Inward and outward foreign direct investment: The case of US forest industry

In the 13 years preceding 1995, foreign direct investment in the U.S. forest industry increased 54 percent, but the U.S. direct investment in forest industry abroad nearly doubled. The forest industry's share of total foreign investment in the U.S. manufacturing sector declined, but its share of foreign investment abroad increased. During the same period, the U.S. forest industry attracted only about one-fourth as much as the foreign direct investment in the Canadian forest industry, although its size is six times as big as its Canadian counterpart. Foreign investors, both in the United States and other countries, have been attracted to the paper and allied sector much more than the wood products sector. The relatively stable political and economic system and the size of the U.S. market appear to be the main attractions for foreign investors to invest in the United States. The continuing decline in timber availability may be the main cause for U.S. forest industry firms to invest abroad, especially in timber-rich countries. Market structure and economies of scale could explain the concentration of investment in the paper and allied industry. This pattern of foreign investment has important implications for economic development and long-term competitiveness of the industry.