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Location Determinants of New Foreign-Owned Manufacturing Plants

Manufacturing employment in the United States trended downward between 1979 and 1993. Geographically, the Northeast and Mideast regions incurred the brunt of this decline and, except in the Southwest region, urban counties tended to fare worse than rural counties. Meanwhile, foreign-owned manufacturing associated with new plants has been playing a larger role in the U.S. economy, especially in the Southeast region. The current research explains the pattern at the county level of new foreign plant location. 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, our results reveal that the key advantages of the Southeast region stem from relatively high manufacturing density and low taxes. Comparing urban with rural counties, we found that nearly all the explanatory variables possess average values for urban counties that are more favorable to foreign direct investment. For example, the labor force is relatively more productive and skilled in urban than in rural counties.

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