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Effects of foreigners portfolio investment on U.S BOP

Since early 1980s, foreign portfolio investors has purchased a considerable portion of the U.S. treasury bond issues.  Explain some short-term and long-term effects of the foreigners’ portfolio investment over the U.S. balance of payments.

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Since foreigners acquire the U.S. Treasury bonds, U.S. BOP will increase in short run. However in long run, U.S. BOP can deteriorate since U.S. must pay interests and principals to the foreigners. If foreign funds are used productively and supports to the competitiveness of U.S. industries, Though, the U.S. BOP may increase in long run.

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