to investors in this country on their holdings of foreign securities; (2) returns from the so-called direct investments in foreign countries; and (3) earnings on short-term investments abroad. The total estimated values of these respective classes of foreign investment are shown in tables 20 and 26.58 The estimated returns from these various classes of investment are summarized in table 17, above.

INCOME FROM PORTFOLIO INVESTMENTS

Income received from American holdings of foreign dollar bonds and other miscellaneous portfolio investments in foreign countries during 1937 was estimated at $158,000,000, as compared with

Figure 8.-Income and debt-service receipts from United States portfolio investments in foreign countries and from war debts, 1930-37.

$176,000,000 in 1936 and $188,000,000 in 1935. The average rates of return for these years were 3.7 percent, 3.7 percent, and 3.9 percent, respectively.

Reductions in the total value of United States portfolio investments abroad were the principal factor in the drop in total interest and dividends received. These reductions resulted primarily from sinking-fund and redemption operations. The effect of Argentine and Norwegian redemptions, and of refundings at lower rates of interest (see table 35), will not be fully noticeable until 1938. Poland's

For a discussion of the changes in these estimated totals see appendix C, Reconciliation of 1936 and 1937 Estimates of United States Investments in Foreign Countries. and the section entitled "Capital Transactions." For an account of the investments and the interest-default status, see section, "Position of the United States as Creditor and Debtor," pp. 55-66.

default, which was announced in 1936, became fully effective in 1937, causing a decrease in receipts from that country from $6,300,000 to $2,200,000. The depreciation of the French franc caused a drop in receipts by holders of French bonds. On the other hand, Brazil's default, as of December 1, came after interest on most of the issues had been paid at the rates provided for in the agreement of 1934, which rates were higher in 1937 than in 1936.

The estimated income from the holdings comprising the omission estimate in miscellaneous portfolio investments was based on the rate of return on that portion of such investments as were definitely known. The income from the latter that is, the known portion-was included in the income column of table 18.

Income and debt-service receipts in 1937 from various foreign countries, subject to the qualifications discussed in the explanatory note, are shown in table 18. Corresponding receipts for the period 1930-36, with the addition of receipts on war-debt account, are shown in figure 8.

Table 18.-Income and Debt-Service Receipts From United States Portfolio Investments in Foreign Countries, by Geographic Areas, 1937 1

This table, with the exception of the second column, does not show the precise amounts received from each country by investors residing within the United States. It is estimated that deductions of $50,000,000 and $15,000,000 for interest and for sinking fund, respectively, should be made to cover repatriated issues. and these deductions are therefore made from the total income and sinking-fund items in the table. The data regarding bond-redemption payments were of such character that it was possible in each case to make a reasonably correct estimate of cash payments to investors resident in the United States. The income amounts were calculated by issues, after taking account of complete and partial defaults and payments made in the gold equivalent of the predevaluation dollar or in foreign currencies.

Table 18.-Income and Debt-Service Receipts From United States Portfolio Investments in Foreign Countries, by Geographic Areas, 1937-Continued

INCOME FROM DIRECT INVESTMENTS

Total income received from United States direct investments in foreign countries during 1937 is estimated at $440,000,000, as compared with $380,000,000 in 1936 and $320,000,000 in 1935. This estimate is based on the use of various types of data relating to actual receipts rather than on an assumed average rate of return applied to the estimated value of the investments. The figure used in the balance of international payments for income received from direct investments is not merely the aggregate of dividends either declared by or received from foreign subsidiaries or affiliated companies. Dividends declared are sometimes subject to transfer restrictions and may not actually be received by the United States company,

except in the sense of its having foreign currencies to dispose of within the foreign country. Dividends received do not necessarily comprise the total funds transferred, since interest received on advances and payments for technical services are frequently important sources of income. Furthermore, the character of the accounting relationship between foreign subsidiaries and their United States parent companies is at times such that earnings are a better index of the transfer of funds than dividends. It sometimes happens that subsidiaries with large net earnings do not declare any dividends for 10 to 15 years. However, instead of reinvesting these earnings in the foreign country they transfer them to the parent company in the form of advances. Such advances by the subsidiary companies are, for balance-of-payments purposes, the practical equivalent of dividends, inasmuch as they represent the receipt in this country of earnings on foreign investments.59

In the preparation of the estimates since 1934, earnings were used in some cases, partly because the available data related to the American holding company rather than to the foreign subsidiaries. In other cases figures for dividends declared were used. Regarding countries where rigid exchange restrictions were in force, income received was carried at zero, or data as to actual dollar receipts were employed whenever obtainable. Generally, however, dividends declared by the foreign subsidiaries or affiliated companies seemed to be the proper figures for entry. Bond interest and preferred dividends paid by the foreign companies to the parent company, or to other investors in the United States, were added in order to arrive at an aggregate figure for income received from American-owned direct investments abroad.60

A detailed study was made of published corporation reports, of annual reports filed with the Securities and Exchange Commission, and of other sources. The search for data, as well as the determination of accurate valuations of the properties to which the income data applied, was facilitated by the questionnaire study of direct investments just completed (see footnote 60). As a result, data were obtained relating to over 50 percent of the estimated direct investments abroad. The total income received from the investments included in this sample amounted to $230,000,000. On the basis of a geographical and industrial analysis of the sample data, the final estimate of total receipts was placed at $440,000,000, an average rate of return of 6.5 percent. The corresponding rate in 1936 was 5.7 percent (revised).i

Range estimates of the income from direct investments abroad for the years 1936 and 1937 are shown, by geographic areas, in table 19. The largest increase was made in South America, where coppermining profits increased greatly in 1937 over 1936 and where mining investments comprise a large part of the total. Income from petroleum properties also contributed to the rise. Income from

50 To obtain data relative to the actual transfer of funds between subsidiary and parent it would be necessary for the parent to supply data under five heads, as outlined in The Balance of International Payments of the United States in 1936, p. 36. The returns to United States insurance companies on investments in foreign countries are not included herein but are taken into account in the computation of the net movement of insurance funds (see section, "International Insurance Transactions").

60 For data regarding the relative importance of the various classes of security holdings involved in direct investments, see Dickens, Paul D., American Direct Investments in Foreign Countries-1936, chapter IV. 61 Ibid., p. 28. The return of 5.2 percent for 1936 was computed prior to adjustments based on industrial analyses of the sample.

direct investments in Canada rose, largely as a result of increased dividend payments by gold, copper, and nickel mining companies. Europe was the only area showing a decrease. This decline was confined to the manufacturing group.

Table 19.-Range Estimates of Income From United States Direct Investments in Foreign Countries, by Geographic Areas, 1936-37

1 Revised to take account of new data regarding income and the value of the investments.

Of the $230,000,000 received from the investments in the sample. data, $199,000,000 was in the form of common dividends and such small amounts of earnings as were considered to be proper balance-ofpayments entries, $22,000,000 was in the form of interest, and $9,000,000 was in preferred dividends and miscellaneous income receipts. The average rate of common dividends (on the basis of the total value of common stock and surplus) was over 7 percent. The rate for preferred stock was 6.0 percent and for bonds 4.3 percent. Data available regarding income from advances, which were not as satisfactory as those relating to other types of income, indicated a return of less than 1 percent.

Earnings on common stock increased more in 1937 over 1936 than did dividends or total income received. As a result, the estimate of earnings reinvested in 1937 is $150,000,000. Such reinvestment of earnings does not involve any international transfers of funds and, therefore, is not a balance-of-payments item. Europe was the only area to show declining earnings. The largest increases were recorded in South America and in Central America and Mexico, both areas being dominated by the trend in the mining industry. The distribution and public-utility groups had only slightly increased earnings. The earnings of the manufacturing and petroleum industries were moderately higher.

INCOME FROM SHORT-TERM INVESTMENTS

Earnings on short-term investments abroad in 1937 by American banks are estimated at $10,000,000, as compared with $12,000,000 in 1936 and $13,000,000 in 1935.

This estimate can be considered only as approximate for several reasons. First, the amount of such investments varied greatly throughout the year. At the beginning of 1937 the total was $775,000,000. At the end of the first 3-month period the total had risen to $814,000,000; after successive quarterly declines to $739,000,000 and $674,000,000, it had by the end of 1937 risen again to $721,000,000. Second, the rates of return on individual items varied widely according to the type of asset and its geographic location. Virtually no return was received from deposit balances abroad,

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