The contribution of foreign capital to U.S. productivity growth

U.S. Bureau of Labor Statistics productivity data show annual output growth per hour since 1995 roughly doubling the rate achieved over the preceding two decades. A rapid inflow of foreign investment paralleled the brisk productivity growth, suggesting a positive link between the growth of productivity and foreign capital. The goal of this study is to investigative this relationship and determine the extent to which foreign capital contributed to U.S. productivity growth during this period of vigorous productivity growth. Applying a Cobb-Douglas production function to data from 1988 to 1999, it is found that foreign capital accounted for almost 16% of overall U.S. productivity growth. Moreover, foreign capital was responsible for more than one-third of the manufacturing sector's productivity growth between 1988 and 1994. More importantly, foreign capital contributed almost 16% of productivity growth between 1995 and 1999, significantly more than domestic capital's contribution.