Federal trade and industrial policies have triggered a new wave of foreign direct investment (FDI) into the United States, with some companies committing billions of dollars to US-based manufacturing. An analysis in Contemporary Economic Policy has found that FDI raises employment but has no significant effect on income in rural US counties.
In the analysis, which was based on evidence from Kia Motors' $1.2 billion investment in Troup County, Georgia, as well as data across rural US counties from 1995–2019, FDI raised employment by 13–16% in Troup County and 3% nationally, but on average, residents' income was not affected. Where incomes did rise, they were accompanied by higher wage growth, expanded housing supply, and more business establishments.
The findings suggest that state and local governments seeking to raise incomes alongside employment should view FDI as one component of a broader development strategy, as attracting FDI projects is not by itself a guarantee of economic prosperity. FDI must be complemented by supporting policies that strengthen rural labor and housing markets.
"If the goal is simply to create jobs, FDI attraction strategies can succeed in a wide range of rural contexts. But if the goal is to raise local incomes, then the returns to public spending on FDI incentives will be uneven as in many cases, the income benefits will diffuse to surrounding counties and diminish local gains," said corresponding author Kara Jones, PhD, of the University of South Carolina.
URL upon publication: https://onlinelibrary.wiley.com/doi/10.1111/coep.70047
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