Above, we show that FDI has not made much difference to financial inflows to the US. If not FDI, perhaps the next best thing in terms of deficit financing would be flows into equity securities. Has this been the case? We have heard a lot about US exceptionalism – better US growth rates and better investment opportunities in US companies. Does the BoP data bear this out? Again, the answer here is no.
As our chart below shows, net equity inflows into the US have been quite modest in 2023. And in fact, the net inflow into the US in the fourth quarter last year was only down to US investors selling their overseas holdings of equities.
Instead, it is the foreign purchases of long-term US debt securities that dominate this portfolio line item. Long-term debt securities are defined as securities issued by the US Treasury, US Agencies (e.g., Fannie Mae and Freddie Mac) and the corporate sector. These securities have maturities…
