Academic journal article Global Journal of Business Research

Industry-Based Foreign Direct Investment around State Gubernatorial Elections: Evidence from the United States

Academic journal article Global Journal of Business Research

Industry-Based Foreign Direct Investment around State Gubernatorial Elections: Evidence from the United States

Article excerpt

ABSTRACT

As American governors acquire enhanced regulatory and decision-making powers for economic development, the prevalence of statewide business scorecards and other factors are prompting voters to make these politicians and their agents responsible for the financial well-being of their states. Consequently, governors are expanding their policymaking authority and have gone to greater lengths to entice global executives to commit their increasingly mobile capital to their locales in efforts to increase jobs. More than any other sector, manufacturing is the area in which American incoming foreign direct investment is concentrated or what this study will refer to as international industry investment. Data has been collected from three global-manufacturing related Bureau of Economic Analysis datasets, namely FDI in the US- Employment of Nonbank U.S. Affiliates, by State, FDI in the US- Manufacturing Employment of Majority-Owned Nonbank U.S. Affiliates, and Gross Property, Plant, and Equipment of Nonbank U.S. Affiliates, by State. Based on a cross-sectional analysis of this information and gubernatorial tenure, it has been determined that global executives are most likely to devote their indus try- bas ed capital to a state in the year after the reelection of a governor and in the second term of an administration.

JEL: A11, B22, C21, D72, D73

KEYWORDS: Administration, Agents, Politics, Capital Mobility, Communication, Competitive Advantage, Economic Development, Election, Foreign Direct Investment, Trade

INTRODUCTION

The structure of the American economy has altered dramatically during the past 50 years, particularly after the passage of the North American Free Trade Agreement (Chase, 2003). Fifty years ago, a third of all Americans were employed in manufacturing; currently less than a tenth of American workers work in factories, although many are trained in and have experience in industry (Hagenbaugh, 2002). During the past several decades, the US has lost its competitive advantage in production vis-a-vis developing countries, most notably China, especially when considering costs dedicated to wages and environmental customizations (Harney, 2009). The deindustrialization in locales around the US that once were booming with factories and high-paying jobs has contributed to economic hardships for many Americans and was the impetus for this study.

As global capital has become increasingly mobile, competition to attract industry from outside sources has risen in salience. Consequently, US lawmakers, particularly those in statewide offices, have been forced to take a proactive approach. Public pressure in America is now directed towards states to bring manufacturing capital to their regions in order to remedy the negative trends associated with lost factory jobs. American state leaders now commonly engage in strategies involving economic development policy, the use of governments and their agents to actively facilitate local strategies to promote job creation and an increased standard of living in a locale, a phenomenon which first started to take shape in the 1980s (Roberts, 2004; Feenstra, 1997). Goodman (1979) first pointed out that economic development policy and planning are no longer exclusively the practice of socialist governments.

This paper will: (a) introduce international industry investment and explain its rise in prominence, (b) detail the rise of regulatory authority in the American state, (c) analyze data related to this study by examining the entire population of United States governors while observing the correlation between their tenures in office and the predictability of obtaining international industry investment to their respective American states, (d) describe the increase in international industry investment for Year 5 of a gubernatorial administration for each of the three most closely-related US government Bureau of Economic Analysis (BEA) datasets, (e) develop a conceptual model to measure international industry investment, and (f) discuss future studies related to this field. …

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