Review of World Economics

, Volume 147, Issue 2, pp 351–383

Does foreign direct investment promote regional development in developed countries? A Markov chain approach for US states

Original Paper

DOI: 10.1007/s10290-010-0086-2

Cite this article as:
Bode, E. & Nunnenkamp, P. Rev World Econ (2011) 147: 351. doi:10.1007/s10290-010-0086-2


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.


Markov transition probabilityLikelihood ratio testFDIPer capita incomeRegional developmentUnited States of America

JEL Classification


Copyright information

© Kiel Institute 2011

Authors and Affiliations

  1. 1.Kiel Institute for the World EconomyKielGermany