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Exports and Foreign Direct InvestmentMany different types of companies engage in international trade. In oneform of international trade, U.S. companies invest abroad and operate facilitiesin foreign countries. Cross-border investment to control a business (withcontrol generally defined as having a 10 percent or greater ownership stake) isknown as foreign direct investment (FDI), and FDI facilitates exports.The United States is strongly committed to open investment (Box 3-3),and the world is more aware of the benefits of open investment today thanit was in the past. For much of the early post–World War II era, manycountries placed heavy restrictions on investment in both directions. Policieson inbound investment restricted the sectors in which foreign businessescould invest or the level of ownership they could take. Some policies barredacquisitions, and others made it difficult for investors to send profits orcapital home.Spurred in part by the rapid growth of the internationally oriented EastAsian economies, by European integration, and by the stagnation of manyclosed economies, countries have reduced barriers to foreign investment andmost now actively seek it. Today, liberalization continues in both developingand advanced economies. In 1992, the United Nations Conference onTrade and Development recorded 77 national regulatory changes around the88 | Economic Report of the <strong>President</strong>
Box 3-3: Open Investment and the United StatesAs a matter of policy, the United States has a longstanding commitmentto welcoming foreign direct investment and securing fair, equitable,and nondiscriminatory treatment for U.S. investors abroad. On May 10,2007, the <strong>President</strong> issued a Statement on Open Economies reaffirmingthis commitment, and noted that the Administration is committed toensuring that the United States continues to be the most attractive placein the world to invest.This policy stems from recognition of the benefits of open investment.These benefits include the introduction of new technologies, processes,and management techniques into the economy; increased competitionthat lowers prices for consumers and leads to quality improvements;and the creation of greater international trade and knowledge linkages.Foreign affiliates in the United States tend to have more need forhigher-skilled labor than many other firms, paying at least 25 percentgreater compensation than private firms that are domestically owned,thus creating an incentive for U.S. workers to keep building skills andto compete for these well-paying jobs. U.S. investment abroad can alsostrengthen the U.S. economy. It can increase exports, thereby improvingU.S. job opportunities. Increased exports provide incentives for firmsto hire more people into the more productive, higher-wage industries.Increased trade thereby results in higher average wages for U.S. workers.In addition, there is evidence that firms that invest abroad also increasetheir domestic investment, and that one activity helps the other.world that were favorable to FDI. It recorded a peak of 234 such changes inboth 2002 and 2004, and a still-robust level of 147 in 2006. But the movetoward openness has experienced setbacks as well. In 2006, countries made37 regulatory changes that were unfavorable to FDI (20 percent of allchanges), the highest rate since 1992. Some of these unfavorable changesincluded restrictions in certain sectors or efforts to nationalize certain sectors,especially natural resource industries.Another issue facing open investment is that in some limited circumstances,the acquisition of a domestic company by a foreign investor could pose risksto the national security of the host country. For example, such a problemcould arise if an adversary of the host country wanted to buy a domesticmilitary contractor. The United States addresses this issue through the interagencyCommittee on Foreign Investment in the United States (CFIUS),which considers only genuine national security concerns, not economic orother interests. The Foreign Investment and National Security Act of 2007(FINSA) clarified and improved the CFIUS process and the Act was passedby Congress with strong bipartisan support, reaffirming Congressional trustChapter 3 | 89
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EconomicReportof thePresidentTransm
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C O N T E N T SPageECONOMIC REPORT
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ECONOMIC REPORT OF THE PRESIDENTTo
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$2 billion to a new international c
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LETTER OF TRANSMITTALCouncil of Eco
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chapter 3. the causes and consequen
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appendixesA. Report to the Presiden
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2-5. Mortgage Lending Today........
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Chapter 1: The Year in Reviewand th
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Chapter 3: The Causes and Consequen
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• Tax reductions in 2001 and 2003
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• More effective statistical use
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• Real GDP posted solid 2.5 perce
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elative to non-energy prices, while
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nonconforming mortgages in 2007. In
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In addition to incomes and mortgage
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Business InventoriesInventory inves
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Indeed, the growth in foreign econo
Page 42 and 43: During the 12 months of 2007, the u
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Page 46 and 47: and government purchases. In contra
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Page 55 and 56: C H A P T E R 2Credit and Housing M
Page 57 and 58: lends a debtor money today, which t
Page 59 and 60: Box 2-1 — continuedPrime loan: Lo
Page 61 and 62: Box 2-2 — continuedNRSROs. Critic
Page 63 and 64: Box 2-3 — continuedMortgage defau
Page 65 and 66: Box 2-3 — continuedmortgage defau
Page 67 and 68: Corporate bond yields also rose rel
Page 69 and 70: conduits in that SIVs have less acc
Page 71 and 72: International ImplicationsA notable
Page 73 and 74: come together to create a coordinat
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Page 77 and 78: alternatives offered in the convent
Page 79 and 80: to such a change in wealth, which a
Page 81: lending. FHA Modernization will enc
Page 84 and 85: Economists often call attention to
Page 86 and 87: Box 3-1: Trade in ServicesDiscussio
Page 88 and 89: Box 3-2: The Current Account Defici
Page 90 and 91: Growth in Domestic ProductionA seco
Page 94 and 95: in CFIUS’s role in protecting nat
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Page 98 and 99: y import competition are electrical
Page 101 and 102: C H A P T E R 4The Importance of He
Page 103 and 104: Box 4-1: Health Effects on Job Prod
Page 105 and 106: health care spending growth. Rising
Page 107 and 108: While the study focused on spending
Page 109 and 110: Box 4-2 — continuedand without pr
Page 111 and 112: effective price of zero. Even if a
Page 113 and 114: deduction for health insurance to a
Page 115 and 116: To reduce the extent to which high-
Page 117 and 118: Administration supports broad adopt
Page 119 and 120: C H A P T E R 5Tax PolicySocieties
Page 121 and 122: in 2000. Tax revenues increased str
Page 123 and 124: Alternative Minimum TaxPrior to 196
Page 125 and 126: The Impact of Recent Tax Reductions
Page 127 and 128: 35 percent marginal tax rate on the
Page 129 and 130: C corporations fall under the corpo
Page 131 and 132: Significance of Tax Cuts to Individ
Page 133 and 134: Box 5-1: Marriage Penalty BasicsIt
Page 135 and 136: The Structure of Business TaxesDesp
Page 137 and 138: investments are made. A more modest
Page 139 and 140: able to defer $35 of tax liability
Page 141 and 142: C H A P T E R 6The Nation’s Infra
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A monopolistic bridge owner may cho
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etween places to accommodating grow
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the same time. At hours when many d
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BridgesOn August 1, 2007, the I-35W
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where shippers have an alternative
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Freight shipments into and out of t
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Box 6-2: Delays at New York City Ai
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uilt, the marginal cost of transmis
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access was in mobile wireless conne
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Infrastructure PolicyThough the U.S
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could shorten the wait by adding an
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In 2005, the Federal Aviation Admin
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C H A P T E R 7Searching for Altern
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The first U.S. oil well was drilled
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Most of the oil consumed in the Uni
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Also, depending on the fuel and tec
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Table 7-1. —Estimated Average Lev
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Nevada. The facility is expected to
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Wind PowerWind power supplies about
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amounts of electricity, it could be
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years, as corn-based ethanol produc
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the power, range, and convenient fu
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other petroleum products is project
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To help meet the growing demand for
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C H A P T E R 8Improving Economic S
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The second largest Federal statisti
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As shown in Chart 8-3, spending on
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Monetary and fiscal policymakers al
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service-sector output much more fre
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Box 8-1: How to Reverse a Decline i
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Information Protection and Statisti
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forward instead of the growth rate
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Appendix AREPORT TO THE PRESIDENT O
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Council Members and Their Dates of
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Report to the President on theActiv
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The Council also prepared in-depth
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The Staff of the Council of Economi
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Jane Tufts, Bruce Kaplan, and Anna
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C O N T E N T SNational Income or E
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Prices—ContinuedPageB-63. Changes
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General NotesDetail in these tables
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Table B-1.—Gross domestic product
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Table B-2.—Real gross domestic pr
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Table B-4.—Percent changes in rea
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Table B-5.—Contributions to perce
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Table B-6.—Chain-type quantity in
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Table B-7.—Chain-type price index
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Table B-9.—Real gross domestic pr
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Table B-11.—Real gross value adde
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Table B-12.—Gross domestic produc
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Table B-13.—Real gross domestic p
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Table B-15.—Gross value added and
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Table B-17.—Real personal consump
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Table B-19.—Real private fixed in
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Table B-21.—Real government consu
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QuarterTable B-23.—Real private i
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Table B-25.—Real exports and impo
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Table B-27.—Relation of national
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Table B-28.—National income by ty
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Table B-29.—Sources of personal i
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Table B-31.—Total and per capita
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Table B-32.—Gross saving and inve
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Population, Employment, Wages, and
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Table B-35.—Civilian population a
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Table B-37.—Civilian employment b
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Table B-39.—Civilian labor force
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Table B-41.—Civilian employment/p
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Table B-43.—Civilian unemployment
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Table B-45.—Unemployment insuranc
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Table B-46.—Employees on nonagric
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Table B-48.—Employment cost index
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Table B-50.—Changes in productivi
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Table B-52.—Industrial production
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Table B-54.—Capacity utilization
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Table B-56.—New private housing u
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Table B-58.—Manufacturers’ ship
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PricesTable B-60.—Consumer price
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Table B-61.—Consumer price indexe
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Table B-63.—Changes in special co
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Year or monthTable B-65.—Producer
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Table B-66.—Producer price indexe
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Table B-67.—Producer price indexe
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Year and monthMoney Stock, Credit,
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Table B-70.—Components of money s
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Table B-72.—Bank credit at all co
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Table B-73.—Bond yields and inter
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Table B-74.—Credit market borrowi
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Table B-76.—Mortgage debt outstan
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Government FinanceTable B-78.—Fed
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Table B-80.—Federal receipts and
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Table B-82.—Federal and State and
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Table B-84.—Federal Government cu
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Table B-86.—State and local gover
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Table B-88.—Maturity distribution
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Corporate Profits and FinanceTable
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Table B-92.—Corporate profits of
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Table B-94.—Relation of profits a
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Year or monthTable B-96.—Common s
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Table B-98.—Farm business balance
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YearTotalTable B-100.—Farm input
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Table B-102.—U.S. exports and imp
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Table B-103.—U.S. international t
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Table B-105.—U.S. international t
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Table B-107.—International invest
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Table B-109.—Civilian unemploymen
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Table B-111.—International reserv
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