Journal Article

Does Foreign Direct Investment Promote Regional Development in Developed Countries: A Markov Chain Approach for US States


  • Bode
  • E.
  • Nunnenkamp
  • P.
Publication Date

This paper investigates the effects of inward FDI on per-capita income and growth of the US states since the mid-1970s. Using a Markov chain approach, it shows that both quantitative and qualitative characteristics of FDI affect per-capita income and growth. The empirical findings suggest that employment-intensive FDI, concentrated in richer states, has been conducive to income growth, while capital-intensive FDI, concentrated in poorer states, has not. Consequently, FDI has tended to be associated with weaker rather than stronger income convergence among US states. It appears to be less important whether FDI has been undertaken in the manufacturing sector of US states or in other sectors.

Kiel Institute Expert


JEL Classification
F23, O18, O51

Key Words

  • FDI
  • likelihood ratio test
  • Markov transition probability
  • per-capita income
  • regional development
  • United States of America