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Day January 15, 2006

Thinking Different – US Foreign Investment More Productive?

Tyler Cowen:

Dan Drezner writes:

Given the fact that foreigners currently have a net claim on $2.5 trillion in U.S. assets, one would expect the U.S. to be paying out a lot more in interest, dividends, and profits to foreigners than Americans would receive from their investments.

The weird thing is that, so far, this hasn’t been true. Last year the U.S. earned $36 billion more on their foreign investments than foreigners earned in the United States. The question is, why?

It turns out Americans both (seem to) make riskier investments and earn a higher return on investment. One extreme view (not Dan’s) suggests the following: