Both the financial and operating data and the direct investment position and balance of pay- ments data from the benchmark survey can be classified by industry of affiliate, by country and industry of ubo, and by country and industry of foreign parent. In addition, the direct invest- ment position and balance of payments data can be classified by country of each member of the foreign parent group. Most of the data in the tables in this pub- lication that are disaggregated by country are classified according to the country of the ubo. However, the data in tables 5 and 6 in this methodology and in table A-7 in "Part II: Non- bank U.S. Affiliates" are classified by country of foreign parent. Classification by country of ubo usually is used for financial and operating data because the country that ultimately owns or controls, and that therefore derives benefits from owning or controlling, a U.S. affiliate generally is considered most important for analyzing these data. Except for the data in table 5, all balance of payments and direct investment position data in this pub- lication are also classified by country of ubo, so that both types of data presented will be classi- fied on the same basis. In contrast, the data in the U.S. balance of payments accounts and in the foreign direct investment position in the United States are usually classified by the country of each member of the foreign parent group with which there are transactions or positions. Table 4.— Selected Data of U.S. Affiliates, by Fiscal Year Ending Date Total Fiscal year ending date January 1 to March 31 April 1 to June 30 July 1 to September 30 October 1 to Decem- ber 31 Addendum: December 31 Number of affiliates Total assets (millions of dollars) Sales (millions of dollars) Net income (millions of dollars) Employee compensation (millions of dollars) Thousands of employees Foreign direct investment position in the United States (millions of dollars) Direct investment income (millions of dollars) Number of affiliates Total assets (millions of dollars) Sales (millions of dollars) Net income (millions of dollars) Employee compensation (millions of dollars) Thousands of employees Foreign direct investment position in the United States (millions of dollars) Direct investment income (millions of dollars) Number of affiliates Total assets (millions of dollars) Sales (millions of dollars) Net income (millions of dollars) Employee compensation (millions of dollars) Thousands of employees Foreign direct investment position in the United States (millions of dollars) Direct investment income (millions of dollars) Note— See "Notes lo the Tables." 12,672 2,998,593 1,333,867 -20,575 188,541 4,843.3 430,201 133 12,138 1,825,219 1,231,972 -21,331 182,079 4,715.4 408,630 405 534 1,173,375 101,895 756 6,462 127.9 21,571 -273 All affiliates 1,665 1,058 1,059 8,890 701,648 79,743 103,804 2,113,399 289,347 67,589 89,107 887,824 -4,378 -24 -1,022 -15,151 24,207 9,618 14,329 140,388 717.3 269.6 420.6 3,435.8 59,552 22,562 31,357 316,731 -1,328 422 1,038 8,355 1,989,540 840,019 - -15,021 130,901 3,177.1 295,611 318 Nonbank affiliates 1,553 243,684 240,293 -4,165 23,675 709.9 59,622 -1,141 1,045 75,904 67,354 6 9,591 269.2 22,468 22 1,045 90,918 88,341 -908 14,182 417.6 31,090 554 8,495 1,414,713 835,984 -16,265 134,630 3,318.7 295,449 970 7,975 1,351,077 791,389 -16,129 125,318 3.062.E 274,617 178 Bank affiliates 112 13 14 395 457,963 3,840 12,886 698,686 49,054 235 765 51,840 -213 -31 -114 1,114 531 27 146 5,758 7.3 .4 3.0 117.2 -70 94 266 21,282 -187 -22 -132 68 380 638,463 48,630 1,108 5,583 114.3 20,994 140 METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 267 Table 5.— foreign Direct Investment Position in the United States and Direct Investment Income, by Country of UBO, Foreign Parent, and Each Member of the Foreign Parent Group [Millions of dollars] By country ol UBO Position Income By country ot foreign parent Position Income By country ot each member of the foreign par- ent group Position Income By country of UBO Position Income By counuy ot foreign parent Position Income By country of each member ol the foreign per- ent group Position Income All countries Canada Europe Austria Belgium Denmark Finland France Germany Ireland Italy Liechtenstein Luxembourg Netherlands Norway Spain Sweden Switzerland United Kingdom Other Bosnia and Herzegovina Cyprus Czechoslovakia Gibraltar Greece Hungary Iceland Malta Poland Portugal Romania Russia Serbia Slovenia Turkey Ukraine Latin America and Other Western Hemisphere South and Central America Brazil Mexico Panama Venezuela Other Argentina Bolivia Chile Colombia Costa Rica Ecuador El Salvador French Guiana Guatemala Guyana Honduras Nicaragua Paraguay Peru Suriname Uruguay Other Western Hemisphere Bahamas Bermuda Netherlands Antilles U.K. Islands, Caribbean Other Antigua and Barbuda 430,201 50,624 237,911 695 3,218 45 2,521 30,550 35,912 <°i 4,040 165 779 41,433 46 -18 ( D ) 128 9 38 89 2 10,877 1,457 1,249 822 2,254 ( D ) 370 8 147 10 128 43 6 16 9 5 ( D ) A 431 ( D ) 1,095 554 58 2 133 1,013 3,885 -104 133 -99 -114 -1,093 -107 <°i -740 -79 -41 1,344 -21 37 -104 419 4,528 159 310 83 -10 6 208 23 1 1 2 p] -1 -151 -77 76 ^12 -107 -2 -3 430,201 50,911 246,072 708 2,426 180 2,323 27,605 33,820 1,808 359 163 740 70,347 976 490 7,387 19,305 77,011 423 -4 1 86 46 -32 19,871 7,158 569 1,555 4,078 435 521 349 fl 3 7 1 2 1 2 ( D ) A 12,713 2,038 2,140 4,305 3,988 242 32 133 866 4,159 -84 137 -131 -101 -230 -236 44 -138 -58 -27 565 -a 83 -35 380 4,046 -49 <2 -28 -1 5 <3 -2 1 -8 -6 -1 -631 518 29 63 364 46 15 '<] -21 -1 -1 -1,148 24 -170 -395 -604 -3 -2 430,201 40,894 254,427 678 3,991 436 1,812 24,759 30,895 2,484 1,727 182 643 68,426 1,016 988 6,654 19,810 89,463 463 -4 2 Q 75 81 ( D ) 4 46 -30 22,129 8,258 507 1,424 5,350 407 570 415 r> 24 81 -2 7 1 2 13,871 903 1,207 9,628 1,316 817 32 133 120 4,577 -1 -835 -22 -172 -192 ^194 45 -2 Aruba Barbados Dominican Republic French Islands, Caribbean Grenada Haiti Jamaica St. Kilts and Nevis Trinidad and Tobago United Kingdom Islands, Atlantic Africa South Africa Other Algeria Congo Egypt Ethiopia Gabon Guinea Kenya Liberia Morocco Namibia Nigeria Tanzania Middle East Israel Kuwait Lebanon Saudi Arabia United Arab Emirates Other Bahrain Iran Jordan Oman Qatar Syria Asia and Pacific Australia China Hong Kong Indonesia Japan Korea. Republic of Malaysia New Zealand Philippines Singapore Taiwan Other Afghanistan Brunei French Islands, Pacific India Laos Macau Micronesia Pakistan Papua New Guinea Sri Lanka Thailand United Kingdom Islands, Pacific Vanuatu United States Addenda: European Communities (12) OPEC 1,211 ( D ) ( D ) 26 1,588 3,743 166 4,086 (D i 370 49 10 125 ( D ) 8 ( D ) 114,771 6,545 ( D ) 126 99,224 109 240 ( D ) 236 744 2,323 614 ( D ) 338 ( D ) 17 5 22 216 2 1 3,367 204,363 11.624 2 -2 2 -1 1 -40 -2 -38 4 -8 n -1 -27 -544 -117 -95 -44 -141 -134 -13 4 5 n -4,638 -574 P) -194 -54 -3.226 -270 -5 -75 -1 -29 -109 ( D ) 1 -18 -« o -2 -55 ( D ) :9s 3.898 -223 P) 6 943 543 23 (•) 879 ( D i 5,708 1,369 1,650 10 2.398 142 139 58 55 ( D ) 106,696 6,698 186 808 36 96,764 67 3 219 53 723 960 177 6 o 17 5 17 124 ( D ) 1 -56 Q -56 -4 -39 -210 -110 -36 -1 -30 -31 -2 4 P) A -4,016 -413 -4 -69 -42 -3.071 -268 -6 -61 -7 -29 -23 -32 1 -18 H 390 2 1 A 1 1 1,192 -16 1.208 Q 27 A 1,163 17 12 n 5,016 1.396 1.640 10 P) 124 82 -1 46 l D ) P) 3 106,543 6,120 201 1,135 37 95,969 304 68 209 54 1,153 1,057 238 P) 20 5 3 -2 17 n 176 2 7 P) 24 A o -49 O -48 -8 -31 PJ i -268 -110 -29 -1 -95 -31 -1 4 ( D ) -1 ( D ) (•) -3,974 -508 -4 -55 -42 -2,968 -255 -6 -66 -7 -18 -22 -33 I'i -17 C] -12 -4 214,841 4.699 4,077 -103 223.863 3.922 4.736 -162 Note.— See "Notes to the Tables." 268 BEA STUDIES OF DIRECT INVESTMENT Table 6.— Selected Financial and Operating Data of U.S. Affiliates, by Country and Industry of Foreign Parent Millions of dollars Total assets Gross property, plant, and equipment Sales Net income Employee compensation Thousands of employees (1) (2) (3) (4) (5) (6) 2,998,593 670,914 1,333,867 -20,575 188,541 4.84C 301,144 99,415 123,114 -5,711 22,688 622 1,419,626 360,456 698,133 -«,957 114,975 3.01C 7,477 333 ( D ) ( D ) 198 4 17,095 8,520 13,961 184 1,571 75 6,276 1,758 3,664 -96 1,019 4C 8,834 2,236 ( D ) ( D ) 1,065 2J 259,606 42,162 81,907 -674 12,725 29$ 163,862 53,172 119,741 -844 20,930 51$ < D 1 55,062 2,021 8,460 a ( D ) 2,833 795 li 520 429 207 -32 60 • n 1,877 146,690 ( D ) 526 V 288,344 95,000 -1,681 22,070 60: 54,460 1,382 1,664 4,723 < D i 466 A 2C 45,284 9,264 30,208 -195 5,834 152 144,246 24,918 71,353 -436 13,016 29< 338,078 112,664 196,473 -3,211 33,354 90! 5,557 224 1,212 -53 112 j 172,864 43,984 66,566 190 12,571 31/ 114,773 17,094 26,901 2,392 3,748 8( 5,380 1.756 1,511 27 77 ' 11,447 4,934 33 822 2< 4,926 < D 1 2,632 2,593 268 ( D ) 237 I i ( D ) 82 ( D ) ( D ) ( D ) C 58,091 26,890 39,665 -2,202 8,822 231 3,584 863 1,479 -22 125 ( D ) ( D ) < D i 9,656 ( D ) 2,089 I 13,931 9,464 -487 6! 28,785 11,097 18,144 -1,661 4,370 10J ( D ) ( D ) ( D ) n ( D ) c ( D ) 3,370 ( D ) ( D ) 144 4 1 n 1 3,369 fa A 144 ( i ( D ) 9,595 H ( D ) 814 1/ 6,168 394 fa -69 288 c ( D ) h ( D ) ( D ) 27 13 23 -2 5 222 {D 1 212 g ( D ) n -29 3,522 ( D ) 223 -10 23 1,071,730 154,093 430,766 -7,718 37,350 871 45,696 12,630 21,961 -219 3,853 8< ( D ) ( D ) ( D ) ( D ) 478 G 6,594 ( i 132 468 ( D ) 17 2,225 -57 51 G 976,444 133,084 386,674 -6,778 31,727 73€ 18,055 2,101 10,468 -324 513 11 874 4 86 -8 4 < D i 708 197 1,860 -63 295 i 77 109 -8 20 2,988 1,210 652 -%2 87 i 9,311 1,586 1,853 -52 194 i 2,951 123 533 -36 ( D ) G 1,208,324 321,750 584,563 -5,869 94,308 2.52C 21,602 11,667 15,555 19 796 22 13,857 11,725 11,735 33 627 14 27,433 17,698 21,043 -33 3,481 138 67,744 64,036 55,135 75 4,167 68 2,100 1,153 3,221 -67 371 10 22,371 18,814 15,132 -619 2,788 57 17,763 10,252 13,440 -1,275 2,997 67 402,187 191,945 427,130 -3,603 72,637 1,626 29,971 13,997 19,351 -2,786 5,260 128 83,886 27,788 204,954 -1,942 12,387 529 1,296,990 12,358 131,422 -171 7,588 135 936,524 229,882 397,420 -5,735 66,859 1,730 64,890 53,660 11,777 -3,564 1,334 46 32,878 17,606 22,106 -888 8,045 287 All countries, all industries By country Canada Europe Austria Belgium Denmark Finland France Germany Ireland Italy Liechtenstein Luxembourg Netherlands Norway Spain Sweden Switzerland United Kingdom Other Latin America and Other Western Hemisphere South and Central America Brazil Mexico Panama Venezuela Other Other Western Hemisphere Bahamas Bermuda Netherlands Antilles U.K. Islands, Caribbean Other Africa South Africa Other Middle East Israel Kuwait Lebanon Saudi Arabia United Arab Emirates Other Asia and Pacific Australia China Hong Kong Indonesia Japan Korea, Republic of Malaysia New Zealand Philippines Singapore Taiwan Other Addenda: European Communities (12) OPEC By industry Government and government-related entites Individuals, estates, and trusts Petroleum Agriculture Mining Construction Manufacturing Transportation, communication, and public utilities Wholesale and retail trade Depository institutions Other finance and insurance Real estate Services Note.— See "Notes to the Tables." METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 269 Industry classification Each U.S. affiliate was classified by industry on the basis of its sales (or of its total income, for holding companies) in a three-step proce- dure. First, a given U.S. affiliate was classified in the major industry group that accounted for the largest percentage of its sales. 8 Second, within the major industry group, the U.S. affiliate was classified in the two-digit in- dustry in which its sales were largest; a two-digit industry was defined to consist of all three-digit subindustries that have the same first two digits in their three-digit code. Third, within its two- digit industry, the U.S. affiliate was classified in the three-digit subindustry in which its sales were largest. This procedure ensured that the U.S. affiliate was not assigned to either a three-digit subindustry outside either its major industry or its two-digit industry. 9 A list and a description of the codes used by bea to classify the data from the 1992 benchmark survey are found in the Guide to Industry and Foreign Trade Classifications for International Sur- veys (see appendix B). These classifications are adapted from those in the Standard Industrial Classification Manual 1987. The direct investment data are collected at the enterprise level, and each enterprise is classified in a single industry on the basis of its major activity. In contrast, the Stan- dard Industrial Classification (sic) is designed for classifying individual establishments (or plants) within an enterprise. Because many direct invest- ment enterprises are active in several industries, it is not meaningful to classify all their data in a single industry if that industry is defined too narrowly. Accordingly, bea has limited the de- 8. The major industry groups used were agriculture, forestry and fishing; mining; petroleum; construction; manufacturing; transportation, communi- cation, and public utilities; wholesale trade; retail trade; finance, insurance, and real estate; and services. 9. The following example illustrates the three-stage classification procedure. Suppose an affiliate's sales were distributed as follows: Industry code 351 352 353 367 , 508 Sales (Percentages of total) 15 I 25 45 where industry codes 351, 352, 353, and 367 are in manufacturing and code 508 is in wholesale trade. Because 55 percent of the affiliate's sales were in man- ufacturing and only 45 percent were in wholesale trade, the affiliate's major industry is manufacturing. Because 30 percent of its sales within manufactur- ing are in two-digit industry 35 (nonelectrical machinery) — that is, the sum of the percentages in 351, 352, and 353 is 30 percent — and 25 percent are in two-digit industry 36 (electrical machinery), the affiliate's two-digit industry is 35. Finally, because its sales within industry 35 were largest in subindustry 353, the affiliate's three-digit subindustry is 353. Thus, because of the three- stage classification procedure, the affiliate was assigned to subindustry 353, even though its sales in that subindustry were smaller than its sales in either subindustries 508 or 367. tail in which it classifies U.S. affiliates by industry to a total of about 135 industries. More detailed establishment-level data are available from the BEA-Census Bureau link project described ear- lier; these data are classified by industry at the four-digit sic level. To conform to the sic, petroleum is not listed as a major industry group in the Guide. In- stead, the three-digit subindustries within petro- leum are spread among the other major indus- tries: Crude petroleum extraction is in mining, petroleum refining is in manufacturing, gasoline service stations are in retail trade, and so on. However, for direct investment classification and publication purposes, these various subindustries are grouped together in the major industry group petroleum. Beginning with the 1992 benchmark survey and reflecting a change in the 1987 sic, savings institutions and credit unions are included in the industry "depository institutions," which also includes banks. Thus, the data for savings insti- tutions and credit unions appear in the tables for "bank affiliates" rather than in those for "non- bank affiliates." Previously, these entities were classified as "nonbank affiliates," in the industry "finance, except banking." Table A-i presents selected financial and oper- ating data for U.S. affiliates classified by industry of affiliate; each three-digit subindustry is shown separately and is grouped by the major industry to which it belongs. Primarily because of confi- dentiality requirements, many of these three-digit subindustries are not shown in the other tables in this publication. However, each industry in- cluded but not identified in an industry group shown in the other tables may be ascertained by referring to table A-i. Each U.S. affiliate was classified in a single in- dustry, even though many affiliates had activities in more than one industry. As a result, the dis- tribution of data by industry of affiliate differs from the distribution that would result if each of the affiliates' activities were classified by in- dustry. Classification by activity was obtained in the benchmark survey for two key items — sales and employment. Each U.S. affiliate was re- quired to distribute its sales and its employment among the three-digit subindustries in which it had sales. 10 In table A-8 of part II, nonbank 10. Specifically, large U.S. affiliates (those with total assets, sales, or net income greater than $50 million) had to specify their sales and employ- ment in the eight industries in which their sales were largest; other affiliates had to specify their sales and employment in the three industries in which their sales were largest. Unspecified sales and employment are shown in the "unspecified" row or column in tables A-8, E-7 to E-9, and G-10 to G-12. 2yo BEA STUDIES OF DIRECT INVESTMENT U.S. affiliates' sales and employment by indus- try of sales are compared with their sales and employment by industry of affiliate. (Data by industry of sales cross- classified by industry of affiliate are shown in table E-7 for sales and ta- ble G-10 for employment.) Because an affiliate that has an establishment in an industry usually also has sales in that industry, the distribution of affiliate data by industry of sales roughly ap- proximates the distribution that would result if the data were reported and classified by industry of establishment. However, if two establishments of an affiliate are in different industries and one of the establishments provides all of its output to the other one, the affiliate will not have sales in the industry of the first establishment. (For ex- ample, if an affiliate operates both a metal mine and a metal manufacturing plant and if the entire output of the mine is used by the manufacturing plant, all of the affiliate's sales will be in metal manufacturing, and none will be in metal min- ing. When the mining employees are distributed by industry of sales, they are classified in manu- facturing. In contrast, when they are distributed by industry of establishment, they are classified in mining.) The ubo and foreign parent of each affiliate were also classified by industry, but the categories used were much less detailed than those used for affiliates. In the benchmark survey, an af- filiate had to assign its parent and ubo to 1 of 28 broad categories. 11 Beginning with the 1992 benchmark survey, ubOs in manufacturing are classified into 12 manufacturing subindustries; in the surveys for previous years this breakdown was not obtained. A distribution of sales by industry was not ob- tained for ubo's or foreign parents. For affiliates that had more than one ubo or foreign parent, each ubo or foreign parent was classified. In the tables that show data disaggregated by industry of ubo or foreign parent, all data for these af- filiates are shown in the industry of the ubo or foreign parent with the largest ownership share. The industry classification of a foreign parent may differ from that of a ubo. The foreign par- ent consists only of the first foreign person in the affiliate's ownership chain, and its industry of classification reflects only the activities of that first foreign person. In contrast, the ubo's in- dustry reflects its fully consolidated worldwide activities, including the activities of both U.S. and foreign entities in the ownership chain below it. Country classification In the benchmark survey, the ubo and the for- eign parent of a U.S. affiliate were each classified by country. For affiliates that had more than one ubo or foreign parent, each ubo or foreign parent was classified; for most of the tables in this pub- lication, the data for a given affiliate were then classified by the country of the ubo or the for- eign parent that had the largest ownership share in the affiliate. Table A-2 presents selected financial and op- erating data by country of ubo; by geographic area, it shows each country in which a ubo was located in 1992. (A table A-2 is presented for all affiliates, for nonbank affiliates, and for bank af- filiates.) Table 5 in this methodology shows data for all affiliates on the direct investment position and on direct investment income by each country in which a ubo was located. Primarily because of confidentiality requirements, many countries could not be shown in the other tables in this publication. However, each country included but not identified in a geographic group shown in the other tables may be ascertained by referring to table A-2 or table 5. Only three tables — tables 5 and 6 in this methodology and table A-7 in part II — show data by country of foreign parent. Table 5 shows the direct investment position and direct invest- ment income by country of foreign parent and by country of each member of the foreign parent group, in addition to by country of ubo. Table 6 shows selected financial and operating data for all affiliates, classified by country of foreign par- ent. Table A-7 compares a few key data items classified by country of ubo and by country of foreign parent for nonbank affiliates. The data by country of foreign parent in tables A-7 and 6 are comparable with the data classified by coun- try of foreign parent in the 1987, 1980, and 1974 benchmark survey publications. 12 Estimation and General Validity of the Data Nonbank affiliates with total assets, sales, or net income greater than $1 million were required to report in the benchmark survey. Depending on 11. See the list at the bottom of page 13 of the benchmark survey form be-i2(lf), in appendix A. 12. See Foreign Direct Investment in the United States: 1987 Benchmark Survey, Final Results; Foreign Direct Investment in the United States, 1980; and Foreign Direct Investment in the United States, Volume 2: Report of the Sec- retary of Commerce: Benchmark Survey, 1974. (Summary data from the 1980 benchmark survey were subsequently republished, with minor corrections, in Foreign Direct Investment in the United States: Operations of U.S. Affiliates, 1977-80, but that publication does not contain data classified by country of foreign parent.) METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 271 their size, they had to report on either a long form or a short form. 13 For the affiliates that reported on the short form, bea estimated the items that appeared only on the long form to present financial and operating data in the same detail for all nonbank affiliates. Estimates were also made for some affiliates that failed to report in the benchmark survey but for which data could be obtained from other surveys. The long form (be-12(lf)) — which was filed by nonbank affiliates with total assets, sales, or net income (or loss) greater than $50 million — collected detailed data. The short form (be- i2(sf)) — which was filed by nonbank affiliates with total assets, sales, and net income (or loss) of $50 million or less — collected most balance of payments data items but only selected fi- nancial and operating data items. For a given short-form affiliate, long-form items were gen- erally estimated based on relationships among data items for the most comparable panel of long-form affiliates that could be constructed; specifically, the panel comprised affiliates that had total assets of between $50 million and $250 million and that were in the same indus- try group as the affiliate whose data were being estimated. A total of 8,442 nonbank affiliates filed short forms (table 7). Although these affiliates ac- counted for 70 percent of all nonbank affiliates, 13. These two forms are reprinted in appendix A. Bank affiliates reported on a third form (be-u Bank). Table 7.— Selected Data for U.S. Affiliates That Filed Re- ports Compared With U.S. Affiliates for Which Reports Were Estimated Num- ber of affili- ates Millions of dollars Thou- sands of employ- ees Total assets Sales Affiliates that were required to file a re- port Banks Nonbanks Nonbank affiliates that actually filed reports 12,672 534 12,138 11,376 2,934 8,442 762 2,998,593 1,173,375 1,825,219 1,804,328 1,730,151 74,177 20,890 1,333,867 101,895 1,231,972 1,217,405 1,161,894 55,512 14,567 4,843.3 127.9 4,715.4 4,639.6 Affiliates that filed long forms .... Affiliates that filed short forms Nonbank affiliates that failed to file reports and for which reports were estimated 4,324.6 315.1 75.8 Percent Addenda: Nonbank affiliates that filed short forms as a percent of all nonbank affiliates Nonbank affiliates that failed to file re- ports and for which reports were esti- mated as a percent of all nonbank affiliates 69.6 6.3 4.1 1.1 4.5 1.2 6.7 1.6 Note.— No reports were estimated lor bank affiliates. they accounted for only a small portion of the nonbank universe in terms of value — 4 percent of total assets, 5 percent of sales, and 7 percent of employment. The" largest number of short- form affiliates were in real estate, and their shares of the uni- verse in this industry in terms of value were disproportionately high. In real estate, short- form affiliates accounted for 20 percent of total assets, 19 percent of sales, and 14 percent of employment. bea also made estimates of the data for some nonbank affiliates that did not file a benchmark survey report even though they met the cri- teria for filing. For the 762 affiliates covered by these estimates, bea had a report in an- other direct investment survey that could serve as a basis for the estimation. These affili- ates, most of which were small, accounted for only a minor portion of the nonbank uni- verse in terms of value — 1 percent of assets and sales and 2 percent of employment (table 7). The estimation of data for these affiliates en- sured that the 1992 data were as complete as possible. All data reported by U.S. affiliates had to pass a number of computerized edit checks. Where possible, the data for an affiliate were reviewed for their consistency with related data for the affiliate from other parts of the report form, with data provided in related report forms, with comparable data reported by other affil- iates, and with comparable data from outside sources. As a result of this edit and review process, a number of changes to the reported data were made, usually after consulting with the reporting affiliate. In some cases, usu- ally involving small affiliates, estimates based on industry averages or other information were substituted for missing or erroneously reported data. For some items — such as those pertaining to trade by product and country of origin or des- tination and employment by industry of sales or by State — affiliates had difficulty in supplying the required information because the data were not easily accessible or were unavailable from their standard accounting records. In these cases, affil- iates often made estimates, the quality of which is difficult to assess. Number of U.S. Affiliates Tables A-i and A-2 in part II show the num- ber of nonbank affiliates that is comparable with 272 BEA STUDIES OF DIRECT INVESTMENT the number shown in previous annual survey- publications; the same tables in part i show the number of all affiliates, both bank affiliates and nonbank affiliates. The data on number of affiliates should be used cautiously because, with the exception of those shown in tables 2 and 3, they exclude very small affiliates that were exempt from filing a benchmark survey report. In addition, some af- filiates that were required to file a report did not do so. Because of limited resources, bea's efforts to ensure compliance with reporting re- quirements focused mainly on large affiliates. As a result, some small affiliates that were not aware of the reporting requirements and that were not on bea's mailing list may not have filed reports. Although the omission of these affiliates from the benchmark survey results probably has not signif- icantly affected the aggregate value of the various data items collected, it could have caused an un- known, but possibly significant, understatement of the number of affiliates. Even an exact count of U.S. affiliates would be difficult to interpret because each report cov- ers a fully consolidated U.S. business enterprise, which may consist of several companies. The number of fully consolidated enterprises varies according to the degree of consolidation used and the differences in the organizational structure of the company. This publication gives, in addition to the number of affiliates, the number of com- panies consolidated in the affiliates' reports (see tables A-i and A-2). Because the report for one affiliate may cover many companies, the number of companies consolidated is substantially higher than the number of affiliates — 39,882 compared with 12,672. For nonbank affiliates, the compa- rable figures are 38,646 and 12,138. Establishment data for 1991 — the most recent year for which such data are available, indicate that the number of establishments of U.S. affiliates is, as would be expected, higher than either the number of affiliates or the number of companies consoli- dated. In 1991, there were 12,741 manufacturing establishments, compared with 2,563 manufac- turing affiliates consisting of 9,330 consolidated companies. 14 This publication includes the number of non- bank affiliates by State in the following three categories: Affiliates with either employment or property, plant, and equipment (table A-9); affil- iates with employment (table G-18); and affiliates 14. See Bureau of Economic Analysis and Bureau of the Census, Foreign Direct Investment in the United States: Establishment Data for Manufacturing, 1991 (Washington, dc: U.S. Government Printing Office, 1994). with property, plant, and equipment (tables D- 20 and D-21). The number for a given State may differ among these tables because some affiliates have both employment and property, plant, and equipment in the State, some have only employ- ment, and some have only property, plant, and equipment. In these tables, an affiliate is counted even if it only has a few employees in the State and even if the value of its property, plant, and equipment is small. For example, sales offices often account for a substantial portion of the total count for a State. These offices often have fewer than 10 employees and only a nominal amount of property, plant, and equipment. The significance of such small operations in a particular State can be ascer- tained from tables D-20 and G-18, which show the number of affiliates with property, plant, and equipment and the number with employment, each disaggregated by size. Financial and Operating Data Financial and operating data focus on the over- all operations of U.S. affiliates. Among the items covered by these data are the following: Balance sheets and income statements; gross product; sales of goods and services; external financial position; taxes; property, plant, and equipment; employment and employee compensation; U.S. merchandise trade; research and development activities; and U.S. land owned and leased by affiliates. Only a few of these items were ob- tained for bank affiliates; consequently, most of the tables that present financial and operating data cover nonbank U.S. affiliates only. Financial and operating data for bank affiliates are shown in tables 4 and 7 of this methodology, in table A-i in part 1, and in all of the tables in part III. The financial and operating data for U.S. af- filiates are not adjusted for the ownership share of the foreign direct investors. Thus, for exam- ple, the employment data include all employees of each affiliate, including affiliates in which the foreign investor's ownership share is less than 100 percent. To help address issues for which control is relevant, a few tables — those in group J — that cover only those nonbank U.S. affiliates that are majority-owned by foreign direct investors have been included in this publication. Most of the concepts and definitions used in reporting the financial and operating data can be found on the BE-12 forms or in the Instruction Booklet to the forms in appendix A. The following discussion focuses on the concepts, definitions, METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 273 and statistical issues that require further explana- tion or that are not covered in either the forms or the Instruction Booklet. Balance sheets and income statements U.S. affiliates' balance sheets and income state- ments are required to be filed according to U.S. generally accepted accounting principles (gaap), and any major changes in gaap will affect the affiliate data. As a result of recent changes in gaap regarding deferred income taxes and post- retirement benefits, affiliates have made large one-time adjustments to their earnings; these ad- justments substantially reduced their net income in 1992 from what it otherwise would have been. For most affiliates, the income statement in- cludes all types of income, both ordinary and extraordinary. However, for some affiliates, such as those in insurance, gaap requires certain un- realized gains and losses to be carried directly to owners' equity in the balance sheet rather than to be recorded on the income statement. Under gaap, depreciation and depletion charges are used to distribute the cost of an as- set over that asset's estimated useful life. For example, affiliates engaged in extracting natural resources report net income after the deduction of book depletion — that is, those expenses repre- senting the periodic chargeoff of the actual cost of natural resources. Tax or percentage depletion is not deducted. Gross product Gross product is an economic accounting meas- ure of the production of goods and services. A U.S. affiliate's gross product measures the value added by the affiliate and, thus, its contribution to U.S. gross domestic product (gdp). For a U.S. affiliate, as for any firm, gross prod- uct can be measured as its gross output (sales or receipts and other operating income, plus inventory change) less its intermediate inputs (purchased goods and services). Alternatively, it can be measured as the sum of costs incurred (ex- cept for intermediate inputs), and profits earned, in production. The costs fall into four major categories: Employee compensation, net interest paid, indirect business taxes, and the capital con- sumption allowance. 15 The estimates presented in this publication were calculated as the sum of costs and profits. Estimates of affiliate gross product are generally preferred to sales or other measures used to assess the economic impact of affiliates on the entire U.S. economy as well as on individual industries. Gross product permits more focused analysis of the impact of affiliates because it measures only the affiliates' own production, whereas sales do not distinguish between the affiliates' own pro- duction and production originating elsewhere. In addition, gross product estimates measure the value added to the economy by affiliates during a specific period. In contrast, some of the sales in a given period may represent production from earlier periods. Sales of goods and services For nonbank affiliates, the 1992 benchmark sur- vey collected affiliates' sales (or gross operating revenues) disaggregated into goods, services, and investment income. Services were further dis- aggregated into sales to U.S. persons, sales to members of the foreign parent group, sales to foreign affiliates, and sales to other foreigners. For purposes of distributing sales into goods, services, and investment income, "services" are defined as activities characteristic of the following industries: The "services" division of the Stan- dard Industrial Classification and bea's Inter- national Surveys Industry Classification system; petroleum services; finance (except banking); insurance; real estate; agricultural services; min- ing services; and transportation, communication, and public utilities. An affiliate need not be clas- sified in one of these industries to have sales of services. Information on investment income was col- lected primarily to ensure that, if factor income was included in total sales (or gross operating revenues), it would not be included in sales of services. In finance and insurance, affiliates in- clude investment income in sales because it is generated by a primary activity of the affiliate. In most other industries, affiliates consider invest- ment income an incidental revenue source and 15. In the U.S. national income and product accounts (nipa's), two measures of depreciation, or capital consumption, are used — the capital consumption allowance and consumption of fixed capital. The capital con- sumption allowance (cca) consists of depreciation charges, which are based largely on tax returns, and allowances for accidental damage to fixed capital. Consumption of fixed capital consists of cca plus an adjustment to place de- preciation on an economic basis that uses economic service lives, straight-line depreciation, and replacement-cost valuation. For U.S. affiliates, the only measure of capital consumption available from bea's survey data is the book value of depreciation, reported on a basis con- sistent with gaap. Because this measure does not provide for replacement-cost valuation, it is termed the "capital consumption allowance" in this publication (see table F-i), although it reflects some of the adjustments that determine the difference between the nipa measures of cca and consumption of fixed capital. The basis used to measure depreciation has no effect on the value of total gross product; any differences between the measures of depreciation, which is a cost of production, have equal and offsetting effects on the profit-type- return component. 274 BEA STUDIES OF DIRECT INVESTMENT include it in the income statement in an "other income" category rather than in sales. Employment and employee compensation In the benchmark survey, affiliates were requested to report employment as the number of full-time and part-time employees on the payroll at the end of fiscal year 1992. However, a count taken during the year was accepted if it was a reasonable proxy for the end-of-year number. In addition, if employment at the end of the year was un- usually high or low because of temporary factors, such as seasonal variations or a strike, a number reflecting normal operations was requested. Employment is classified both by industry of affiliate and by industry of sales. The classifica- tion by industry of sales is based on information supplied by each affiliate on employment in the three-digit industries in which it had sales. Data on employment, employee compensation, and wages and salaries covering affiliates' total U.S. operations were collected. For nonbank af- filiates, data on their total employment and on their manufacturing employment were also col- lected by State. Manufacturing employees in a given State comprise employees on the payroll of manufacturing plants in the State and employ- ees in central administrative offices and auxiliary units that primarily serve these plants. These data are shown in table G-13. For manufacturing, three measures of employ- ment are available from the benchmark survey. The totals of employment under the three meas- ures differ. Employment by manufacturing affil- iates (tables G-i, G-3 to G-5, G-7, and G-10) consists of employment by affiliates classified in manufacturing. It includes all employees of affil- iates whose primary industry is manufacturing, even though the affiliates may have activities, and thus employees, in other industries; it excludes manufacturing employees of affiliates not classi- fied in manufacturing. Nonbank affiliates' man- ufacturing employment (table G-13) consists of employees on the payroll of manufacturing plants of nonbank affiliates. It includes employees of manufacturing plants of nonbank affiliates that are not classified in manufacturing, and it ex- cludes employees of nonmanufacturing plants of affiliates that are classified in manufacturing. For comparability with all-U.S. data, this measure is defined to include petroleum refining employees. (These employees are excluded from "employ- ment by manufacturing affiliates" because, under that measure, they are considered employees of affiliates classified in petroleum, not manufactur- ing). Manufacturing employment when employees are disaggregated by industry of sales (tables G- 10 to G-12) consists of employment of affiliates in each three-digit manufacturing industry in which they had sales. Unlike nonbank affiliates' manufacturing employment, it may include some nonmanufacturing employees, 16 but it excludes petroleum refining employees. The manufacturing employment data in table G-13 give a better indication of the number of manufacturing employees in a State than the data in table G-7, which shows affiliate employment in each State classified by industry of affiliate. The manufacturing employees shown in table G-13 are those actually engaged in manufacturing in the State regardless of the industry classification of the affiliate. In table G-7, in contrast, all em- ployees of a U.S. affiliate in the State are shown in the single industry in which, based on its total U.S. operations, the affiliate is classified, even if some of the employees are in other industries. Although the data on employment and em- ployee compensation from the benchmark survey can be used to compute compensation per em- ployee and wages and salaries per employee, the rates so computed may not accurately reflect the compensation rates normally paid by affiliates (and, thus, are not shown in this publication). The computed rates may be distorted by the inclusion of part-time employment, because a part-time employee is counted the same as a full- time employee, or by data covering only part of the year — for example, data for an affiliate that was newly established during the year. 17 Property, plant, and equipment In the benchmark survey, U.S. affiliates were re- quired to disaggregate the gross book value of their property, plant, and equipment (ppe) by use, both for their total U.S. operations and for their operations in each State. A breakdown was obtained for three broad categories — ppe used for manufacturing, for commercial property, and for all other purposes. Manufacturing ppe consists of ppe used primarily for manufacturing, includ- ing petroleum refining. Commercial property consists of the gross book value of all commer- 16. See the discussion of affiliate sales and employment classified by industry of sales in the section "Industry classification." 17. Employee compensation rates are better measured by hourly wage rates, which do not suffer from these shortcomings and which are available from the BEA-Census Bureau link data (see footnote 3). 18. Manufacturing ppe differs conceptually from the ppe of affiliates clas- sified in manufacturing, because the ppe of manufacturing affiliates includes the nonmanufacturing ppe associated with their secondary, nonmanufac- turing activities and excludes manufacturing ppe of affiliates classified in nonmanufacturing industries. METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 275 cial buildings and associated land owned by the affiliate. Commercial buildings include apart- ment buildings, office buildings, hotels, motels, and buildings used for wholesale, retail, and services trades (such as shopping centers, recre- ational facilities, department stores, bank build- ings, restaurants, public garages, and automobile service stations), ppe used for all other pur- poses includes ppe used for agriculture; mining; petroleum and natural gas extraction; transporta- tion, communication, and public utilities; and equipment used in commercial buildings. U.S. merchandise trade The concepts and definitions underlying the data collected in the benchmark survey on U.S. merchandise trade of U.S. affiliates are nearly identical to those used for the data on total U.S. merchandise trade compiled by the Census Bu- reau. The trade data were particularly difficult for affiliates to report, but bea's review of the reported data indicates that most of the data conform well to Census Bureau concepts and definitions. However, because of certain reporting prob- lems, the affiliate trade data are not completely comparable with the Census Bureau trade data. In the benchmark survey, U.S. merchandise trade data had to be reported on a "shipped" basis — that is, on the basis of when, where, and to (or by) whom the goods were shipped — in or- der for them to be comparable with official U.S. trade data. However, most affiliates keep their books on a "charged" basis — that is, on the ba- sis of when, where, and to (or by) whom the goods were charged. Although the two bases are usually the same, differences between them can be substantial. For example, if a U.S. affiliate buys goods from country A and sells them to country B and if the goods are shipped directly from country A to country B, the affiliate's books would show a purchase from country A and a sale to country B. If the affiliate's trade data were reported on a charged basis, the purchase and sale would have appeared as a U.S. import and U.S. export, respectively. However, the goods never entered or left the United States, and on a shipped basis, they are not included in either U.S. imports or U.S. exports. On the basis of its review, bea believes most affiliates reported on a shipped, rather than on a charged, basis. However, some affiliates had dif- ficulty obtaining data on a shipped basis, which usually required using shipping department in- voices rather than accounting records. If bea determined that the data were reported on a charged basis and that these data were likely to differ materially from data reported on a shipped basis, it required revised reports to be filed. How- ever, some cases of erroneous reporting were probably not identified. In addition, data on trade by U.S. affiliates col- lected by bea are on a fiscal year basis, whereas those on total U.S. merchandise trade collected by the Census Bureau are on a calendar year ba- sis. This difference could be a significant source of noncomparability between the two sets of data, but the degree of such noncomparability is unknown. Additional differences between the bea trade data and those of the Census Bureau may have resulted simply because the data come from different sources: The bea data are based on company records, whereas those of the Census Bureau are compiled from export and import documents filed by the shipper with the U.S. Customs Service on individual transactions. The timing, valuation, origin or destination, shipper, and product involved in a given export or import transaction may be recorded differently on com- pany records than on customs export and import documents. In the 1992 benchmark survey, as in the 1980 benchmark survey, imports shipped to affiliates were disaggregated by intended use into three categories: Capital equipment, goods for resale without further manufacture, and goods for fur- ther manufacture. However, in the 1987 bench- mark survey, capital equipment and goods for further manufacture were grouped in "other." In the future, data on goods for further manufacture will be collected annually. Research and development The 1992 benchmark survey collected data on two technology- related items — research and de- velopment (r&d) expenditures and the number of employees engaged in R&D-related activities. The data on r&d expenditures were collected on two bases: r&d funded by the affiliate (whether the r&d was performed internally or by others) and r&d performed by the affiliate (whether the r&d was for its own use or for use by others). The first basis views r&d from the perspective of costs of production and can be used as an indicator of affiliates' use of tech- nology. It is consistent with guidelines of the Financial Accounting Standards Board for ac- counting for the costs of r&d, and it is the only r&d measure collected on recent benchmark sur- 276 BEA STUDIES OF DIRECT INVESTMENT veys and on the annual surveys. The performance measure can be used to gauge the technological capabilities of affiliates, r&d data on this basis have been collected for U.S. affiliates only once before, on the benchmark survey for 1974. Data on the number of employees associated with research and development activities were last collected in the 1980 benchmark survey. However, they will now be collected annually, beginning with the survey for 1993. Direct Investment Position and Balance of Payments Data Direct investment position and direct investment balance of payments data measure the U.S. affil- iate's transactions and positions with its foreign parent and other members of its foreign parent group. In contrast, affiliate financial and oper- ating data provide measures of the U.S affiliate's overall operations, including its transactions and positions with persons other than members of its foreign parent group. For example, the di- rect investment position in an affiliate is equal to its foreign parent group's equity in, and net outstanding loans to, its U.S. affiliate; a U.S. af- filiate's total assets, in contrast, are equal to the sum of (1) total owners' equity in the affiliate held both by members of the foreign parent group and by all other persons and (2) total liabilities owed by the affiliate both to members of the foreign parent group and to all other persons. 19 In the benchmark survey, data for the position and balance of payments items were obtained in parts III and IV of the long form and in part III of the short form (see appendix A). For foreign direct investment in the United States, the fol- lowing major items appear in the U.S. balance of payments accounts: • Direct investment capital flows, • Direct investment income, • Direct investment royalties and license fees, and • Other direct investment services. Two adjustments are made to the balance of payments data before the data are entered into the U.S. international accounts. First, two of these items — income and capital flows — are adjusted to reflect current-period prices. 20 Second, the data from the benchmark survey are adjusted from a fiscal year basis to a calen- dar year basis. As discussed in the section on fiscal year reporting, the direct investment posi- tion and balance of payments data collected in the 1992 benchmark survey are on a fiscal year basis. Thus, before the data are incorporated into the U.S. balance of payments accounts and the annual series on the position, which are on a cal- endar year basis, they must be adjusted from a fiscal year basis to a calendar year basis. The adjusted data for 1992 will be extrapolated forward to derive universe estimates for calendar years after 1992, based on sample data collected in bea's quarterly surveys for those years. In ad- dition, the benchmark survey data will be used in revising previously published data for 1988-91, to incorporate information affecting those years that was obtained in the 1992 benchmark sur- vey (for example, foreign direct investments that were made between 1988 and 1991 but that were not known by, or reported to, bea until the 1992 benchmark survey). Foreign direct investment position in the United States The foreign direct investment position in the United States at historical cost is equal to the net book value of the foreign parent groups' equity in, and net outstanding loans to, their U.S. affil- iates. The position may be viewed as the foreign parent groups' contributions to the total assets of their U.S. affiliates or as financing provided in the form of equity or debt by foreign parent groups to U.S. affiliates. The direct investment position data presented in this publication are valued at historical cost and are not adjusted to current value. Thus, they largely reflect prices at the time of investment rather than prices of the current period. Because historical cost is the basis used for valuation in company accounting records in the United States, it is the only basis on which companies can report data in bea's direct investment surveys. It is also the only basis on which detailed estimates of the 19. To illustrate, suppose that an affiliate is owned 80 percent by its foreign parent and that the affiliate has total owners' equity of $50 million and total liabilities of $100 million, of which $20 million is owed to the parent. In this case, the affiliate's total assets would be $150 million (total owners' equity of S50 million plus total liabilities of $100 million), and the parents' position in the affiliate would be $60 million (80 percent of the $50 million of owners' equity plus the S20 million of intercompany debt). 20. The adjustments are made only at the global level; the data required to make them for countries and industries are not available. The adjustments are accomplished in three steps. First, a capital consumption adjustment is made to convert depreciation charges from a historical-cost basis to a current- (or replacement-) cost basis. Second, earn- ings are raised by the amount of charges for the depletion of natural resources, because these charges are not treated as production costs in the nipa's. Third, expenses for mineral exploration and development are reallocated across pe- riods to ensure that they are written off over their economic lives rather than all at once. METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES *77 position are available by country, by industry, and by account. However, bea does provide aggregate estimates of the position valued in current-period prices. 21 Direct equity positions in U.S. affiliates are, by definition, held only by foreign parents. For- eign parents may also have direct debt positions with U.S. affiliates. In contrast, other members of the foreign parent groups can have only direct debt — not equity — positions in affiliates. (Any equity transactions between affiliates and nonpar- ent members of their foreign parent groups are recorded as portfolio investment rather than as direct investment.) Foreign parents' equity in incorporated affili- ates can be broken down into foreign parents' holdings of capital stock in, and other capital contributions to, their U.S. affiliates and foreign parents' equity in the retained earnings of their U.S. affiliates. Capital stock includes all the stock of the affiliates, whether the stock is common or preferred stock or voting or nonvoting stock. Other capital contributions by foreign parents, also referred to as the "foreign parents' equity in additional paid-in capital," consist of capital, invested or contributed, that is not included in capital stock, such as the amount paid for stock in excess of its par or stated value, the capital- ization of intercompany accounts (conversions of debt to equity) that do not result in the issuance of capital stock, and donations. Foreign parents' equity in retained earnings is the foreign parents' shares of the cumulative undistributed earnings of their incorporated U.S. affiliates. Although some unincorporated affiliates could not disaggregate owners' equity by type, the data on foreign parents' equity in affiliates by type cover both incorporated and unincorpo- rated affiliates. For unincorporated affiliates for which no breakdown of owners' equity by type was available, parents' total equity was included in "other" equity. The foreign parents' share in total owners' equity (not broken down by type) is shown for incorporated affiliates and for unincorporated affiliates in addenda to the tables. Foreign parent groups' net outstanding loans to their U.S. affiliates, also referred to as "U.S. affiliates' net intercompany debt payables," con- sist of trade accounts and trade notes payable, 21. In May 1991, bea published, for the first time, position estimates meas- ured at current cost and at market value for foreign direct investment in the United States (and for U.S. direct investment abroad) for 1982-89. These estimates are updated each June in an article on the U.S. international in- vestment position in the Survey of Current Business. For a discussion of concepts and estimating procedures, see J. Steven Landefeld and Ann M. Law- son, "Valuation of the U.S. Net International Investment Position," Survey 71 (May 1991): 40-49. other current liabilities, and long-term debt owed by the affiliates to their foreign parents or other members of their foreign parent groups, net of similar items due to the affiliates from their for- eign parents or other members of their foreign parent groups. Intercompany debt includes the value of cap- ital leases and of operating leases of more than 1 year between U.S. affiliates and their foreign parent groups. The value of property so leased to a U.S. affiliate by its foreign parent group is included in affiliates' payables, and the value of property leased by a U.S. affiliate to the foreign parent group is included in affiliates' receivables. Under a capital lease, it is anticipated that ti- tle to the leased property will be transferred to the lessee at the termination of the lease — similar to an installment sale. Operating leases have a term significantly shorter than the expected use- ful life of the tangible property being leased, and the leased property is usually returned to the lessor at the termination of the lease. For capital leases, the value of the leased property is calcu- lated according to gaap; under gaap, the lessee records either the present value of the future lease payments or the fair market value, whichever is lower, and the lessor records the sum of all future lease receipts. For operating leases of more than 1 year, the value is the original cost of the leased property less accumulated depreciation. For U.S. affiliates that are depository institu- tions, the direct investment position is defined to include only their foreign parent groups' per- manent equity and debt investment in them; similarly, the direct investment flows that en- ter the U.S. balance of payments accounts for these affiliates include only transactions related to such permanent investment. All other transac- tions and positions — mainly claims and liabilities arising from the parents' and affiliates' normal banking business — are excluded from the direct investment accounts and included with other banking claims and liabilities in the portfolio investment accounts. A foreign parent and its U.S. affiliate may have a two-way relationship — each may have debt and equity investment in the other. Thus, a foreign parent may have investment in a U.S. affiliate that, in turn, has investment in the parent as a result of the affiliate's lending funds to, or acquir- ing voting securities or other equity interest in, the parent. In addition, the other members of the foreign parent group and a U.S. affiliate each may have debt investment in the other. In the intercompany debt portion of the position, affili- 278 BEA STUDIES OF DIRECT INVESTMENT ates' receivables from their foreign parent groups (reverse debt investment) are netted against af- filiates' payables to their foreign parent groups. 22 Reverse equity investment by U.S. affiliates in their foreign parents is included in the U.S. port- folio investment position abroad if the affiliate's ownership is less than 10 percent or in the U.S. direct investment position abroad if the affiliate's ownership in its foreign parent is 10 percent or more. 23 The direct investment position at the end of the year is equal to the position at the end of the pre- vious year plus the change in the position during the year. The change during the year is the sum of direct investment capital flows (defined below) and valuation adjustments. Valuation adjust- ments are broadly defined to include all changes in the position other than capital flows. They primarily reflect differences between transactions values, which are used to record direct investment capital flows, and the book values on U.S. affili- ates' books, which are used to record the position and, hence, changes in the position. For ex- ample, valuation adjustments include differences between the sale value and book value of affiliates that are sold by foreign parents and differences between the purchase price and the book value of affiliates that are acquired by foreign parents. 24 Valuation adjustments also include capital gains and losses and currency translation adjustments. Direct investment capital inflows Direct investment capital inflows consist of eq- uity capital inflows, reinvested earnings, and intercompany debt inflows. This section first defines these components and then discusses cov- erage, measurement, and presentation of direct investment capital inflows. Equity capital inflows. — Equity capital inflows are net increases in foreign parents' equity in their U.S. affiliates; equity capital outflows (decreases in equity) are netted against equity capital inflows 22. In the extremely rare case in which a U.S. affiliate and its foreign parent own 10 percent or more of each other, a U.S. affiliate's debt investment in the foreign parent group is not netted against the group's debt investment in it. In order to avoid double-counting, the foreign parent group's debt investment in the affiliate is included in the foreign direct investment position in the United States, and the affiliate's debt investment in the foreign parent group is included in the U.S. direct investment position abroad. 23. Before 1974, bea netted all reverse equity investments. In some in- stances, this practice resulted in double- counting among the various accounts of the international investment position of the United States and in the cap- ital accounts of the U.S. balance of payments. For this reason, the current treatment for reverse equity investments was adopted in 1974. 24. For the current-price estimates of the foreign direct investment posi- tion entered in the U.S. international investment position, the corresponding adjustments would reflect differences between the transactions values and estimated current values of the affiliates. (increases in equity) to derive the net inflow. Eq- uity capital inflows exclude changes in equity that result from the reinvestment of earnings, which are recorded as a separate component of direct investment capital inflows. Equity capital inflows to U.S. affiliates result from foreign parents' establishment of new U.S. affiliates, from their initial acquisition of 10- percent-or-more ownership interests in existing U.S. business enterprises, from their acquisition of additional ownership interests in existing U.S. affiliates, and from capital contributions to their U.S. affiliates. Equity capital outflows result from liquidations of U.S. affiliates, from partial or total sales of ownership interests in U.S. affiliates, and from the return of capital contributions. Equity cap- ital outflows also include liquidating dividends, which are a return of capital to foreign parents. Equity capital inflows are recorded at transac- tions values. In most cases, transactions values may be obtained from the books of the U.S. af- filiates. However, in some cases, such as when a foreign parent purchases or sells capital stock in the affiliate from or to an unaffiliated third party, the transactions value may be obtained only from the parent's books. In addition, transactions val- ues on foreign parents' books reflect the actual cost of ownership interests in affiliates that are acquired or sold by foreign parents, including any premium or discount; such values may differ from the book values recorded on the affiliates' books. Reinvested earnings. — Reinvested earnings of U.S. affiliates are earnings less distributed earnings. Earnings are foreign parents' shares in the net income of their U.S. affiliates after provision for U.S. income taxes. Earnings are from the books of the U.S. affiliate. A foreign parent's share in earnings is based on its directly held equity interest in the U.S. affiliate. The earnings and reinvested earnings estimates in this publication are not adjusted to reflect current-period prices because the source data needed to adjust the es- timates by detailed country and industry are not available. Earnings enter into direct investment income because they are income to the foreign parent, whether they are reinvested in the affiliate or remitted to the parent. 25 However, because rein- vested earnings are not actually transferred to the foreign parent but increase the parent's invest- ment in its affiliate, an entry that is equal to that 25. See in next section "Direct investment income." METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 279 made in the direct investment income account but that has the opposite sign is made in the direct investment capital account. For incorporated U.S. affiliates, distributed earnings are dividends on common and preferred stock held by foreign parents. Distributions can be paid out of current or past earnings. Dividends exclude stock and liquidating divi- dends. Stock dividends are excluded because they are a capitalization of retained earnings — a sub- stitution of one type of equity (capital stock) for another (retained earnings); they reduce the amount of retained earnings available for distri- bution but leave total owners' equity unchanged. Thus, stock dividends do not give rise to entries in the balance of payments accounts. 26 Liqui- dating dividends are excluded because they are a return of capital rather than a remittance of earnings (liquidating dividends are included in- stead as outflows in the direct investment equity capital account). For unincorporated affiliates, distributed earnings are earnings distributed to foreign parents out of current or past earnings. Distributed earnings, like total earnings, are based on the books of the U.S. affiliate. Because they are on an accrual basis, they are reported as of the date that they are either paid to foreign parents or entered into intercompany accounts with the foreign parents. Distributed earnings are included whether they are paid in cash, through debt creation, or in kind. Intercompany debt inflows. — Intercompany debt inflows consist of the increase in U.S. affiliates' net intercompany debt payables to their foreign parent groups during the year. The increase for a given period is derived by subtracting the net outstanding intercompany debt balance (that is, affiliate payables less affiliate receivables) at the end of the previous period from the net outstanding balance at the end of the current period. When a member of a foreign parent group lends funds to a U.S. affiliate, the balance of the affiliate's payables (amounts owed) to the foreign parent group increases; subsequently, when the affiliate repays the principal owed to a member of the foreign parent group, the balance of the affil- iate's payables to the group is reduced. Similarly, when a member of the foreign parent group bor- rows funds from a U.S. affiliate, the balance of the affiliate's receivables (amounts due) from the 26. "Stock dividends" are used here to refer to essentially the same concept as is discussed in the imf Manual (see footnote 5) under the heading of "bonus shares." bea has retained its terminology because it conforms to what U.S. firms understand by the term "stock dividend." group increases; subsequently, when the member of the group repays the principal owed to the affiliate, the balance of the affiliate's receivables from the group is reduced. Increases in affiliates' payables to, or reductions in affiliates' receivables from, their foreign par- ent groups give rise to inflows on intercompany debt accounts. Increases in affiliates' receivables from, or reductions in affiliates' payables to, their foreign parent groups give rise to outflows. Not all intercompany debt transactions reflect actual flows of funds. For example, when dis- tributed earnings, interest, or royalties and license fees from a U.S. affiliate accrue to a foreign parent group, the full amount is included as an income or royalty and license fee payment (an outflow) on foreign direct investment in the United States. If all or part of that amount is not actually transferred to the foreign parent group, the amount not transferred is entered into in- tercompany accounts as an increase in the U.S. affiliate's payables to its foreign parent group (an inflow). The net change in intercompany debt includes changes in the value of capital leases and oper- ating leases of more than 1 year between foreign parent groups and their U.S. affiliates. When property is leased by a U.S. affiliate from its foreign parent group, the value of the leased property is recorded as an intercompany debt in- flow because it increases the affiliate's payables. The subsequent payment of principal on a capital lease, or of depreciation on an operating lease, is a return of capital and is recorded as an in- tercompany debt outflow because it reduces the affiliate's payables. When property is leased by a U.S. affiliate to its foreign parent group, the flows recorded are the reverse of the preceding. Coverage, measurement, and presentation. — All intercompany debt flows result from transactions between foreign parent groups and U.S. affiliates. Equity capital flows, however, may result from transactions between foreign parents and either the U.S. affiliate or unaffiliated U.S. persons. An example of an equity capital flow resulting from a transaction between a foreign parent and an unaffiliated U.S. person is the parent's purchase of an affiliate's capital stock from such a person. Direct investment capital inflows exclude trans- actions among members of a foreign parent group or between the members of the group and other foreigners, because foreign-to-foreign transactions are not U.S. balance of payments transactions. Thus, if a foreign parent purchases additional capital stock in a U.S. affiliate from 280 BEA STUDIES OF DIRECT INVESTMENT another foreign person, the foreign parent's own- ership interest in the U.S. affiliate will increase, but no equity capital inflow is recorded, because the transaction occurs entirely outside the United States. In addition, there is no net increase in foreign claims on the United States; instead, the foreign parent's claims have merely been substituted for the claims of the other foreign person. 27 However, if the foreign parent's original in- terest represented only a portfolio (less-than-io- percent) investment interest and if, as a result of the purchase of an additional interest, the com- bined interests qualify as a direct investment, a direct investment capital inflow and offsetting portfolio investment capital outflow are recorded to change the status of the original interest. Sim- ilarly, if a foreign parent's interest in an affiliate falls below 10 percent, a direct investment cap- ital outflow is recorded to extinguish the direct investment interest, and an offsetting portfolio investment capital inflow is recorded for the new portfolio interest. In cases of reverse investment, treatment of re- verse equity capital and intercompany debt flows is the same as that for the analogous accounts in the direct investment position. Equity capital and intercompany debt inflows can be disaggregated into several subaccounts. Equity capital inflows, which are recorded as a net amount, can be disaggregated to show increases in equity separately from decreases. Intercom- pany debt inflows are disaggregated to show flows resulting from changes in U.S. affiliates' payables separately from flows resulting from changes in U.S. affiliates' receivables. Certain transactions may affect two or more of these subaccounts si- multaneously and by exactly offsetting amounts. Such transactions are "grossed up"; that is, the inflows and the offsetting outflows are recorded in the affected subaccounts rather than being net- ted to zero and not recorded in any subaccount. However, because such gross flows are offsetting, they have no effect on net capital inflows. For example, the capitalization of intercompany debt, which gives rise to an intercompany debt outflow and an offsetting equity capital inflow, results in gross, but not net, flows. States; that is, it is the foreign parents' return on their debt and equity investment in their U.S. af- filiates plus the return of other members of the foreign parent groups on their debt investment in U.S. affiliates. Direct investment income con- sists of earnings (that is, foreign parents' share in the net income of their U.S. affiliates) plus in- terest on intercompany accounts of U.S. affiliates with their foreign parent groups (where inter- est is defined as interest paid by U.S. affiliates to their foreign parent groups net of interest re- ceived by U.S. affiliates from their foreign parent groups). Earnings are the foreign parents' return on their equity investment, and interest is the foreign parents' return on their debt investment in U.S. affiliates. Direct investment income is reported as ac- crued. Direct investment income and earnings exclude currency-translation adjustments and other capital gains and losses. Table 8 shows direct investment income and the relationship among its components for all U.S. affiliates from the 1992 benchmark survey. Several changes have recently been made in the definition of direct investment income and earnings. The changes concern the treatment of capital gains and losses, currency-translation adjustments, and withholding taxes. In June 1990, bea began to exclude from direct investment income and earnings currency- translation adjustments — that is, gains and losses that arise because of changes, between accounting periods, in exchange rates applied in translat- ing affiliates' foreign-currency-denominated as- sets and liabilities into dollars. In 1992, bea began excluding all other capital gains and losses, whether or not such gains and losses are included in net income for income statement purposes. These changes were made in order to make in- come and earnings correspond more closely to the current operating performance of affiliates, as recommended by international guidelines for the compilation of balance of payments accounts. bea has also changed its treatment of withhold- ing taxes. 28 Previously, direct investment income 28. Withholding taxes are taxes withheld by governments on income or other funds that are distributed or remitted. Direct investment income Direct investment income is the return on the foreign direct investment position in the United 27. If this exchange involves more than one country, offsetting valuation adjustments are made to the direct investment position, reducing the position of the seller's country and increasing the position of the purchaser's country. Table 8.— Direct Investment Income and Its Components [Millions of dollars] Earnings Distributed earnings Reinvested earnings Interest U.S. affiliates' payments U.S. affiliates' receipts ... Income -6,598 8,113 -14,711 6,730 9,465 2,735 133 METHODOLOGY FOR FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 28l had been measured after the deduction, or net, of U.S. withholding taxes on distributed earnings received by foreign parents from their affiliates and after the deduction of foreign and U.S. with- holding taxes on interest. In June 1992, direct investment income was redefined to be before deduction, or gross, of all withholding taxes. The new treatment views withholding taxes as being levied upon the recipient of the distributed earnings or interest and thus as being paid across borders, even though, as an administrative conve- nience, the taxes actually were paid by the affiliate whose disbursements gave rise to them. Thus, U.S. withholding taxes on distributed earnings and on interest received by the foreign parent are recorded as if they were paid by the foreign parent, not by the U.S. affiliate. Similarly, for- eign withholding taxes on interest payments by the foreign parent are recorded as if they were paid by the U.S. affiliate, not by the foreign par- ent. Counterentries for these taxes are made in the U.S. balance of payments accounts under uni- lateral transfers. This change in methodology is in line with the new international guidelines for compiling balance of payments accounts con- tained in the imf Balance of Payments Manual (see footnote 5). bea collects data on withholding taxes on dis- tributed earnings on its quarterly surveys of foreign direct investment in the United States, but withholding taxes on interest, royalties and license fees, and other private services are col- lected only in benchmark surveys. Withholding taxes on these items must be estimated for non- benchmark years; the estimates are prepared, and are shown in the U.S. balance of payments ac- counts, only on a global basis, not disaggregated by country or industry. Interest is recorded on a net basis, as inter- est paid or credited to foreign parents and other members of the foreign parent groups on debt owed to them by U.S. affiliates less interest re- ceived from or credited by foreign parents and other members of the foreign parent groups on debt owed by them to U.S. affiliates. 29 Interest receipts are netted against interest payments be- cause in the intercompany debt component of the direct investment position, debt owed by foreign parent groups to U.S. affiliates is netted against debt owed by U.S. affiliates to foreign parent groups. Like other components of direct invest- ment income, interest is reported as accrued. It 29. For U.S. affiliates that are depository institutions (commercial banks, savings and loan institutions, and credit unions), interest includes only net payments on permanently invested debt capital. includes interest paid through debt creation or in kind, as well as interest paid in cash. Interest includes net interest payments on cap- ital leases between U.S. affiliates and their foreign parent groups because the outstanding capitalized value of such leases is included in the intercom- pany debt component of the direct investment position. Direct investment royalties and license fees Direct investment royalties and license fees con- sist of payments by U.S. affiliates to, and re- ceipts by U.S. affiliates from, their foreign par- ents and other members of the foreign parent groups of fees for the use or sale of intangi- ble property or rights, such as patents, industrial processes, trademarks, copyrights, franchises, de- signs, know-how, formulas, techniques, manu- facturing rights, and other intangible assets or proprietary rights. Like income, royalties and license fees were redefined in June 1992 to be measured before the deduction, or gross, of U.S. and foreign withholding taxes. Previously, they had been presented in the U.S. balance of payments ac- counts after the deduction, or net, of withholding taxes. In 1992, withholding taxes on both pay- ments and receipts of royalties and license fees were relatively small — $46 million out of gross payments of $2,980 million and $5 million out of gross receipts of $616 million. In June 1992, bea began recording U.S. affili- ates' receipts of royalties and license fees as U.S. exports of services in the balance of payments accounts. Previously, these receipts were net- ted against U.S. affiliates' payments of royalties and license fees, and the net amount was shown as U.S. services imports; in effect, the receipts were deducted from imports rather than added to exports. Payments and receipts of royalties and license fees are based on the books of U.S. affiliates and are reported as accrued. When funds are not actually transferred, offsetting entries are made in the intercompany debt account. Other direct investment services Transactions in other direct investment services consist of payments by U.S. affiliates to, and receipts by U.S. affiliates from, their foreign par- ents or other members of their foreign parent groups of service charges, of charges for the use of tangible property, and for film and television tape rentals. Payments and receipts are reported 282 BEA STUDIES OF DIRECT INVESTMENT as accrued and are based on the books of U.S. affiliates. In June 1992, payments and receipts of other direct investment services, which had been recorded in the U.S. balance of payments ac- counts after the deduction, or net, of withholding taxes, began to be recorded gross of withholding taxes. In 1992, withholding taxes on other di- rect investment services were very small — only $2 million on gross payments of $3,898 million and less than $1 million on gross receipts of $6,394 million. In June 1992, bea also began recording U.S. af- filiate receipts for other private services as U.S. exports of services in the balance of payments ac- counts. Previously, these receipts were recorded as deductions from U.S. services imports. Service charges. — Service charges consist of fees for services — such as management, professional, or technical services — rendered between U.S. af- filiates and their foreign parents or other mem- bers of their foreign parent groups. The service charges may represent sales of services or reim- bursements. Sales of services are receipts for services rendered that are included in sales or gross operating revenues in the income statement of the seller. Normally, receipts are included in sales if the performance of the service is a pri- mary activity of the enterprise. (For example, if a U.S. management- consulting firm provides management- consulting services to its foreign parent or foreign parent group, the resulting revenues are included in its sales.) Reimbursements are receipts for services ren- dered that are normally included in "other income" rather than in sales in the income state- ment of the provider of the service. Typically, the performance of the service is not a pri- mary activity of the enterprise; however, the service may facilitate or support the conduct of the enterprise's primary activities. (For example, if a foreign manufacturer provides management services to its U.S. manufacturing affiliate, the as- sociated charges normally would be recorded in its income statement under "other income" and reported to bea as a reimbursement.) Reimbursements may be allocated expenses or direct charges for the services rendered. Allocated expenses are overhead expenses that are appor- tioned among the various divisions or parts of an enterprise. An example would be research and development assessments on the U.S. affiliate by its foreign parent for r&d the parent performs and shares with its affiliate. Charges for the use of tangible property. — Charges for the use of tangible property include total lease payments under operating leases of 1 year or less and net rent on operating leases of more than 1 year. From the lessors' viewpoint, total lease payments for operating leases consist of two components: (1) Net rent, which covers inter- est, administrative expenses, and profit, and (2) depreciation, which is a return of capital. For operating leases of more than 1 year, net rent is included in "other direct investment services," and depreciation is included as an in- tercompany debt flow in the direct investment capital account. For operating leases of 1 year or less, total lease payments — both net rent and depreciation — are included in "other direct in- vestment services." Because the value of property leased to or from foreigners for 1 year or less is excluded from U.S. merchandise exports and im- ports in the U.S. balance of payments accounts, no export or import to or from the foreign par- ent groups by U.S. affiliates is recorded in the merchandise trade account; thus, there is no sub- sequent return of capital to or from the foreign parent groups in the form of depreciation to be recorded in the direct investment capital ac- count. Such depreciation is instead considered part of rentals — a payment for services rendered by, rather than a return of capital to, the foreign parent groups. Film and television tape rentals. — Film and tele- vision tape rentals are rentals that U.S. affiliates pay to, or receive from, foreign parents or other members of the foreign parent groups for the sale or use of film and television tapes. Ex- cept for mass-produced films and tapes, such as prerecorded video cassettes (which are recorded in merchandise trade), such film and television tapes are treated as if they were being rented rather than sold, and payments for the tapes are considered payments for services rather than payments for merchandise. This treatment is used because the value of the tapes is derived mostly from the services — entertainment, educa- tion, and so on — that they provide, not from the value of the media on which they are recorded. Thus, the cost of the film and television tapes is excluded from U.S. merchandise trade and is included instead in "other direct investment services." C3 Get the details first! Recent issues of the Survey are now available on the Internet at www.bea.doc.gov Monthly features • The Business Situation — discusses the latest estimates of gross domestic product, corporate profits, and government sector receipts and expenditures • BEA Current and Historical Data — presents selected national, international, and regional estimates in tables and charts Quarterly features • U.S. International Transactions • Personal Income by State and Region Annual features • Gross Product by Industry • Gross State Product • U.S. International Investment Position 1999 <~ vouna 7% wmu 12 Survey of Current Business WTHIIIIIUI. . Rdiabihty efthi Quarterly and Amml Estwuea ImtstmentmSewStruavrtsandEqutpmtnSm 1992 kyUmfbtduaria , MHumoirr or cotocnci ~ 1 Special features • Annual Revision of the NIPA's for 1 995-97 • Manufacturing Earnings in BEA Component Economic Areas, 1996 • Price Indexes for Selected Semiconductors, 1974-96 • State Personal Income: Revised Estimates for 1982-97 • U.S. International Transactions: Revised Estimates for 1986-97 • U.S. Travel and Tourism Satellite Accounts for 1992 Go to www.bea.doc.gov