Determinants of Foreign Firm Location Decisions in the United States, 1985-1990

Abstract

Foreign direct investment is an important component of state economic development and state political economy, yet relatively little is known about the political factors that influence foreign firm location decisions. Previous econometric studies of firm location decisions have downplayed the role of political conditions (i.e., institutions, parties, and policy interventions) in influencing firm location decisions, whereas case studies have provided evidence of political effects that are limited to specific firms. This study combines important elements from each of these perspectives into a regional- and time-effects Poisson analysis of foreign manufacturing firm location decisions in the American states from 1985 to 1990. The authors depict firm location decisions as a function of several sets of variables, including labor market conditions, manufacturing density, infrastructure/transportation, access to markets, taxes, the national context, state institutional ideology, and state policy activism. Findings suggest that several of these variables have significant impacts on foreign firm location decisions.