Factors Affecting Inward Foreign Direct Investment Flows into the United States: Evidence from State-Level Data

Abstract

This paper investigates factors affecting the inward foreign direct investment (FDI) flows among fifty states of the United States. The analysis uses annual data for the period from 1997 to 2007. The study identifies several state-specific determinants of FDI and investigates the changes in their importance during the study period. Our results show that among the major determinants, the real per capita income, real per capita expenditure on education, FDI related employment, real research and development expenditure, and capital expenditure are found to have a significant positive impact on FDI inflows. There is also evidence that the share of scientists and engineers in the workforce exerts a small positive impact on inward FDI flows. In addition, per capita state taxes, unit labor cost, manufacturing density, unionization, and unemployment rate exert a negative impact on FDI inflows.