Vanderbilt Journal of Transnational Law

First Page



This article examines the elasticity of DFI in relation to these promotional activities. It also analyzes the effect that agglomeration economies, urbanization economies, and labor market conditions have on DFI. Its specific focus is upon the effect that those four determinants had on new plant start-ups in three separate industries: drug manufacturing, industrial machinery, and motor vehicle production over the 1979-1983 period. (Those industries have been given standard industrial classification (SIC) numbers of 283, 355 + 356, and 371, respectively, by the U.S. Department of Commerce.) The industries are considered separately in order to test the hypothesis that the importance of the four determinants varies according to specific business needs. Other recent contributions to the industrial location literature also consider three-digit industries separately for the same reason. The study uses state-level data and employs a multinomial logit procedure.

The article is divided into six further sections. Section II discusses the magnitude and variance of states' efforts to attract foreign businesses. Section III reviews industrial location theory, particularly as it pertains to foreign firms in the United States. Section IV presents an empirical model. Section V discusses the data used in the estimation. Section VI details the estimation results. Section VII concludes the article by highlighting certain implications for public policy and noting some limitations of the empirical work.