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The Effects of Direct Foreign Investment on Local Communities

  • David N. Figlio
  • Bruce A. Blonigen

The large increase in direct foreign investment (DFI) into the United States in the late 1980s has generated considerable research on why these flows occurred and where these foreign firms located. However, very little has been done to evaluate the impact these foreign firms have on the local communities in which they locate. As a first step in addressing this topic, we use detailed county-level panel data from South Carolina across 5 year intervals from 1980 through 1995 to investigate the effect of foreign manufacturing firms on local labor markets and on the level and distribution of local government budgets. We find that manufacturing employment by foreign firms has a substantial impact on industry wages and county budgets which is significantly different from domestic manufacturing employment. With respect to wages, we find that while increased manufacturing employment generally increases county wages in an average two-digit industry, this effect is more than seven times larger when the employment growth comes from a foreign firm, rather than a domestic one. On the budget side, we find that foreign employment leads to larger declines in per capita revenues and expenditures at the county level, and to significant redistribution of county expenditures away from public school funding and toward transportation and public safety.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7274.

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Date of creation: Jul 1999
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Publication status: published as Figlio, David N. and Bruce A. Blonigen. "The Effects Of Foreign Direct Investment On Local Communities," Journal of Urban Economics, 2000, v48(2,Sep), 338-363.
Handle: RePEc:nbr:nberwo:7274
Note: ITI
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  1. Steven Globerman & John C. Ries & Ilan Vertinsky, 1994. "The Economic Performance of Foreign Affiliates in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 143-56, February.
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  13. Coughlin, Cletus C & Terza, Joseph V & Arromdee, Vachira, 1991. "State Characteristics and the Location of Foreign Direct Investment within the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 675-83, November.
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  15. Mark E. Doms & J . Bradford Jensen, 1998. "Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States," NBER Chapters, in: Geography and Ownership as Bases for Economic Accounting, pages 235-258 National Bureau of Economic Research, Inc.
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