1. Economic Development Policy Part 4: Trade and foreign investment (demand-side policies #2) ECON 4480 State and Local Economies 1

2. Trade and investment International trade has become an important source of output and employment for the United States economy. Foreign direct investment (FDI) has also become important. 2

3. Trade and Investment How important are exports for your state? For what states are exports most important? How important is foreign direct investment (FDI)? What can state policymakers do to encourage exports and FDI?

4. Exports U.S. exports are growing fast: – 1995: $529.0 billion – 2000: $782.4 billion – 2010: $1,278.1 billion Exports are growing much faster than GDP.

5. Manufactured Exports Manufactured exports from Tennessee were $19.2 billion in 2010, compared with $9.9 billion in 2000 (Census Bureau). Manufactured exports have grown much faster than GDP, about twice as fast 2000-2010 in Tennessee. About one in eight dollars of new GDP during this period can be attributed to the direct impact of manufactured exports. 5

6. Importance of Manufactured Exports by State 2010 6 Source: Census Bureau and Bureau of Economic Analysis

7. Tennessee What are the top exports from Tennessee? From your state? http://www.census.gov/foreign-trade/statistics/state/data/tn.html

8. Tennessee

9. Export Growth What factors have facilitated export growth? Export growth has benefited from: – The weak dollar, – Growing overseas demand due to income growth, – Increased exporting expertise in the private sector, and – Technical assistance from the Federal and state governments. 9

10. Foreign Direct Investment 2010 Presence of foreign-owned employers: – United States: 5.3 million jobs (4.5%) – Tennessee: 116,300 jobs (5.7%). – Foreign-owned auto assembly and auto parts becoming much more prevalent in the South. 10

11. Foreign Direct Investment Links to FDI data by state: – Jobs by industry: S:\DPENN\Class Nov 17\Copy of mousa_all_employ_state_indy.xls S:\DPENN\Class Nov 17\Copy of mousa_all_employ_state_indy.xls – Jobs by country: S:\DPENN\Class Nov 17\Copy of mousa_all_employ_state_ctry.xls S:\DPENN\Class Nov 17\Copy of mousa_all_employ_state_ctry.xls 11

12. Employment by Industry by Foreign Companies 2010 12 Source: Foreign direct investment in the United States, Census Bureau http://www.bea.gov/international/di1fdiop.htm

13. Employment by foreign affiliates in Tennessee 13

14. Role for State Governments Two potential roles for state governments: – 1) technical assistance for firms, and – 2) market-development efforts. 14

15. Role for State Governments Technical assistance: consists of seminars, handbooks, directories, and one-on-one counseling for potential exporters. Small businesses not well equipped to deal with the many issues including pricing, documentation, insurance, language translations, and obtaining export financing. Usually designed to assist small businesses. 15

16. Role for State Governments Market development: consists of acting as a sales agent for local firms overseas; governor or other high-ranking official acts as publicist and broker for state firms. Also makes contacts with firms interested in investing in the state. Many governors travel abroad to develop these contacts. 16

17. State Governments and Globalization Observations: most of these efforts a small scale, and the task seems daunting for small businesses even with assistance. 17