RESEARCH

This study examines the location decisions of manufacturing foreign direct investment (FDI) in the United States, by analyzing the importance of state taxes and incentives relative to other fundamental determinants. Using a panel Poisson regression with random effects, I model the probability of investing in a certain county. The results suggest that agglomeration economies are among the most significant factors. Localization economies, as captured by the number of domestic manufacturing establishments, have an elasticity of 0.92 while urbanization economies, as measured by the urban wage premium, have an elasticity of 1.31. The contribution of this paper is in uncovering the effect of taxes and incentives on the location decisions of firms. I find that the corporate income tax rate has an elasticity of -0.46 while the incentive tax credit has an elasticity of 1.56. Other taxes and incentives, such as, the property tax, the job creation tax credit, research and development tax credit, and the customized job training subsidy have no measurable effect on the location decisions of foreign manufacturers.