TABLE 1 Japanese Direct Investment in the United States, 1984–1990 (in million dollars)

Year

Flow During Year

Position at Year End

1984

4,374

16,044

1985

3,394

19,313

1986

7,268

26,284

1987

8,791

34,421

1988

17,287

51,126

1989

17,425

67,319

1990

17,336

83,498

 

SOURCE: Bureau of Economic Analysis, U.S. Department of Commerce, compiled from August issues of Survey of Current Business, various years.

The surge in Japanese direct investment in the United States coincided with a general perception on the part of many U.S. business leaders and economists that U.S.-owned business firms operating in advanced technology industries were becoming significantly less competitive relative to their Japanese rivals and that this loss of competitiveness was not a phenomenon that could be corrected via macroeconomic adjustments such as revaluation of the yen. Rather, it was widely perceived that the loss was due to some combination of factors such as declining rates of R&D expenditure in the United States relative to Japan, "short termism" and other managerial failures by U.S. business leaders, low U.S. rates of domestic capital formation, flagging U.S. educational performance, and a poor policy environment for U.S. technology.

Figures 1 and 2 provide some supporting evidence for the position that U.S. competitiveness is falling relative to Japan and that this is due in part to falling relative expenditures on R&D. Total U.S. R&D expenditure as a percentage of the gross national product (GNP) was significantly higher than corresponding percentages in Japan or Germany during the early 1970s, but by the middle 1980s both nations were outperforming the United States by this measure. This is true in spite of the fact that total U.S. R&D expenditures as a percentage of GNP were at a minimum during the late 1970s and have risen since then. Otherwise put, the trend in R&D expenditure as a percentage of national product has been upward in all three countries, but this percentage has risen significantly faster in both Germany and Japan than in the United States. Because GNP has grown significantly faster in Japan than in the United States, total R&D expenditures in Japan have grown even faster relative to those in the United States than the figure would suggest.



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