President Obama’s unprecedented regulatory agenda is driving both foreign and domestic capital out of the United States. For now, the U.S. fortunately is still the top destination for investment in the world. Foreigners have invested more than $3.5 trillion in the U.S. economy, more than triple the share of the next-closest economy. But that edge is slipping. In 2011, foreigners invested $227 billion in the United States. That dropped to just $147 billion in 2012, a drop of more than 35 percent. And the decline occurred during what was supposedly an economic recovery.

There are many reasons why investors are choosing to put their money in places other than the United States. Developing countries are growing faster, 95 percent of the world’s population lives outside the U.S., and other countries are embracing free markets for the first time. But, as Cato scholar Daniel Ikenson notes in a new paper, some of that decline in investment is also due to the deteriorating business climate in the U.S. As recently as 2000, the U.S. ranked second in the annual Economic Freedom of the World Report. It fell to eighth by 2005, and all the way to 18th after just four years under Obama. The main driver of the fall is heightened regulation.