IU report outlines the role of foreign direct investment in Indiana's economy
May 29, 2012
BLOOMINGTON, Ind. -- Foreign direct investment plays a key role in the Indiana economy, particularly in the manufacturing sector. A new Indiana University report shows that in 2009, the state's share of FDI-related employment in manufacturing was higher than the nation, a trend that likely will continue.
"The Great Recession certainly affected the volume of FDI announcements nationally, regionally and statewide, but not all states were negatively affected," said Tanya Hall, an economic research analyst at the Indiana Business Research Center in IU's Kelley School of Business.
"The continued growth of FDI announcements in Indiana in 2011 indicates that the state is still an attractive destination for foreign investment, particularly in the automotive and components industry and the manufacturing business activity," added Hall, a co-author of the report with Timothy Slaper, the IBRC's director of economic analysis.
According to the most recent data from the Bureau of Economic Analysis, in 2009 there were 131,400 Hoosiers working at enterprises where a foreign investor or company has at least a 50 percent stake. This was an 11.9 decrease from 2007, but Indiana still ranked 15th nationally.
Nearly 5.3 million Americans are employed at businesses where a foreign investor or company holds at least a 50 percent stake.
Each year, states announce forthcoming investments made by companies moving to or expanding within their borders, as well as the expected number of new jobs that accompany that investment. Nationally, from 2009 to 2011, the majority (91.5 percent) were intrastate investments made by U.S. businesses.
But in the Midwest and in Indiana, foreign-based companies made more than a quarter of the announcements. While not all job estimates could be vetted, the IBRC report found that Indiana had 136 announcements over the three-year period valued at $5.1 billion, with an expected 11,800 jobs.
From 2009 to 2011, 4,081 FDI announcements were made nationwide, with an estimated value of $182.8 billion and 352,460 anticipated jobs. The Midwest had nearly 20 percent of those announcements, said the report, "Capturing the Flag: Foreign Direct Investment in Indiana."
In terms of dollar value, the top three FDI announcements in Indiana came from British Petroleum, Energias de Portugal and Toyota Motor Co. Forty percent of the state's projected capital investment can be attributed to these three announcements.
However, the three companies accounted for only 1 percent of all expected jobs, due to their plans to invest heavily in plant, property and equipment with few or no plans to employ additional workers. All have made numerous previous investments in the state.
From a job creation standpoint, the top three FDI announcements were made by Honda, which increased employment for production of its 2012 Civic natural gas vehicle; Fronius, which placed its U.S. headquarters here; and Comlux, which expanded its Indianapolis operations. Fronius is one of the world's largest manufacturers of solar inverters, and Comlux is an aviation company that refurbishes and completes interiors for corporate aircraft.
Within Indiana, the top three industries, in terms of capital investments, were in alternative energy ($1.2 billion), coal/oil/natural gas ($895 million) and the automotive and components industries ($872 million). In terms of new FDI employment, the state's top three industries were automobiles and components (31.1 percent of the announced jobs), metals (8 percent) and aerospace (7.1 percent).
"In Indiana, the Great Recession certainly affected the FDI announcement volume -- even in the automobile and components industry -- creating some volatility in the past five years," Hall said. "Since 2008, the state's FDI-related job announcements in the automobile and components industry have continued to grow along with year-over-year increases in the total number of FDI announcements."
Nine of the top 10 states with FDI manufacturing jobs were in either the Midwest or the South, regions where most of the nation's auto plants can be found. Nearly 74 percent of FDI-related jobs announced in Indiana from 2009 to 2011 were in manufacturing, the report said.
Other highlights from the report include:
- Japan was the largest source of FDI commitments in Indiana and the Midwest. Nearly a third of Indiana's announced FDI jobs came from Japanese firms. Rounding out the top five source countries that invested in Indiana were Canada (18.4 percent of the announced jobs), the United Kingdom (12.2 percent), Switzerland (8.9 percent) and Germany (7.4 percent).
- Indiana ranked fifth among its Midwest neighbors in terms of the volume of foreign direct investment, trailing Ohio ($7.6 billion), Tennessee ($6.8 billion), Wisconsin ($6.1 billion) and Illinois ($5.5 billion).
- Majority-owned U.S. affiliates counted for 5.6 percent of Indiana's total private-sector employment in 2009, well above the national average of 4.9 percent. In the Midwest, only Kentucky had a higher share of total private employment that year.
The report incorporates data from the Bureau of Economic Analysis and fDi Markets, a service of the Financial Times. Support for the study came from multiple sources, including the Institute for International Business in the Kelley School.