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Real Foreign Investment in Perspective

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  • ROBERT EISNER
  • PAUL J. PIEPER

Abstract

Much concern regarding recent negative net foreign investment of the United States is misguided. It has frequently reflected misunderstanding of the nature of foreign investment and of misleading official measures. The extent of negative net foreign investment and, all the more so, its sum over the years, which is the presumed debt of the United States to the rest of the world, have been exaggerated. Correctly measured, which means taking into account changes in the value of the U.S. assets abroad that are usually ignored, they are not and do not threaten to be large relative to total income and wealth. Net foreign investment in the long run reflects relative growth and portfolio choices among nations. If the monetary authority does not prevent the fall of interest rates and exchange rates, rates of foreign investment can be expected, within a reasonable time, to be self-adjusting. They will then reflect underlying preferences and economic forces, interference with which is likely to do more harm than good.

Suggested Citation

  • Robert Eisner & Paul J. Pieper, 1991. "Real Foreign Investment in Perspective," The ANNALS of the American Academy of Political and Social Science, , vol. 516(1), pages 22-35, July.
    • Handle: RePEc:sae:anname:v:516:y:1991:i:1:p:22-35
    DOI: 10.1177/0002716291516001003
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    References listed on IDEAS

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    1. Lois Stekler, 1989. "Adequacy of International Transactions and Position Data for Policy Coordination," NBER Working Papers 2844, National Bureau of Economic Research, Inc.
    2. Lois Stekler, 1990. "Adequacy of International Transactions and Position Data for Policy Coordination," NBER Chapters, in: International Policy Coordination and Exchange Rate Fluctuations, pages 347-372, National Bureau of Economic Research, Inc.
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