The State-Based Factors Affecting Inward FDI Employment in the U.S.

The State-Based Factors Affecting Inward FDI Employment in the U.S.

Lucyna Kornecki (Embry-Riddle Aeronautical University, USA) and E. M. Ekanayake (Bethune-Cookman University, USA)
DOI: 10.4018/978-1-4666-4639-1.ch007
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Abstract

The descriptive part of this research focuses on the latest trends in U.S. inward Foreign Direct Investment (FDI) and describes the U.S. inward FDI flows and stock as a percentage of Gross Domestic Product (GDP) and includes geographic and sectoral distribution of inward U.S. FDI. The important part of U.S. inward FDI profile relates to inward U.S. FDI employment and inward U.S. FDI financial flows, which include equity, reinvested earnings, and intercompany debt. The corporate players, Mergers and Acquisitions(M&A’s) and green field investment are discussed briefly. The empirical part of this research investigates state-based factors affecting the inward FDI employment among 50 states of the United States and is based on data collected by the Commerce Department’s Bureau of Economic Analysis (BEA). This study identifies several state-specific determinants of FDI employment. The results indicate that the major factors exerting positive impact on inward U.S. FDI employment are: real wages, infrastructure, unionization level, educational attainment, FDI stock, and manufacturing density. In addition, the results show that gross state product growth rate, real per capita taxes has negative impact on FDI employment.
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Background

Inward US FDI Stock and Flow

Inward foreign direct investment is an essential component of the U.S. economy, contributing to production, exports and high-paying jobs for the country’s workers. As the world’s largest economy, the United States is well positioned to participate in the increasingly competitive international environment for FDI that has emerged as both advanced and developing economies have recognized the value of such investment. The U.S. hosts the largest stock of IFDI among the world’s economies, and continues to be at the top as a destination for inward FDI flows.

The country’s IFDI stock grew from US$ 83 billion in 1980 to US$ 540 billion in 1990 (www.unctad.org/fdistatistics) to US$ 2,783 billion in 2000, and reached $3,509 billion in 2011 (Table 1). It exceeds by far the inward FDI stock of other large developed economies such as the United Kingdom (US$ 1,199 billion), Germany (US$ 714 billion) and the largest emerging market economy, China (US$ 712 billion) (Table 1).

Table 1.
United States: inward FDI stock, 2000-2011 (US$ billion)
Economy200020012002200320042005200620072008200920102011
United States2,7832,5602,0222,4552,7172,8183,2933,5512,4863,0273,4513,509
Comparator Economies
United Kingdom4395075236067028411,1391,2439811,0561,0861199
Germany272272298395512476591695668677674714
China193203217228245272293327378473579711
Russia32537197122180266491216382423457
Japan5050789097101108133203200215226

Source: UNCTAD’s FDI/TNC database, available at:www.unctad.org/fdistatistics.

The U.S. continues to be the leading destination for FDI flows, with inflows reaching US$ 227 billion in 2011; in comparison, FDI flows that year to China were US$ 123 billion, to the United Kingdom, US$ 54 billion, and to Germany, US$ 40 billion (Table 2). Between 2000 and 2011, the U.S. received the largest FDI inflows of any economy in the world. Between 2008 and 2009, during the recent financial and economic crisis, inflows decreased by 50%, from US$ 306 billion to US$ 153 billion, but grew again to US$ 197 billion in 2010 and further to US$ 227 billion in 2011.

Table 2.
United States: inward FDI flows, 2000-2011 (US$ billion)
Economy200020012002200320042005200620072008200920102011
United States3141597553136105237216306153198227
Comparator Economies
China414753546172738410895115124
United Kingdom1195324175617615619691715154
Germany198265432-104756804384740
Russia33381513305575364153
Japan869683-7232412-1-2

Source: UNCTAD’s FDI/TNC database, available at:www.unctad.org/fdistatistics.

The flow of international capital supported the U.S. economy in the 1980s and has been a key factor expanding economy. During the 1990s, the U.S. experienced extraordinary inflow of FDI corresponding with exceptionally high output growth (Goss, Wingender and Torau, 2007).

The inward U.S. FDI stock as a percentage of GDP climbed up to 6% during 1980’s and up to 10% during 1990’s reaching a peak of 27% in 2000 and 25% in 2007. U.S. FDI stock shows cyclical character and declined significantly after 2002 and 2008 as a result of economic recessions (Table 3). This relatively high percentage of the FDI stock in GDP indicates important role of the inward FDI in the U.S. economy (Kornecki, 2010).

Table 3.
Inward FDI Stock and Flow as a percentage of GDP, 2000-2011

Source: UNCTAD’s FDI/TNC database, available at: www.unctad.org/fdistatistics.

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