FDI IN US PRODUCER SERVICES - A TEMPORAL ANALYSIS OF FOREIGN DIRECT-INVESTMENT IN THE FINANCE, INSURANCE AND REAL-ESTATE SECTORS

Much of the expansion of FDI in the United States in the 1980s has been a direct result of the growth of FDI in the service sector. Dominant positions in FDI in services are occupied by banking and other finance-related services. In this study, the temporally varying effects of a set of location determinants on the location of FDI in finance, insurance and real estate sectors are examined. The literature on the location of service industries indicate that the location of producer services is affected by market pull factors, specialized labour pools and large diversified service agglomerations. The determinants considered in the state-level analysis of FDI are agglomerations of domestic employment in finance, insurance and real estate, the size of the metropolitan population, population growth and the value of commercial and industrial property. Findings indicate that the locational association of FDI in finance, insurance and real estate with their domestic counterparts weakened in the late 1980s compared to the early 1980s. However, the locational pull exerted by the growth-oriented states has become stronger over time. The effect of land value has remained stable over time. In the late 1980s, the growth-oriented states developed new industrial complexes based on both manufacturing and service industries and these complexes offered foreign investors potential clients and the scope of developing market niches. The weakening association with domestic service agglomeration may imply market saturation and hence lower margins of profitability for the newcoming foreign investors. As a result, foreign investors' locational strategy within the United States exhibited market diversification. Such geographical diversification of FDI in the late 1980s was also promoted by liberal banking legislation in addition to the economic forces described above. In sum, the growth of service FDI in the United States raises questions regarding the development implications of such investments and these questions are similar to the questions asked regarding the role of services in general in economic development.