The Influence of Political Conditions on Foreign Firm Location Decisions in the American States (1974-1989)

Abstract

Over time, the changing nature of federal and state relations has resulted in much of the responsibility for economic development to be centered at the state level. In attempts to foster potential economic growth, the states have engaged in high-priced games of luring foreign firms with incentive packages, business climates, and recruitment strategies. While both the in tensity and scope of their efforts has increased over time, relatively little is known about how political conditions, such as governmental institu tions, political parties, and policy instruments influence foreign firm loca tion decisions. Using a regional and time effects Poisson analysis this study seeks to explore how state political conditions influence firm location deci sions over time. The findings indicate that labor market conditions, the ex istence of agglomeration economies, access to markets, taxes, governmental institutions, policy instruments, and the national context are significant factors in determining firm location decisions and that the factors influenc ing firm location decisions vary over time.