The Impact of the U.S. Direct Investment Controls

The voluntary and mandatory direct investment control programs instituted since 1965 were directed at new outflows of funds from the U.S. and reinvested earnings abroad. It was not their aim to curb plant and equipment expenditures as such.11Anthony M. Solomon, “Foreign Investment Controls: Policy and Response.” Law and Contemporary Problems, XXXIV (Winter, 1969), P. 119. But by shifting the financing of U.S. overseas investment away from U.S.-owned to foreign sources of funds, the U.S. government hoped to reduce the balance of payments deficit according to the liquidity definition. To evaluate the record two kinds of questions require answers. First, to what extent can one say that the substantial shifts which occurred in the observed patterns of U.S. foreign affiliates' plant and equipment expenditures and financing were actually caused by the impact of the controls? The problem is whether changing economic conditions at home and abroad could have produced similar patterns in the absence of the programs. Second, in what sense can the regulations then be said to have eased the U.S. balance of payments pressures? The answer here depends upon a complex of factors including, inter alia,, the extent to which capital outflows led to export surplus and whether putative savings on direct investment were squandered elsewhere.© 1971 JIBS. Journal of International Business Studies (1971) 2, 1–14