The Determinants Of Capital Intensity In Foreign†Owned Manufacturing Across U.S. Regions

This paper empirically tests hypothesized influences on the capital intensity of foreign direct investment (FDI) among the 48 contiguous United States. A theoretical profit maximizing model of the firm is developed linking capital intensity to traditional variables (the prices of labor and capital services); the model also takes account of the price of energy, agglomeration effects, educational levels, the importance of labor unions, and state and local public capital. The main focus is on the effects of public capital on the capital intensity of FDI. Public capital is disaggregated as follows: highway, sewer and water, and other (primarily buildings). The operational model defines FDI as the 1986 gross value of property, plant, and equipment of manufacturing affiliates of firms with headquarters in Canada, France, Germany, Japan, the Netherlands, Switzerland, and the United Kingdom. Findings are reported both for total manufacturing and for manufacturing disaggregated into five industry groups. Generally, the results emphasize that highway infrastructure and sewer and water public capital act as powerful incentives to attract capital†intensive FDI across the 48 contiguous United States.