State Investment Promotion & Foreign Investment in the Us

Abstract

The individual states within the United States offer numerous incentives to entice international investment even though the effectiveness of doing so is unclear. Examining their effectiveness, we find that coastal states that offer more incentives do receive a greater annual share of foreign investment transactions into the US. As a second step, we consider what leads states to offer more or less incentives and find that states behave differently depending upon whether or not they are economically advantaged. Those that are advantaged offer fewer incentives, while those that are disadvantaged choose to offer more. For disadvantaged states, offering more incentives only partially offsets their lower attractiveness suggesting the limited effectiveness of investment promotion.

Keywords: investment promotion, FDI, location choice

JEL Classification: F23, R38