Outward Foreign Direct Investments as a Catalyst of Urban-Regional Income Development? Evidence from the United States

abstract

Challenging populist views of outward foreign direct investments (OFDIs) that suggest they move prosperity abroad, this article builds a model suggesting that OFDIs support urban-regional income levels due to (1) labor; (2) knowledge; and (3) multiplier, spillover, and intermediate input effects. In a panel study of median incomes in US urban regions between 2005 and 2013, we first establish a base model that measures income as a function of local factor endowments (high skill levels, fast-growing and technologically sophisticated industries, and urban scale effects). This base model is highly significant. In the next step, we extend this model by adding our main variables of greenfield inward and outward investment intensity, and finally we integrate other indicators that measure the geographic, industrial, and functional composition of OFDIs. While the results for other investment-related indicators are mixed, the main investment variables are highly significant, thus providing strong support that greenfield OFDIs act as a catalyst of urban-regional income development.

Key words:

• inward foreign direct   investments (IFDIs)
• interregional inequality
• outward foreign direct
•   investments (OFDIs)
• United States
• urban-regional income

JEL codes:

• F21
• F61
• R11

View correction statement:

Correction

Acknowledgments

This article is dedicated in memory of Heiner Depner, whose engaging work on foreign direct investments was an inspiration. Parts of this article, to which both authors contributed equally, were presented at the 2018 Global Conference on Economic Geography in Cologne, Germany, and the 2019 American Association of Geographers Annual Meeting in Washington, DC. We would like to thank the participants for providing valuable feedback. We would also like to thank John Cantwell, Sebastian Henn, and Ruilin Yang, as well as three anonymous reviewers and the editors of this journal for helpful comments and suggestions. This research was financially supported by the Canada Research Chair in Innovation and Governance at the University of Toronto and a Social Sciences and Humanities Research Council (SSHRC) Insight Grant (File Number 435-2019-0273).

Supplemental Material

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