Home > US Direct Investment Abroad: Methodology Change, 1977

Changes in the U.S. Direct Investment Abroad Series, Beginning with 1977

The following is a brief summary of the important changes in the U.S. direct investment abroad series that have been implemented, beginning with the estimates covering 1977.

Definition of direct investment

A private U.S. investment abroad is considered a direct, rather than portfolio, investment if a single U.S. person owns 10 percent or more of the voting securities (or the equivalent) of a foreign business enterprise. For the estimates covering years prior to 1977, an interest of a single U.S. person of less than 10 percent is also included in direct investment in two cases: (1) When another U.S. person held an interest of at least 10 percent in the same foreign business enterprise, and (2) when the combined interest of all U.S. persons was at least 50 percent even though no single person had an interest of at least 10 percent. In the estimates covering 1977 forward, direct investment is defined strictly from the viewpoint of a single owner, and all such interests of less than 10 percent are included in portfolio investment.

International category

In the estimates covering 1977-81, the "international" category consists of affiliates that have operations spanning more than one country and that are engaged in petroleum shipping, other water transportation, petroleum trading, and oil and gas drilling. (Affiliates in these industries that have operations entirely in one country are classified in that country.) In the estimates covering prior years, the "international" category is defined more broadly; it includes, for example, Netherlands Antilles finance affiliates (see below) and some affiliates engaged in nonpetroleum trading, finance and insurance, and construction.

Petroleum trading companies

Most U.S. petroleum parent companies have trading subsidiaries, mainly incorporated in the United States, that purchase foreign-produced petroleum and resell it to customers in both the United States and foreign countries. In the estimates covering years prior to 1977, these subsidiaries are classified as foreign or domestic, depending largely upon the reporting and consolidation practices of the U.S. parent companies. In processing the 1977 Benchmark Survey of U.S. Direct Investment Abroad, BEA attempted to use more consistent criteria in classifying these subsidiaries; the same criteria were also applied in deriving the estimates for 1978 forward. In most cases, the application of these criteria resulted in the reclassification of the trading subsidiaries from foreign to domestic.

Netherlands Antilles finance affiliates

In the estimates covering 1968 to 1976, the intercompany debt component of direct investment capital outflows excludes funds that Netherlands Antilles finance affiliates borrowed from unaffiliated foreigners and then transferred to their U.S. parents. Such borrowing is treated as direct borrowing abroad by the U.S. parents and is included in U.S. nonbanking concerns' capital transactions with unaffiliated foreigners (part of the portfolio investment accounts), rather than as part of the direct investment accounts.

The distinction between Netherlands Antilles and other finance affiliates is removed in the estimates covering 1982-93. Thus, for those years, borrowing by Netherlands Antilles finance affiliates that was transferred to U.S. parents is treated as direct investment debt inflows from affiliates in the Netherlands Antilles, rather than as inflows on portfolio investment from unaffiliated foreigners. Symmetrical treatment is accorded to repayments of the borrowing and to associated interest payments.

In the estimates covering 1994 forward, intercompany debt and associated interest transactions with certain Netherlands Antilles finance affiliates are once again included in transactions with unaffiliated foreigners, rather than in the direct investment accounts. (See "Changes in the U.S. Direct Investment Abroad Series Beginning with 1994.")

Airline and ship operators

In the estimates covering years prior to 1977, foreign stations, ticket offices, and terminal and port facilities of a U.S. airline or ship operator are considered foreign affiliates and are included in U.S. direct investment abroad. In the estimates covering 1977 forward, such facilities are not considered affiliates if they provide services only to the airline or ship operator that owns them. However, if the facilities provide services primarily to unaffiliated persons, they are considered affiliates and are included in direct investment.

Format of the published tables

The method of grouping countries within Latin America changed beginning with tabulations of the estimates covering 1977. Latin American countries are now grouped strictly along geographical lines, according to whether they are located in South America, Central America, or "Other Western Hemisphere." In tabulations of the estimates covering previous years, they were grouped according to whether or not they were one of the countries designated as "Latin American Republics."