Foreign Investment 'Vital' to Hoosier Economy

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Direct foreign investment in Indiana is on the rise, but still being slowed by post-recession uncertainty. A report from the Indiana University Kelley School of Business suggests nearly 145,000 Hoosiers were employed at a business with at least a 50 percent foreign stake in 2011, up from the previous year. Japanese companies accounted for more than 40 percent of those jobs, which is nearly quadruple the national percentage. Report author Tim Slaper says, despite the increase, companies seem less likely to bring higher-paying jobs to Indiana "probably because of our talent pool."

September 24, 2014

News Release

Bloomington, Ind. -- Foreign direct investment continues to be vital to the state's economy, according to a new report from the Indiana University Kelley School of Business.

Report author Timothy Slaper, director of economic analysis at the school's Indiana Business Research Center, said foreign direct investments have rebounded in Indiana and nationally since the "Great Recession."

"Before the financial crisis, worldwide FDI activity was exploding, with 2007's banner year of $1.9 trillion," Slaper wrote in "Capturing the Flag 2014: Foreign Direct Investment in Indiana."

"As one may expect, the Great Recession hindered foreign investment, due to financial resource constraints, as well as by the uncertainty generated by the crisis," he added.

"Today, the uncertainty still exists as most advanced countries struggle to generate significant economic growth."

Nationally, nearly 5.6 million Americans were employed at businesses where a foreign investor or company held at least a 50 percent stake, also known as a majority-owned U.S. affiliate or MOUSA.

Within Indiana, 144,900 Hoosiers were employed at MOUSA employers in 2011, up from 133,600 a year earlier, placing the state at 14th nationally. MOUSA employment now accounts for 6 percent of state employment at private firms, up from 5.7 percent in 2010.

The report looks back at historical performance and forward to anticipated FDI activity. The latest historical data (2011) is from the Bureau of Economic Analysis, whereas announced FDI deals present a picture of future investment and job growth yet to be realized in the U.S. and Indiana.

Manufacturing continues to account for the largest share of MOUSA employment in the United States -- 36.9 percent -- but it is even more important in Indiana, where 63.7 of MOUSA employment was in that sector.

Indiana experienced the third-largest increase in MOUSA employment in the Midwest at 9.7 percent.

The state's 92,300 MOUSA manufacturing jobs in 2011 -- up from 84,400 in 2010 -- make up 3.8 percent of Indiana's total private-sector employment.

FDI announcements from 2011 through 2013 suggest that trend will continue. More than three-quarters of all announced new jobs associated with greenfield investments or foreign firm expansions were manufacturing-related in the Hoosier state, compared to 41 percent nationally.

From 2011 to 2013, there were 129 FDI announcements with an expected value of more than $5 billion. These investments were projected to create about 13,700 jobs, averaging almost 4,600 new jobs on an annual basis.

Automobile and components industries are projected to provide the largest share of the state's expected new FDI jobs, with more than 7,000 new positions -- about 52 percent of the anticipated total jobs.

"Japanese companies were a large source of FDI announced employment intentions for Indiana and the Midwest," the report said. "Japan was the source of approximately 42 percent of Indiana's announced FDI jobs, compared to 19.3 percent for the Midwest and 10.9 percent for the United States."

From 2011 to 2013, the state's top four capital investment announcements came from Fatima Fertilizer (Pakistan) and from Honda Motor Co., Toyota Motor Corp. and Subaru of Indiana Automotive (Japan).

"Indiana's anticipated dollar-value future FDI places it first among all Midwestern states," the report said. "Examining the year-to-year activity, Indiana's capital investment related to FDI remained fairly constant over the last three years."

Indiana's neighbor Kentucky had a significant increase in FDI announcements in 2013, while Iowa had a significant decrease that year.

The report incorporates data from the Bureau of Economic Analysis and fDi Markets, a service of the Financial Times.

Source: Indiana Business Research Center