rate of return on capital
Doug Henwood <dhenwood at panix.com>
Charles Brown wrote:
>Why is it the the U.S. direct investment in those other developed
>countries is able to make more profit than the capital that those
>countries send away to the U.S. ? Why is the direct investment from
>the other developed countries in the U.S. able to make more profit
>in the U.S. than the capital that the U.S. invests in other
>countries ( because it no longer makes enough profit in the U.S. ) ?
Generally, U.S. assets abroad are more profitable than foreign assets in the U.S. There are several reasons - low wages here (which is why all the foreign automakers love Alabama), and the fact that FDI in the U.S. is more recent than U.S. FDI abroad, meaning that U.S.-based MNCs paid more reasonable prices for their assets. The extreme example of this is all the high-priced stuff that Japanese firms bought in the 1980s.
^^^^^^^
CB: Thanks. Why wouldn't low wages in the U.S. make the foreign assets ( investments ?) in the U.S. more profitable ? Don't lower wages mean higher profits ?
I'm still trying to see why if the U.S. firms reach a point where they can't make a high enough rate of profit in the U.S and therefore invest in foreign countries ( developed or developing), that the other developed countries can invest here and make a profit that seemed to have reached a limit for the U.S. firms (causing them to invest over there). And alternatively, why can the U.S. firms make satifactory profit in the the other developed countries, when the firms in those countries no longer can ( and invest here !) ?