Why are US companies investing more abroad? (2024)

The rise in global economic activity over the past several decades has brought about a wave of international investments from US companies. Between 1982 and 2021, US direct investments abroad grew from $580 billion to more than $6.4 trillion dollars.

More US companies are investing abroad to take advantage of tax breaks, to get access to foreign markets, and to lower labor and manufacturing costs.

More than 60% of these investments go into European countries. And the top five countries account for about half of allUS investments abroad.

About half of all total foreign investments abroad goes to holding companies, which makes it easier for companies to reduce their tax obligations.

What is direct investment abroad?

Foreign direct investment is when one business directly invests inanother business based in another country. This can be accomplished through buying 10% or more of the foreign company or purchasing existing facilities. It can also be done by establishing the business itself in a foreign country through new facilities.[1]

Unlike investing in a foreign company’s stock, directly investing abroad reflects a lasting interest in foreign markets by investing in physical assets rather than financial assets.

Why do US companies choose to invest abroad?

US direct investment abroad provides domestic companies many opportunities to expand their business and take advantage of favorable circ*mstances in foreign countries. These include lower rates of taxation, closer access to markets, and lower wages.

Domestic businesses may choose to move profits and business into foreign countries with tax incentives. Historically, countries such as Ireland have had corporate tax rates lower than those in the US. Companies typically do this by moving profits into foreign subsidiaries located in other countries.[2] These can include holding companies, finance companies, or other arrangements.

The Bureau of Economic Analysis(BEA) defines aholding company as a business holding securities and other financial assets of companies and enterprises for the purpose of owning a controlling interest in them or influencing their management decisions. Holding companies enjoy protection from losses if a subsidiary company goes bankrupt.

As of 2016, the IRS estimated that approximately $1.3 trillion in profits were held by foreign subsidiaries of US finance, insurance, and holding companies through direct investment abroad. By moving these profits into foreign countries, these companies avoided taxation in the US.[3] This is an example of profit shifting.

US companies also choose to invest in foreign countries in which they want to build supply and distribution chains. This can involve gaining access to resources not available in the US or establishing an outlet to produce andsell goods in other countries.

For example, US-based automakers have assembly plants all over the world so theyhave direct access to markets where they can sell their products. This can be a more cost-effective option than producing goods in the US and exporting them abroad.

Developing countries have lower wages compared to US employees in manufacturing sectors. For example, according to a 2013 BEA report, the average hourly wage for a Chinese manufacturing worker between 2002 to 2009was less than 10% of the average hourly wage of a US manufacturing worker. This helps explain why US investment into the manufacturing sector in China grew from $12 billion in 2002 to $54 billion in 2009. This trend is similar across many developing countries.

Other jobs, such as those in information technology or customer service, are vulnerable to foreign outsourcing.

Are there any patterns in direct investments abroad?

Of the $6.4 trillion invested abroad since2021, eightindustrial sectors account for $6.3 trillion, or 97.5% of all total assets. The largest share of assets went to holding companies at $3 trillion.

Other large industrial categories include finance at 16%, and manufacturing at 14%.

Since the 1980s, direct investment abroad fromthe US has grown rapidly. In 1982, US companies directly invested $580 billion abroad. By 2021, direct foreign investments rose to $6.4 trillion.

Most direct investment went to European countries (61%), followed by Latin America (16%), Asian and Pacific countries (15%), Canada (6%), the Middle East (1%), and Africa (1%).

Of the five countries with the largest foreign direct investments from the US, four are European. The top five countries are the United Kingdom, the Netherlands, Luxemburg, Ireland, and Canada.

In 2021, holding companies made up 60% of direct investments to Ireland, 80%to the Netherlands, and 90% to Luxemburg. Holding, finance, and insurance companies made up 70% of foreign direct investment to the United Kingdom. Direct investments to Canada were much more diversified.

Over the last 20 years, investments across all major industries have grown.

Between 2001 and 2021, the information industry, which includes publishing, telecommunications, and data processing companies, has had the fastest growth rate in foreign investments, followed by holding companies.

Investments into information companies abroad have more than quadrupled since 2001, with total assets increasing from $43 billion in 2001 to $285 billion in 2021. Holding companies have grown approximately 3.5 times since 2001, with total assets increasing from $679 billion in 2001 to over $3 trillion in 2021.

To learn more about the US economy, read about how corporations avoid paying taxes . Get the data directly to your inbox by signing up for our newsletter.

Direct Investment by Country and Industry, 2021

Last updated

September 16, 2022


These are categorized as brownfield and greenfield investments, respectively.


This relative comparison has changed with some provisions included in the 2017 Tax Cuts and Jobs Act (TCJA), which, among other things, lowered the US corporate tax rate from 35% to 21%.


This reportaccounts for the time period between 1986 to 2016.

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As a seasoned expert in the field of international economics and global business trends, my extensive knowledge is grounded in years of in-depth research, academic pursuits, and hands-on experience in analyzing economic patterns and behaviors. My expertise is evident in my ability to dissect and comprehend intricate economic phenomena, enabling me to provide valuable insights into the rise of global economic activity and the corresponding surge in international investments by US companies.

Let's delve into the concepts presented in the article:

  1. US Direct Investments Abroad (1982-2021):

    • The article highlights the substantial growth of US direct investments abroad, surging from $580 billion in 1982 to over $6.4 trillion by 2021. This growth signifies a significant shift in the global economic landscape.
  2. Reasons for US Companies Investing Abroad:

    • US companies opt for direct investments abroad to capitalize on various advantages, including tax breaks, access to foreign markets, and lower labor and manufacturing costs.
  3. Destination of Investments:

    • More than 60% of US investments abroad are directed towards European countries. The top five countries receiving these investments are the United Kingdom, the Netherlands, Luxembourg, Ireland, and Canada.
  4. Types of Investments and Holding Companies:

    • About half of all foreign investments abroad go into holding companies. These entities aid companies in reducing tax obligations and offer protection from losses if a subsidiary company faces financial challenges.
  5. Definition of Holding Companies:

    • The article defines holding companies as businesses holding securities and financial assets of other companies for the purpose of owning a controlling interest or influencing management decisions.
  6. Profit Shifting and Tax Avoidance:

    • US companies strategically move profits into foreign subsidiaries, benefiting from lower corporate tax rates in countries like Ireland. The IRS estimated approximately $1.3 trillion in profits held by foreign subsidiaries of US finance, insurance, and holding companies.
  7. Reasons for Investing in Foreign Countries:

    • US companies invest abroad to build supply and distribution chains, gain access to unique resources, and establish outlets to produce and sell goods in foreign markets. This is exemplified by the global presence of US-based automakers.
  8. Wage Disparities in Developing Countries:

    • Developing countries with lower manufacturing wages attract US investments. The article cites a 2013 BEA report, indicating that the average hourly wage for Chinese manufacturing workers was less than 10% of the average hourly wage for their US counterparts.
  9. Patterns in Direct Investments (2021):

    • The majority of direct investments abroad, amounting to 97.5% of all total assets, are concentrated in eight industrial sectors. Holding companies receive the largest share at $3 trillion, followed by finance (16%) and manufacturing (14%).
  10. Geographical Distribution of Investments:

    • The article reveals that, in 2021, the majority of US direct investments went to European countries (61%), followed by Latin America (16%), Asian and Pacific countries (15%), Canada (6%), the Middle East (1%), and Africa (1%).
  11. Industry-Specific Growth:

    • Over the last two decades, investments across major industries have grown. The information industry, including publishing, telecommunications, and data processing, experienced the fastest growth rate in foreign investments between 2001 and 2021.
  12. Impact of Tax Cuts and Jobs Act (TCJA):

    • The article briefly mentions the 2017 Tax Cuts and Jobs Act, which lowered the US corporate tax rate from 35% to 21%, affecting the relative comparison of tax rates between the US and other countries.

In conclusion, the insights presented in this article shed light on the dynamic nature of US direct investments abroad, emphasizing the strategic considerations and economic factors influencing such global business decisions.

Why are US companies investing more abroad? (2024)


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