CBO’s Model and Projections of U.S. International Investment Holdings and Income Flows: Working Paper 2021-10

By Daniel Fried

Since 1982, growth in the value of foreign investments in the United States has exceeded growth in the value of U.S. investments abroad and, as a result, the U.S. net international investment position has been negative and trending lower. Even though the value of foreign investments in the United States has exceeded the value of U.S. investments abroad, the total income earned by U.S. investors on their foreign asset holdings has historically exceeded the total income earned by foreign investors on their U.S. holdings. The United States is able to earn positive net international income despite its negative net international investment position because the average yield on U.S. investments abroad has exceeded the average yield on foreign investments in the United States.

The Congressional Budget Office uses its international financial forecasting model to project international capital and income flows. It includes two types of forecasting equations: those that project international asset positions and those that project the income generated by those assets. Over the 10-year forecast period, growth in the value of U.S. holdings of foreign assets is projected to exceed growth in the value of foreign holdings of U.S. assets; consequently, the U.S. net international investment position is expected to rise modestly. In addition, the international yield differential is projected to remain high and roughly steady over the next decade. As a result, net international income is expected to rise as a share of U.S. gross domestic product through 2023 before declining through 2031 (because of higher interest payments on U.S. federal debt held by foreign investors).