The Balance of Payments Effects of Direct Investment in Western Europe
Abstract
Between the years 1950 to 1964 portfolio investments resulted in a net dollar outflow, in every year except 1953. On the other hand,
direct foreign investments have shown a net inflow of dollars in every
one of those same years ranging from a low of seven million dollars to
a maximum of $2.4 billion. It appears, then, that overall, the United
States may be portfolio investing beyond its international means, but
it has not been direct investing beyond its international means.
Looking at direct investment flows to specific areas, however,
one notes that direct investments in Western Europe, particularly in
the Common Market, have resulted in substantial net outflows. These net outflows would lead one to believe that curtailment of direct
investments in Europe would be of help in alleviating the current United
States' balance of payments problem. However, balance of payments statistics
show only direct investment outflows and income returns. They do not
indicate what effects these transactions have on United States exports,
nor do they show what the future trends in investment and income returns
will be. The purpose of this paper is to make such an analysis; specifically
with regard to direct investments in Europe.