FOREIGN DIRECT INVESTMENT: THE FACTORS AFFECTING THE LOCATION OF FOREIGN BRANCH PLANTS IN THE UNITED STATES zyxwvutsrqponmlkjihgfedcbaZ Joseph Friedman Daniel A Gerlowski Jonathan Silberman I. INTRODUCTION Knowledge of the factors influencing corporate location decisions is important to state, local, and federal officials who wish to foster economic development in their regions. The location decisions of domestic firms opening branch plants were studied by Bartik (1985), Carlton (1983), Schmenner (1982), and Sullivan and Newman (1988). Much less is known about location decisions made by for- eign firms investing in manufacturing branch plants in the United States. Given the fast growth in the flow of foreign direct investment to the United States since 1980, a better understanding is warranted. Studies that have surveyed foreign firms’ siting criteria suggest their actions are based on economic factors. Access to markets and to transportation facilities and labor climate commonly emerge as major influences on locational choices (Mandell & Killian, 1974; Arpan & Ricks, 1975; Tong, 1979; Arpan, 1981. An econometric study by Little (1978) compared patterns of foreign and domestic investment for the years 1975-1976. Little examined states’ shares of foreign new plant and construction investment relative to their shares of total domestic new plant and construction investment. Foreign investors were shown to be more sensitive to inter-state wage differentials and the availability of port facilities. Domestic firms were more concerned with energy costs. Little’s study covered only two years, before the massive growth in inward foreign investment took place. The choice of dependent variable, a location quotient, limited the analysis to foreign branch plants and expansions relative to similar domestic investment. Joseph Friedman, Department of Economics , Temple University, I’hiladelphia, PA 19122; Daniel A Gerlowski, Department of Economics and Finance, University of Baltimore, Haltimore, MD 21201; Jonathan Silberman, Dean, School of Dusiness, Arizona State University - West, Phoenix, AZ 85069. Global Finance Journal, 7(2): 209-222 Copyright 0 1996 by JAI I’rcss Inc. ISSN: 7044-0283 All rights of reproduction in any form reserved.