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Tuesday, May 01, 2007

The China Syndrome

Paul Krugman responds to comments claiming that low U.S. investment is caused by money going overseas, to China in particular:

Paul Krugman, via email: Well, that's weird. I've gotten a lot of comment alleging that the reason for low investment in the US is that all the money is going overseas, especially to China - and quite a lot of the comment was vituperative: I'm an idiot, I don't anything about the real world, etc. etc. I've gotten accustomed to that sort of thing from the right - in fact, I feel like a failure if I don't get accused of being a liar and a traitor after each column - but what's going on here? Anyway, a note on the numbers. As I already pointed out at the Times, almost as much direct foreign investment is coming into the US as is going out. But what really amazes me is the China obsession. China is a huge export machine, and I take the impact of Chinese exports on US workers quite seriously. But it is not, repeat not, a major destination of US corporate investment. Look at the BEA numbers: http://www.bea.gov/international/datatables/usdctry/usdctry.htm. China is only about 1 percent of the total stock of US direct investment abroad, less than $20 billion. Oh, and one fallacy I've seen confidently asserted is that FDI doesn't count retained earnings. Sorry, but it does. There are some real questions about mismeasurement of the overall investment position - dark matter and all that - but there's no way you can make the case that corporations are taking all their profits and putting it into China.

A summary of his comments from the Times is here: Globalization is Not the Cause of Low Business Investment.

    Posted by on Tuesday, May 1, 2007 at 12:06 PM in Economics, International Trade | Permalink  TrackBack (0)  Comments (29)

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