Foreign Direct Investment and Export Trade Promotion: Federal-State Economic Development Collaborations
December 9, 2015Topic Overview
Foreign direct investment (FDI) represents the recruitment of a new company from outside the U.S., and it has long been an important policy priority for states. FDI is important for economic growth and well-being because it provides jobs, fuels innovation, and creates long term economic relationships between the U.S. and its trading partners. The United States is home to the largest amount of FDI in the world. This level of investment by U.S. affiliates of majority foreign-owned firms supports more than 5.7 million jobs across the country.
An alternative way to grow the economy and build a global presence is through exports of goods and services by existing U.S. firms. U.S. exports to foreign markets set a record in 2014, reaching $2.35 trillion. U.S. exports are up more than $760 billion since 2009. Exports of U.S. goods and services to foreign countries provide tremendous economic benefits as well. Export trade promotion allows both the federal and state governments to enhance trade opportunities in foreign nations.
- Federal Role & Priorities
The Federal government has played a very specific role for many years focused on promoting exports. Business recruitment and relocation efforts were not seen as a federal role until recently. Through the U.S. Export Assistance Centers and the foreign consulates, companies could access market intelligence, and states tapped these services to support trade missions and special events such as trade shows. The International Trade Administration (ITA), the federal agency involved in promoting U.S. exports has an extensive network of technical assistance providers through its Commercial Service. That network provides export and industry specialists in more than 100 U.S. cities and over 80 countries. The support includes counseling and a variety of products or services designed to help small and mid-sized business export.
ITA worked with industry groups and states through the Market Development Cooperator Program (MDCP). The program provides up to $300,000 for foreign market development projects. Each year, ITA makes several matching grant awards to industry groups to pursue projects that help U.S. companies export and create jobs.
- Major Federal Programs & Activities
In 2010, ITA created its Strategic Partnership Program designed to leverage the resources of states as well as trade associations, chambers of commerce, local governments and private companies to work with U.S. businesses to take full advantage of global business opportunities. The goal is to build capacity beyond ITA to help U.S. companies create jobs from export sales.
For many years, foreign direct investment efforts were the exclusive purview of state economic development agencies. The U.S. government essentially did not participate in these activities. With Executive Order 13577 in June 2011, President Obama created the SelectUSA Initiative to coordinate U.S. trade and investment because the Administration pointed out that U.S. states and cities were competing against foreign national governments for business investment and felt that the U.S. needed SelectUSA as a centralized program to market the United States as a business/investment location, provide a one-stop messaging center, and help businesses address hurdles. The SelectUSA initiative also reports statistics on foreign direct investment (FDI) in the United States, along with separate fact sheets on the impact of FDI on jobs, exports, and innovation within each state (selectusa.commerce.gov/fact-sheets.html).
Supplementing ITA’s efforts have been investments by the Small Business Administration. SBA created the State Trade and Export Promotion (STEP) Grant Initiative in 2010. This pilot program offers matching-fund awards to states to assist small businesses enter and succeed in the international marketplace. The SBA awarded $17.4 million in FY 2015 to eligible small businesses.
- State Role
SelectUSA acts as a marketing tool for U.S. business and a conduit through which states can leverage international investments. The initiative provides services to states and localities, including access to referrals to state programs as developed by the Council for Community and Economic Research (http://selectusa.stateincentives.org). SBA’s STEP Grant program is managed through the SBA Office of International Trade, but the states can design programs to meet their own specific needs. States are required to match the federal funding with 25% (35% for high export volume states) of the approved award monies.