Economic Policies and Foreign Direct Investment: A State-Level Analysis

This paper will analyze the impact of labor conditions and policy implications on US inward foreign direct investment. Foreign Direct Investment (FDI) has been popular in the US and remains a top destination for foreign investment. As the US has a stable economy, robust workforce, and legal protection, foreign investors are eager to bring their corporations to the US market (US Department of Commerce). As FDI spans multiple industries, this research will look to weigh how specific industries are better suited for particular states based on their policies. Research in this field typically caters to FDI incentives at the country level, looking at how a specific country's policies bring in FDI. In looking at state-level policies in the US, this research will look to see which states incentivize inward FDI at an effective level. Rogers & Wu (2012) pose the question of do states matter, honing in on the policy implications behind inward FDI among manufacturing firms. I will look to expand the empirical framework of this research, as it focuses exclusively on manufacturing with old data from 1999 to 2008. Using data from 2012-2021, I will implement fixed effects panel data model to account for state, time, and industry fixed effects. This will not only answer which states most effectively incentivize FDI but will also measure which condition has the strongest impact on these incentives. These results suggest that the agglomeration effect on FDI has significant effects on incentivizing inward FDI. States that are regionally advantaged, being surrounded by states with high FDI, will see spillover benefits.