Marketing, Management and International Business: Contemporary Issues and Research in Selected Countries

PREFACE

This collection of scholarly papers is an ideal answer for teachers, lecturers, and professors faced with finding current research readings for their students in management, marketing and international business that are based on research from various countries. It is also valuable for practising managers who want a closer view of current writing in the areas covered in this book. The book contains eighteen chapters.

In Chapter One, Lucyna Kornecki and E. M. Ekanayake examined Foreign Direct Investment (FDI) that represents an integral part of the U.S. economy. They claimed that the flow of international capital has been a key factor for expanding economy. The inward FDI according to Lucyna Kornecki and E. M. Ekanayake constitutes important factor contributing to output growth and employment in the U.S. economy. The empirical part of the research in this chapter investigates state based factors affecting the inward FDI employment among fifty states of the United States.

In Chapter Two, Carmen Giorgiana Bonaci and Jiří Strouhal covered ethics as a behavior code that applies in a daily life. The chapter focuses on the particular case of professional ethics in the context of the accounting profession and in teaching ethics to accounting students. When aiming to clarify professional ethics, the authors closely analyzed integrity based on the latest developments undertaken by European professional bodies. The findings of the research were used in identifying ways to contribute to the endeavor of aligning the profession’s performance with society’s reasonable expectations.

In Chapter Three, Martin Grossman and Chien Wen Yu claimed that over the last decade China and Brazil have become major trading partners and have also become more politically aligned than in the past. During this same period, relations between Brazil and the U. S. have declined. The evolving triangle of economic and political relations between China, Brazil and the U. S. represents a major shift with potentially profound implications for the Western Hemisphere. This chapter explores the issues impacting relations between these three nations. Several frameworks from the fields of international relations and social network theory are considered as ways to interpret the growing influence of China in Brazil and an agenda for future research is suggested.

In Chapter Four, Fawaz Baddar ALHussan and Faten Baddar ALHusan present the Arab World as a region that has significant economic and geopolitical importance to Western and foreign investors arising from its large oil reserves, central geographic location and large market size. They pointed out that business structures and relationships in the Arab World are shaped by economic conditions, social structures, and values and beliefs of the people involved in managing the business enterprises in the Arab countries. The chapter also mentioned that despite the differences in economic and political systems of Arab nations, they are racially and culturally homogeneous and share many commonalities in their societal norms and practices, reflecting their historical, religious and socio-cultural characteristics. This chapter sheds lights on how business relationships function in the Arab World and how they are influenced by a challenging business environment with distinctive social structures and cultural values that are greatly influenced by family structure and Islam religion.

In Chapter Five, Elizabeth Stephanie Conradie, Mornay Roberts-Lombard and H B Klopper stated that according to Papasolomou & Vrontis, (2006:39) employees of car rental companies are their most important asset. They require special attention to ensure their loyalty and commitment to deliver service excellence to customers. The brand’s image depends on the role employees’ play in delivering the service. The research paper presented in the chapter aimed to provide guidance to South African car rental companies for improving their respective brand awareness, enabling them to expand customer bases whilst retaining existing customers. The influence of the seven internal marketing mix elements (product, price, place, promotion, people, processes and physical evidence) on South African car rental customers’ perception of brand awareness was investigated using structural equation modelling.

In Chapter Six, Ashleigh Bilbe and Janelle Rose claimed that universities are under considerable pressure to recruit students and therefore it is critical that universities understand the influence communication sources used by prospective students have on the selection process. They evaluated three communication sources namely traditional media, word of mouth and electronic word of mouth based on four criteria; trustworthiness, expertise, relevance and perceived risk. Based on data gathered from focus groups and a survey of first year Business students, the study found that traditional media was central to the dissemination of information to prospective students on all criteria. Word of mouth was a trustworthy and relevant source of information, but electronic word of mouth (i.e. social networking sites such as Facebook and Twitter) was assessed less favourably across all evaluative criteria.

In Chapter Seven, Prakash Vel, Nasim Sadat Mosavi and Anand Subramanian stated that today’s retailers need more integrated and reliable strategies and solutions in order to remain competitive at a Global level and that one of the important sources of enjoying a competitive advantage can be optimizing the Retail cost of operation. The chapter also mentioned that information technology as a domain, with its tools for modern retailing can provide the dual benefits of improving retailer, supplier, and customer activities and experiences and at the same time providing an opportunity for retailers to control their operations resulting in cost optimization. The chapter covered the strategic benefits of using IT solutions to optimize retail cost and addresses the challenges that could be faced by retailers in implementing them and also suggests methods to overcome the same.

In Chapter Eight, Gabriel O Ogunmokun and Simone Ng stated that although some studies have identified factors influencing organizations to export and the various barriers/problems encountered when exporting, very little research has examined whether the level of Australian firms export performance is related to factors that motivated the firms to export and the problems/barriers encountered when exporting to international markets. The chapter presents a study in Australia that was designed to compare organizations with a high level of export performance versus organizations with a low level of export performance in terms of the factors that influenced these firms to export and the problems faced when exporting to international markets.

In Chapter Nine, Janine Krüger and Miemie Struwig present a review of existing literature on the valuation of internet-based business organizations. Previous research is inconclusive regarding suggesting a specific valuation approach and focuses rather on a number of approaches. They claimed that although the discounted cash flow approach is the most used valuation approach for all business organizations, there are many unknown variables included in the various valuation approaches which further complicate valuation practices. In addition, none of the existing valuation approaches are specifically designed for internet-based business organizations. As internet-based business organizations are extremely rich in intellectual assets, it is important to value these intangible assets. The chapter suggests the development of an internet-based valuation model.

In Chapter Ten, Kubilay Özyer, Semra Güney, Öznur Azizoğlu and Esra Erenler present a study that was conducted to examine the effects of top management openness on employee silence behavior. Besides the relationships between organizational commitment components and employee silence, behaviour was also analyzed in the study. With this aim, employee silence surveys and affective and continuance organizational commitment surveys were distributed to firms settled in Ankara, Turkey. Results of this study show that top management openness has a direct and significant effect on employee silence behaviour. The study also found a significant and negative relationship between employee silence behaviour and affective organizational commitment and a significant and positive relationship between employee silence and continuance commitment.

In Chapter Eleven, Wan Cui, presents a study about the development of publicly owned private schools in China popularly known as Minbangonzhu schools. The author argued that that the development of these schools has been characterised by social, economic and political policies that have changed the nature of education in China in the past two decades. It is found in the study that the development of Minbangongzhu schools is market socialist driven in that it is a product of both a global market economy and the state’s endeavour to negotiate such global market effects.

In Chapter Twelve, Mary Anthony and Kandy Dayaram’s study examined the continued paucity of women police in key senior leadership positions. They mentioned that despite the significant progress made by women in paid employment, they still face difficulties in entering into senior leadership roles. They stressed that a plethora of studies on women in paid employment confirm the slow progress of women in key leadership roles; and that while the media often reports about the rise of women in leadership in the workplace, the reality appears to be in stark contrast. According to Mary Anthony and Kandy Dayaram, there are barriers that curtail a woman’s career growth in the Police Force, an organization that is considered to be gendered.

In Chapter Thirteen, Joo-Gim Heaney and Michael F Heaney stated that in 2009, the Australian higher education sector comprised 185 institutions approved by the Australian government to issue higher education qualifications (Heaney, Ryan and Heaney 2010). A number of these are privately owned, and have been perceived as being riskier institutions due to branding contagion fears caused by closures of privately owned Australian vocational education and training colleges (VET). This chapter proposes that private higher education providers can emulate branding strategies used by private schools in Australia. The chapter claimed that success of private schools in Australia is based on a number of solid branding concepts including corporate branding, reputation branding, saliency, tangibalisation, and the use of touch-points. Managerial implications and future research for building positive branding strategies are discussed for private higher education institutions.

In Chapter Fourteen, Jeno Beke presents a study that examined the impact of the adoption of international accounting standards on the economic performance of businesses listed on the Budapest Stock Exchange in Hungary. The financial data in the study was taken from accounts published on the Budapest Stock Exchange and in the Hungarian Business Information database. The results show that those businesses which have adopted international standards achieved higher and statistically significant positive coefficients than those following local accounting rules. They found that larger firms (those with more leverage, higher market capitalization and substantial foreign sales) were more likely to have adopted international accounting standards.

In Chapter Fifteen, Werner Soontiens and Kerry Pedigo stated that in a Transnational Education (TNE) environment, induction and staff development is mostly done from afar, supported by occasional academic visits to offshore locations. Consequently, there can be a perceived lack of overall connectedness between home and partner campus understandings of quality assurance, academic alignment and policy implementation. In implementing a different multi-faceted approach to staff induction, the Curtin Business School (CBS) endeavoured to augment staff engagement, build inter and intra relationships between all staff, advance a common understanding of university policies and procedures, and assure quality teaching and learning practices. This chapter presents the processes, analysis and findings in facilitating an offshore staff induction program onshore. The results not only identified skill development and understanding but also a depth of commitment and connectedness much greater and deeper than that anticipated.

In Chapter Sixteen, Dawna L. Rhoades and Tamilla Curtis claimed that the airline industry has been considered a special case in national and international business virtually since its beginning. Because of this status, national governments have repeatedly intervened to support national carriers in order to prevent bankruptcy and failure. The nations of Eastern Europe are no exception to this rule and are currently considering additional intervention to support their carriers. This chapter explores the rationale for intervention, particularly the suggested economic impact, using traffic and financial information from the Flightglobal database.

In Chapter Seventeen, Prakash Vel, Ricky Sharma and Tahera Yusef Ismail present a paper that examined how Integrated Marketing Communications (IMC) has been used effectively in changing consumers’ attitudes towards a service, eventually leading to service adoption. Using information gathered through primary and secondary sources, a case study was brought out on one of the travel destinations served by the rail service provider in Europe, the Eurostar, to evaluate the success of the Integrated Marketing communications (IMC) campaign used to impart a distortion in a consumer’s decision making process. The case study revealed that correct and careful use of IMC can lead to behavior distortion, which organizations can then use to change the attitude and perceptions of their target customers. The authors claim that since there is very little information about the effects of IMC on customer behavioral distortion and attitude formation, this chapter tries to provide the link between IMC and customer behavioural distortion and attitude formation.

In Chapter Eighteen, José Luis Rivas seeks to understand how board composition can be related to firm internationalization. Upper Echelons Theory was used to test board level variables: international experience, age, tenure and functional background diversity on firm internationalization. Using archival data from a European and US sample of 108 firms, it was found that international experience and functional background diversity of boards are positively related to firm internationalization but board age is negatively related.

We wish to thank all the contributors and reviewers of the chapters presented in this book. It is appropriate at this stage, to point out that the publishers and editors of this book are not responsible for any claims or opinions expressed in any of the chapters. The authors of each chapter are solely responsible for the content, referencing, grammar, theories, positions, and terminology, set forth in this book. They are also responsible for ensuring that the chapters they have submitted for this book have not been published elsewhere and contain no material previously published or written by another person, except when due reference is made in the text of the chapter or acknowledged at the end of the chapter.

Gabriel O Ogunmokun

Rony Gabbay

Chapter 1

Factors Affecting Inward FDI Employment in the U.S. Economy

Lucyna Kornecki

E. M. Ekanayake

ABSTRACT

Foreign direct investment (FDI) represents an integral part of the U.S. economy. The flow of international capital has been a key factor expanding economy. The inward FDI constitutes important factor contributing to output growth and employment in the U.S. economy. The introductory part of this paper focuses on an economic analyzes of inward US FDI flow and employment, by industry and states.

The empirical part of this research investigates state based factors affecting the inward FDI employment among fifty states of the United States. This study uses annual data for the period of time from 1997 to 2007 and identifies several state-specific determinants of FDI employment. The results indicate that the major factors exerting positive impact on inward US FDI employment are: real wages, infrastructure, unionization level, educational attainment, FDI stock and manufacturing density. In addition, the results show that gross state product growth rate, real per capita taxes has negative impact on FDI employment. Surprisingly, the share of scientists and engineers in the workforce has an unexpected negative sign. Our findings indicate the importance of selected variables in evaluating the effects of FDI flow on state employment.

INTRODUCTION

FDI plays an extraordinary and growing role in global business. It relates to a physical investment in foreign country (buildings, machinery and equipment) in contrast to a portfolio investment, which is considered an indirect investment. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. Many governments, especially in industrialized and developed nations, pay very close attention to FDI because the investment flows into and out of their countries have a significant impact on their economies (Jackson, 2011).

The United States continues to be the leading destination for foreign direct investment and the leading investor in other economies. The United States has been a very attractive investment destination due to its low-risk profile as compared to other leading global economies. Kearney’s index ranks World inward FDI and reveals FDI flows and the factors that drive corporate decisions to invest abroad. The major finding in A.T. Kearney’s 2010 FDI report indicates that China and United States are the most attractive FDI locations in the world and have achieved unprecedented levels of investor confidence. The United States remains a strong FDI magnet in the World economy. However, according to the ranking for 2011, China, India, and Brazil made the top spots of Kearney’s FDI Confidence Index (http://www.atkearney.com/gbpc/foreign-direct-investment-confidence-index).

Inward FDI represents an integral part of the U.S. economy. Foreign companies and their U.S. subsidiaries generate enormous economic benefits for the American economy and bring billions of investment dollars into the United States, create thousands of in-sourced American jobs, and highlight the importance of the U.S. market for foreign companies. The state development agencies have an established framework of financial incentives to influence the final business location decision. Typical state inducements may include: low-interest loans, reduced income, sales, or property tax liability and grants for training or infrastructure improvement. (http://www.areadevelopment.com/LocationUSA/).

INWARD U.S. FDI FLOW AND EMPLOYMENT ANALYSIS

Over the last two decades, the U.S. has attracted more inflows of FDI than any other country, what positive contributed to the U.S. output growth (Asheghian, 2004). The key factor that sustained the economic expansion was the ability of the U.S. to attract capital inflows from abroad. The economic expansion in the U.S. has been sustained by the willingness of foreign investors to provide capital. The foreign capital was responsive to the U.S. business cycle over analyzed period of time showing decline in inward FDI and increase in outflow FDI during recessionary economy.

Table 1: Inward US FDI Flow (USD millions) by decades

Source: Bureau of Economic Analysis, Balance of Payments and Direct Investment Position Data (http://www.bea.gov/international/di1fdibal.htm)

The flow of international capital supported the U.S. economy in the 1980s and has been a key factor expanding economy. During the 1990s, the U.S. experienced extraordinary inflow of FDI corresponding with exceptionally high output growth (Goss, Wingender and Torau, 2007). The inward U.S. FDI stock as a percentage of GDP climbed up to 6% during 1980’s and up to 10% during 1990’s reaching a peak of 18% in 2010. This relatively high percentage of the FDI stock in GDP indicates important role of the inward FDI in the U.S. economy (Kornecki, 2010). The FDI stock and the FDI-related employment are widely used as a measure of inward FDI effectiveness (Bode and Nunnenkamp, 2007).

Most of the foreign investment in the United States comes from the European developed economies. These investment are predominately in the manufacturing sector and accounts for very high percentage of FDI in the U.S. economy. The Netherlands and the United Kingdom account for the bulk of foreign investments in the U.S. petroleum sector, reflecting investments by two giant companies: Royal Dutch Shell and British Petroleum. Japanese investments in the U.S. wholesale trade sector are also substantial, followed by British investments. German investors are the largest investors in the information sector as a result of a number of large media company acquisitions. French, German, and British investments dominate other foreign investments in the banking sector, while Dutch, Canadian, British, and French investments account for over half of the investments in the finance sector (Jackson 2008).

The most of the foreign direct investment in the United States between 1997 – 2010, based on the averaged data, entered the manufacturing industry. The FDI inflow in manufacturing industry reached on average 33% of the total foreign flows, followed by finance 16%, wholesale trade 10%, information 7% and depository institution 6% (Figure 1).

Figure 1: US FDI Inflow by Industry as % of Total US FDI Inflow 1997 – 2010

Source: Bureau of Economic Analysis, Balance of Payments and Direct Investment. Position Data (http://www.bea.gov/international/di1fdibal.htm)

The most of US FDI flow, between1980-2010, originated from Europe (78%) and Asia and Pacific region (16%). The most of the European foreign flows came from the developed countries, such as: United Kingdom, Netherlands, Canada, Germany, France, Japan and Switzerland. Inward FDI flow from Europe in the 1980s took place as a result of stagnating European economy. The highest inward FDI flow from the U.K. reflects long-standing historical ties with the United States and a reluctance to invest into the new developing European markets of Eastern Europe.

Figure 2: US Inward FDI Flow by Contributing Country, in USD millions, 1980 – 2010

Source: Bureau of Economic Analysis, Balance of Payments and Direct Investment Position Data (http://www.bea.gov/international/di1fdibal.htm)

The U.S. economy remains a prime destination for foreign direct investment. Foreign companies investing in U.S. businesses, not only provide jobs, but relatively high-paying jobs. Compensation per employee at U.S. affiliates of foreign firms has consistently been higher than at other U.S. firms. Workers at majority-owned U.S. affiliates of foreign companies receive 30% higher pay than non-FDI supported jobs (Payne and Yu, 2011).

Encouraging more FDI and expanding the number of countries investing in the United States can lead potentially to higher economic growth and create new, high-paying jobs. During the last ten years, majority-owned U.S. affiliates of foreign companies have employed between 5-6 million workers and supported 2 million of manufacturing jobs. FDI-supported manufacturing jobs tend to be more stable over economic recessions than domestic manufacturing jobs (Payne and Yu, 2011).

Table 2: US FDI Employment (in thousands) by Industry (as % of total FDI employment)

Source: Bureau of Economic Analysis, Comprehensive Financial and Operating Data Archive, Tables F7 and G7 for years 1999-2009 (http://www.bea.gov/international/di1fdiop.htm)

US FDI employment between 1980 and 2009 was increasing systematically reaching the highest pick of 6,268.300 in the year of 2000 and then declining to 5,279.700 in the year of 2009. FDI employment in manufacturing followed similar path reaching the pick of 2,705.400 in the year of 2000 declining to 1,963.800 in the year of 2009. In 2009, leading manufacturing employment was followed by retail trade employment, the wholesale trade employment, finance and information employment.

U.S. affiliates of foreign companies in the manufacturing industry are the largest contributors of FDI employment in the U.S. economy. In 2009, manufacturing employment accounted for 36.3 percent of total FDI employment. The next large industry outside the manufacturing for employment by U.S. affiliates of foreign companies was retail trade. The retail trade industry accounted for 10.9% of total FDI employment, followed by wholesale 9.7% along with finance and information consecutively accounting for 6.8% and 6.4% of total FDI employment (Figure 3).

The leading states in foreign direct investment employment are: California, Texas, Ohio, Pennsylvania, Illinois, North Carolina, New York, New Jersey. The southern U.S. states has become more aggressive in recruiting foreign investment by providing incentives to attract investments and communicating the unique advantages they offer to foreign companies. Many southern states have been successful in improving their economies and providing new employment opportunities by offering the incentives attracting foreign capital (Borstorff, Collum and Newton, 2009).

Figure 3: Inward US FDI Employment by Industry (as % of total FDI employment), 1980-2009

Source: Bureau of Economic Analysis, Comprehensive Financial and Operating Data Archive by Industry of Affiliate, Tables F7 and G7 for years 1980 – 2009 (http://www.bea.gov/international/di1fdiop.htm)

Figure 4: Inward US FDI Employment by Industry (in thousands), 1980-2009

Source: Bureau of Economic Analysis, Comprehensive Financial and Operating Data Archive by Industry of Affiliate, Tables F7 and G7 for years 1980 – 2009 (http://www.bea.gov/international/di1fdiop.htm)

Many foreign investors choose the southern part of the U.S. as a desirable location for their FDI. Southern states invite large industrial employers in order to continue the evolution from an agricultural economy to a manufacturing economy. Tennessee, Alabama, Georgia, Kentucky, South Carolina and Texas have welcomed foreign automakers with numerous incentives.

Figure 5: FDI Employment in Manufacturing by the States (in thousands), 1980 – 2009.

Source: Bureau of Economic Analysis, Comprehensive Financial and Operating Data Archive by Industry of Affiliate, Tables F7 and G7 for years 1980 – 2009 (http://www.bea.gov/international/di1fdiop.htm)

Each state has adopted a unique strategy to attract FDI as they compete for similar investments. South Carolina started its modern FDI program in 1988, which resulted in the securing of Fujifilm Medical in Greenwood and the BMW Plant in Greer (1992) and the BMW package (1992) with the promise of 1900 jobs for a ratio of $81,479 per employee. Currently, more than 300 foreign-based manufacturers from more than 30 nations operate in Alabama. Out of these foreign-based companies, three are major automobile manufacturers; Honda, Hyundai, and Mercedes (Borstorff, Collum and Newton, 2009).

DETERMINANTS OF US FDI EMPLOYMENT

LITERATURE REVIEW

The inflow of FDI increased rapidly during the last two decades in almost every region of the world. A number of empirical studies on the role of FDI in host countries suggest that FDI is an important source of capital, complements domestic private investment, and is usually associated with new job opportunities and enhancement of technology transfer, and boosts overall economic growth in host countries (Chowdhury and Mavrotas, 2006).

Literature review indicates that there was an absence of empirical work on the location determinants of FDI across all states. Carlton (1983) concluded that economists know very little about the location deteerminants of new business location of manufacturing FDI in the United States. Studies by Heller and Heller (1974), Wilkins (1979), Suzman (1979), and Williams and Brinker (1985) examined a specific states (regions) and focused upon quantifying the size and scope of FDI and identifying possible reasons for the investment. Little (1978), Luger and Shetty (1985), Glickman and Woodward (1987), and Coughlin (1990) have attempted to analyze empirically the determinants of the location of FDI throught the United States (Axarloglou, Casey and Han, 2006).

The current research in the U.S. explains the pattern at the state or county level FDI in relation to the new investment. Economic size, labor force quality, agglomeration and urbanization economies, and transportation infrastructure are found to affect positively the location of new foreign-owned plants, while unit labor costs and taxes are found to deter new plants.

Comparing regions, current results reveal that the key advantages of the Southeast region stem from relatively high manufacturing density and low taxes. Foreign-owned manufacturing associated with new plants has been playing a larger role in the U.S. economy, especially in the Southeast region. Comparing urban with rural counties, it was found that nearly all the explanatory variables are more favorable for urban counties. For example, the labor force is relatively more productive and skilled in urban than in rural counties.

The following analysis focus on the importance of FDI for economic development at the state level: Carlton (1983), Bartik (1985), and Suger and Shetty (1985). Cletus, Terza and Arromdee developed a Conditional Logit Model (CLM) of the foreign firm’s U.S. investment location decision. The conditional logit model of the location decision of foreign firms investing in manufacturing facilities in the United States used annual data for the 1981-1983 period. The study found evidence that states with higher per capita incomes, higher densities of manufacturing activity, higher unemployment rates, higher unionization rates, more extensive transportation infrastructures, larger promotional expenditures attracted relatively more foreign direct investment. In addition, higher wages and higher taxes deterred foreign direct investment inflows (Cletus, Terza and Arromdee, 1987).

Axarloglou and Pournarakis (2007) investigate the impact of FDI inflows on the local economies of the US states that receive most of the FDI inflows in the country (Axarloglou and Pournarakis, 2007). A study by Wijeweera, Dollery, and Clark (2007) analyzes the relationship between the corporate tax rates and foreign direct investment in the United States (Wijeweera, Dollery and Clark, 2007). Chung and Alcácer (2002) examine whether and when state technical capabilities attract foreign investment in manufacturing from 1987-1993 (Chung and Alcácer, 2002). Head et al. (1995) show that there do exist agglomeration effects of Japanese manufacturing firms in the United States (Head, Ries and Swenson, 1995).

The empirical literature related to the state based determinant of FDI employment in the U.S. is limited. In evaluating the effects of FDI on the local economies, economists focus primarily on the performance of foreign-owned subsidiaries operating in the U.S. It is already known that the establishment of a new foreign subsidiary or the expansion of an already existing one leads to higher employment and wages (Axarloglou, 2005). Reserchers identified link between job growth in the U.S. economy during a period of increasing foreign direct investment flow. The economic impact on U.S. employment due to FDI is evident, as are linkages among the various benefits due to the inward flow of FDI (Craig, 2008).

Acording to Axarloglou & Pournarakis in the last two decades, various US states offered strong economic incentives in an effort to attract FDI inflows, with the hope that FDI would stimulate local economies (Axarloglou and Pournarakis, 2005). Axarloglou, Casey and Han analyzed the effects of FDI inflows in local economies across US states. The empirical results point out that the US economy benefits from FDI inflows in manufacturing both in terms of employment and real wages. Overall, FDI inflows have a positive and in several cases statistically significant impact on local employment and wages. However, these effects vary across US states. In some states, such as California, Michigan, Ohio and Pennsylvania, FDI inflows appear to expand both employment and wages while in others, like Florida, Georgia and Virginia appear to depress both employment and wages. Finally, in several US states, such as in Connecticut, Delaware, Kentucky, and Louisiana, FDI inflows have mixed effects on local labor markets, with predominantly negative effects on local employment and expanding effects on local wages. There is evidence that these results are due to the industry composition of FDI inflows across states. FDI inflows in Printing and Publishing, Fabricated Metals, Industrial Machinery and Transportation Equipment have positive employment and wages effects, while FDI inflows in Furniture and Leather have negative effects (Axarloglou, Casey and Han, 2006).

The studies by Borstorff, Collum and Newton relate to FDI in the southern U.S., specifically automobile FDI in Alabama and describe state-specific features of southern states in recruiting foreign investment bringing the employment opportunities (Borstorff, Collum and Newton, 2007).

Ajaga and Nunnen a analysis complements the regression analysis of Mullen and Williams and the Markov chain approach of Bode and Nunnenkamp and presents strong evidence of favorable FDI effects on output and employment at the level of US states (Ajaga and Nunnen, 2008).

Alfaro examined the effect of foreign direct investment on growth in the primary, manufacturing, and services sectors. Foreign direct investments in the primary sector, however, tend to have a negative effect on growth, while investment in manufacturing a positive one. Evidence from the service sector is ambiguous (Alfaro, 2003).

Blomstrom, Fors and Lipsey compared the relation between foreign affiliate production and parent employment in US manufacturing multinationals with that in Swedish firms. US multinationals allocated some of their more labor-intensive operations in developing countries, reducing the labor intensity in their home production. Swedish multinationals produce relatively little in developing countries and most of it in high-income countries, such as the United States and Europe associated with more employment, particularly blue-collar employment, in the parent companies (Blomstrom, Fors and Lipsey, 1997).

Bode and Nunnenkamp investigated the effects of inward FDI on per-capita income and growth of the US states since the mid-1970s. This study analyzed the long-run relationships between inward FDI and economic outcomes in terms of value added and employment at the level of US states (Bode and Nunnenkamp, 2007). The study found that employment-intensive FDI, concentrated in richer states, has been conducive to income growth, while capital-intensive FDI, concentrated in poorer states, has not.

DATA SOURCES AND VARIABLES

In order to test the implications of our models, we collected a panel of aggregate data on foreign direct investment on all U.S. states, excluding the District of Columbia. The entire data set includes 50 states for which foreign direct investment and all other relevant variables are reported over the 1997–2007 period.

In the United States, the Bureau of Economic Analysis (BEA), a section of the U.S. Department of Commerce, is responsible for collecting economic data related to FDI flows. Monitoring this data is very helpful in trying to determine the impact of FDI on the overall economy, but is especially helpful in evaluating states and industry segments. The data on stock of FDI are from the U.S. Department of Commerce, Bureau of Economic Analysis (http://www.bea.gov).

The real per capita disposable income is measured as the nominal per capita disposable income deflated by the GDP deflator in constant (2000) U.S. dollars. The real per capita taxes is measured by dividing the real state tax revenue by the state population.

The nominal tax revenue for states are from various issues of the Annual Survey of State Government Finances published by the U.S. Department of Commerce (http://www.census.gov/govs/state/).

The nominal tax revenue was deflated by the GDP deflator to derive the real state tax revenue. The data on state population are from the U.S. Census Bureau (http://www.census.gov). The real per capita expenditure on education is measured by dividing the real state education expenditure by the state population. The nominal education expenditure for states are from various issues of the Annual Survey of State Government Finances published by the U.S. Department of Commerce (http://www.census.gov/govs/state/). The nominal education expenditure was deflated by the GDP deflator to derive the real state education expenditure.

The share of scientists and engineers in the workforce, a proxy for labor quality, is collected from the National Science Foundation, Division of Science Resources Statistics, Science and Engineering Indicators 2010. (http://www.nsf.gov/statistics/seind10/).

The data on FDI related employment are collected from the Bureau of Economic Analysis (http://www.bea.gov) while the data on state employment are collected from the U.S. Department of Labor, Bureau of Labor Statistics (http://www.bls.gov). The information on real research and development expenditure is collected from the National Science Foundation, Division of Science Resources Statistics, Science and Engineering Indicators (http://www.nsf.gov/statistics/seind10/).

The data