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Over the past two decades, most American states have been actively involved in international economic activities to promote economic development and to cope with increasing global economic interdependence (e.g., Luke & Caiden, 1989; Kline, 1984a, 1984b; McIntyre, 1983; Neuse, 1982). Major activities these states have conducted are, for example, increasing exports to other countries, encouraging foreign investment, and inducing tourists from other countries to visit their states. Among the states, foreign investment has emerged as a top priority of their economic development policy because it brings fresh capital and new jobs into the state.
The current interest in foreign investment focuses not on incoming portfolio investment in U.S. stocks and bonds but on incoming direct investment that implies a managerial role of foreign investors in the home companies (Awanohara, 1990, p. 30). Because of its unique nature, foreign direct investment (FDI) has met mixed reviews from the American public. Opponents of FDI express concerns about possible negative effects, such as foreign ownership of American real estate, control over our national resources, decreased productive and technological capacity, excessive influence over our politics (particularly at the local-government level) and potential threat to our national security (e.g., Tolchin & Tolchin, 1988a; Choate, 1990). Proponents of FDI, on the other hand, argue that FDI benefits our economy by promoting U.S. employment, technological progress, and U.S. competitiveness (e.g., Graham & Krugman, 1989; Becker, 1989; Glickman & Woodward, 1990).
The purpose of this study is to examine recent developments of FDI in the United States. The study first reviews trends of FDI in the United States during the period of 1970-1989 and explains major causes for the growth. Focusing on the experience of state governments, the study then explains major strategies state governments have used to attract FDI and analyzes statistical data to reveal the current FDI position and the change of FDI among the United States' regions and leading states. Based on this statistical data, this paper addresses FDI location and discusses the value of state incentive strategies.
Trends and Motives of Foreign Direct Investment
Trends of FDI in the United States, 1970-1989
Foreign direct investment rose dramatically in the United States during 1970-1989. To show this increase, we collected data of FDI in the United States (FDIUS) during the survey period to see the trend of development and also analyzed the data of the United States' direct investment abroad (USDIA) to compare the difference between the two. As presented in Table 1, the book value of USDIA ($75.48 billion) was about 5.7 times the value of FDIUS ($13.27 billion) in 1970. USDIAs dominance continued during most of the 1970s and decreased during the 1980s. In 1989, the book value of USDIA position ($373 billion) was about $27 billion less than the value of FDIUS ($400 billion). During the total period, the USDIA value increased about four times its original book value and the FDIUS value about 29 times its original book value. The ratio between USDIA and FDIUS decreased from 5.7 in 1970 to 0.9 in 1989. Figure 1 shows the trend of USDIA and FDIUS during the period.
Table 1 United States Direct Investment Position Abroad (USDIA) and Foreign Direct Investment Position in the United States (FDIUS), 1970-1989(*) USDIA FDIUS Difference Ratio Year (A) (B) A-B A/B 1970 75,480 13,270 62,210 5.7 1971 82,760 13,914 68,846 5.9 1972 89,878 14,868 75,010 6.0 1973 101,313 20,556 80,757 4.9 1974 110,078 25,144 84,934 4.4 1975 124,050 27,662 96,388 4.5 1976 136,809 30,770 106,039 4.4 1977 149,848 34,595 115,253 4.3 1978 167,804 42,471 125,333 4.0 1979 192,648 54,462 138,186 3.5 1980 215,375 83,046 132,329 2.6 1981 228,348 108,714 119,634 2.1 1982 207,752 124,677 83,075 1.7 1983 207,203 137,061 70,142 1.5 1984 211,480 164,583 46,897 1.3 1985 230,250 184,615 45,635 1.2 1986 259,800 220,414 39,386 1.2 1987 314,307 271,788 42,519 1.2 1988 333,501 328,850 4,651 1.0 1989(**) 373,436 400,817 -27,381 0.9 * book value at year end, in millions of U.S. dollars ** preliminary Note: Data taken from Statistical abstract of the United States (U.S. Department of Commerce, 1977, 1981, 1991).
The increase of FDIUS is further evidenced in the analysis of capital outflows and inflows of foreign investment during the period. As Table 2 indicates, the capital outflows increased about four times, from $7.6 billion in 1970 to $31.7 billion in 1989. During the same period, the capital inflows increased about 48 times from $1.5 billion to $72.2 billion. The net outflows of foreign investment changed from the positive figures in the 1970s to the negative figures in the 1980s. The …