Do Foreign Investments Impoverish a Nation?

Some people in the United States are concerned that foreigners have invested too much money into the US. Because we import more goods than we export, foreigners get excess dollars and then use those dollars to buy our wealth from under us. This makes us in debt to foreigners, and a nation as powerful as the United States should never be in debt to foreign nations. The economist Thomas Sowell disagrees with this reasoning and argues that foreign investment is a good thing both for the United States and foreign investors. He writes that “Despite fears in some countries that foreign investors would carry off much of their national wealth…there is probably no country in history from which foreigners have carried away more vast amounts of wealth than the United States” (p. 509). If it were true that foreign investment robs Americans of their wealth, then “Americans ought to be some of the poorest people in the world” (p. 509). And yet Americans are some of the richest people in the world. The United States has received massive foreign investments for generations, which means we have been indebted for foreigners for generations. The reason why America continues to grow in spite of being in debt to foreign investors is because both sides benefit when these economic transactions takes place. If both sides did not benefit then they would not agree to it. Foreign investors are confident they will get a return on their investment, and American entrepreneurs are confident they can pay the investors back while still earning profits for themselves. This economic activity creates productive jobs and produces better goods and services to improve the average citizen’s material quality of life.

Reference

Thomas Sowell (2014). Basic Economics: A Common Sense Guide to the Economy (5th edition). Basic Books.