JEI's Spin on the News

BEA Highlights Pattern Of Japanese Investment In The United States

Monday, May 31, 1999

"Does (s)he love me or love me not?" That question concerning potential Japanese industrial suitors is a perennial among state economic development officers in the United States. A recent study by Bureau of Economic Analysis, part of the Department of Commerce, hints at an answer.

The BEA study, in the May 1999 issue of the Survey of Current Business

http://www.bea.doc.gov/bea/ARTICLES/REGIONAL/PERSINC/1999/0599iid.pdf

uses newly compiled data to look at the regional pattern of foreign investment in "greenfield" manufacturing facilities in the United States. In contrast to acquired facilities, where the buyer is stuck, at least initially, with the locational preferences of the previous owner, with greenfield plants foreign investors have a wide freedom even after they have narrowed the choice to one of the fifty states.

Japanese investors long have been thought to harbor strong, if not entirely rational, attachments to particular locations and equally strong aversions to others. For example, two decades ago Nebraska nearly lost a Kawasaki motorcycle plant to California, supposedly because the firms's Japanese head did not want to stay overnight in America's heartland.

The BEA study more or less confirms the conventional wisdom. Nebraska, its success in wooing Kawasaki Heavy Industries to Lincoln notwithstanding, remains among the least popular states for Japanese investors. Virtually every part of the state, including the relatively populous Lincoln and Omaha areas, has less than half the greenfield investment from Japanese companies that the proportion of its proportion of total foreign and domestic greenfield investment would predict.

Nebraska's neighbors are in much the same situation. Colorado, Kansas and Iowa are among the many other states that Japanese manufactures tend to shun.

The successful suitors also follow conventional wisdom. The Bay area of California and coastal areas of Washington and Oregon emerge as big winners. Perhaps more surprisingly (at least for those not familiar with the locational decisions of Japanese carmakers) a path from the Great Lakes region of Illinois, Indiana and Michigan south through Kentucky and Tennessee to Georgia and Florida also is popular.

The BEA index does not, as one might assume from these results, measure the absolute popularity of different sites for Japanese manufacturers. Few manufacturers from anywhere locate in North Dakota, for example. The BEA index implies that Japanese firms are less than half as likely to locate there as even their reluctant U.S. counterparts or foreign investors from elsewhere. On balance, Japanese companies seem to want to go with sites that are popular with everyone.

EI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

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