Date of Award

Spring 2021

Document Type

Open Access Dissertation

Department

Moore School of Business

First Advisor

Douglas P. Woodward

Abstract

This dissertation examines the regional economic effects of foreign direct investment (FDI). FDI is known to have benefits for both national and regional economies. These benefits include an increasing number of higher paying jobs, productivity spillovers for local firms, and elevated economic development (SelectUSA, 2020). Many governments compete to attract large FDI projects, often through the use of controversial incentive packages. Incentives are criticized because it is not clear that they affect the location of FDI and furthermore, whether the benefit of incentives outweigh the costs (Bartik, 2018).

In the first paper, I assess the impact of incentives on the location of manufacturing FDI within the United States relative to other fundamental determinants. I find that agglomeration economies are among the most significant location factors. Localization economies have an elasticity of 0.92 while urbanization economies have an elasticity of 1.31. Additionally, I find that the corporate income tax rate has an elasticity of -0.46 while the investment tax credit has an elasticity of 1.56. In the second paper, I test the influence of culture and FDI in Eastern Europe. Culture has long been recognized as an important determinant of business location decisions; however, culture is difficult to disentangle from other factors (Beugelsdijk et al., 2011). In this paper I measure culture through a historical affiliation with the Habsburg Empire. This allows me to employ a regression discontinuity design to explore the effect of culture on the spatial allocation of FDI along the historical empire border. As no other characteristic impacting FDI changes along the border, any observed differences in FDI are interpreted as causal effects of cultural ties on the location of FDI. The results suggest that there are between 0.24 and 0.32 additional investments per 10,000 individuals coming from Habsburg-affiliated countries in the former empire territories of Romania and Serbia today.

In the last paper, I examine the effect of FDI in rural counties in the United States. Using a combination of quasi-experimental techniques, I determine the effect of FDI on personal income and employment growth. I find limited evidence on the efficacy of targeting FDI for economic development.

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Economics Commons

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