CCORDING to a recent estimate by the A Department of Commerce, the United States direct foreign investments are in excess of $22 billion and are expanding at a record rate. How much do we know about the impact of United States enterprises abroad on the host countries, and what is their economic contribution in particular? Aside from a few isolated case studies,' our knowledge is extremely limited. This is perhaps because direct foreign investment is of relatively recent origin. On the basis of total investment made by Britain during the nineteenth century, bonds and preferred stocks comprised indeed no less than three-quarters of the outstanding total in I9I3 2 As a result, there is a lack of concensus among economists of what constitutes economic contribution, let alone an acceptable measure of it. It is argued that direct foreign investment exerts an impact on almost every aspect of life in the recipient country.3 Measurement in some cases is extremely difficult if not impossible, and precise statistics which would illustrate the relationships are in general not available. For example, some foreign enterprises contribute to the opening of new frontiers, resource discovery, and creation of social capital in the form of road building, provision of public utility services, etc., and most of the foreign manufacturing operations engage in the training of skilled and semi-skilled workers. In this way, the foreign establishments, consciously or not, have created an ever-growing supply of many of the modern skills which are indispensable to the economic and social progress of the host countries. stimulation of more private investment within less developed countries is intimately related to the development of a spirit of enterprise among the natives themselves. Here again, the foreign companies can make an important contribution. They provide living examples of the material rewards of private enterprise and its importance to the community, and they also familiarize the natives with modern business attitudes and activities and disseminate the necessary managerial know-how. In short, such direct foreign operations give the wage and market economy its decisive start, with an attendant loosening of the bonds of the static self-sufficient agrarian societies. benefits presented above are undoubtedly valid. broad social and economic consequences of transformation should not be passed over lightly. But the nature of these impacts is generally regarded as belonging to the long-term effects of an industrialization process. In short-run analysis, economists customarily confine themselves to the immediate impact of investment in terms of changes in production, employment, and income. In this respect, the statistical survey conducted by the Department of Commerce on the various phases of United States business operations in Latin America is worthy of attention, because the survey provides, for the first time, data on production, income, and capital accumulation in this area.4 However, comprehensive as the data are, with figures classified by industry and by country, there is no criterion in the survey by which we can arrive at an over-all evaluation of the relative contributions by United States operations in different industrial groups and/or countries. purpose of this paper is to utilize the data in the survey in such a way as to make a composite ranking possible. In attempting to do this, we shall first sort out the data in accordance with four criteria which we shall lay down I See six case studies on U.S. business performance abroad published by the National Planning Association. They are Sears, Roebuck de Mexico, Casa Grace in Peru, Philippine American Life Ins. Co., Creole Petroleum Corporation in Venezuela, Firestone Operations in Liberia, and Stanvac in Indonesia. 2R. Nurkse, The Problem of International Investment Today in the Light of Nineteenth-Century Experience, Economic Journal, LXIV (December I954), 744-58. 8For a more detailed listing of possible principal benefits of foreign direct investment to the host country, see the policy statement of the National Planning Association in its series of case studies referred to above. ' U.S. Investm6nt in Latin America (I957).

SOME time ago, an attempt was made to develop a practical method for the appraisal of projects of road construction.1 The proposed method is one of comparative statics and compares the national product before and after the construction of a road. The essential elements of the method are the following. The whole economy is divided into a number of geographically separated centers. The movement of products from one center to another gives rise to transportation costs and, consequently, the price of the product of center i in center k depends on the costs of transportation from i to k. Supply and demand equations are assumed for each center and each product. The supply of each product i depends on the price of product i and the prices in i of all other products as cost elements. Two alternative assumptions are made with regard to the reactions of demand to price changes:

i the proportion of T which is invested in the borrowing country j the proportion of T spent outside the borrowing country p = the proportion of T spent in the lending country (j>p). In the lending country the increase in income will amount to: p.T times the multiplier (allowing for foreign repercussions); (I) while the decline in the balance of payments surplus 3 will be: [T minus p * T plus MPM p T times the multiplier] minus [a secondary increase in export to the borrowing country whose income has gone up]. (2) In the borrowing country, income will rise by: i. T times the foreign trade multiplier (3) while the external deficit will decline by: [T j.T] [MPM.i.T times the foreign trade multiplier]. (4) It is evident from (2) and (4) that the transfer must exceed the foreign exchange requirements of the development program if it is to have a favorable effect on the external position of both nations. This is particularly true for the borrowing country. Provisions may also be made for spacing repayments over periods of inflation. This would reduce the external surplus in the paying country and the external deficit in the receiving country, while damping the inflation in both economies. A policy of countercyclical lending is subject to the same limitation as the use of public work programs in combatting recessions. By the time a foreign investment project gets under way the recession may be over, but work on the project cannot be stopped for the duration of the ensuing boom. (However, the two lags in the transmission of economic fluctuations from developed to underdeveloped countries would reduce some of this inflexibility.) This is another reason why the responsibility for such a policy must rest with a public body. Some useful investment projects can no doubt be found which are flexible in nature and adaptable to cyclical needs. The amount of the transfer should in any case exceed the immediate costs of these projects. Furthermore, the subject under discussion would not constitute the entire lending program, but only a small part of it. International transfers should be geared to development requirements and not to cyclical fluctuations. Nor can cycle policy be used to justify foreign lending. But inasmuch as lending programs are conducted to foster economic development, there is no reason why they should not be used in part to combat economic fluctuations and external imbalances. ing 1947-1958: Y = -0.225 + o.oo63 X 4o.II6; r= o.682. 'These adjustments are limited to the income effects and should be supplemented by changes in the terms of trade.