Attracting foreign manufacturing: Investment promotion and agglomeration

We study Japanese investments between 1980 and 1992 to assess the effectiveness of US state promotion efforts in light of strong agglomeration effects in Japanese investment. The provision of foreign trade zones, lower taxes, and job-creation subsidies have statistically significant effects on the location of investment. Simulations indicate that unilateral withdrawal of promotion would have caused individual states to lose substantial amounts of Japanese investment. However, because state promotional policies tended to offset each other, their impact on the geographic distribution of Japanese investment appears small. (C) 1999 Elsevier Science B.V. All rights reserved.