Regional foreign direct investment potential of the states within the US

Given various significant benefits, not only countries but also regions within a country compete against each other in trying to attract foreign direct investments (FDI). While there are several studies explaining the factors behind a country's potential for foreign direct investment, within-country location choice of multinationals has not been as adequately studied. After a brief review of the literature on location decisions of multinationals, this study attempts to fill this gap by identifying the factors that lead to variations in the attractiveness of regions within a country. The study uses states within the US as regions and develops an FDI potential index for the states using the results. The analysis is carried out not only to explain the amount of capital investment by multinationals to a specific region but also the level of employment resulting from the FDI, which seems to be the main reason for state legislatures’ efforts to attract such investments in the US. The index provides a guideline for identifying the successful strategies in states’ promotional economic development programs.

► Factors affecting the within-country location decisions of multinationals are explored.
► Agglomeration effect is found to be the most significant factor affecting the location choice.
► High unemployment rate attracts multinationals to a location capturing availability of labor.
► While quality of labor is attractive, unionization deters multinational investment.
► An index of FDI employment potential of US states is developed using the results.