1st Quarter 2008

tennessee whiskey exports by market 2007 graph


market growth: selected countries graph


market growth: selected countries graph

Current Foreign Investment in Tennessee: Putting Volkswagen in Context (continued)

One hundred and twenty-two Tennessee cities and towns are host to at least one foreign-owned operation. But foreign investment still congregates around Tennessee's larger metropolitan areas. Exactly 50 percent of all foreign operations are in six counties. They are all metro counties: Shelby (Memphis), Knox (Knoxville), Hamilton (Chattanooga) and Davidson, Rutherford, and Sumner (all Nashville area). Shelby County remains the most heavily invested county in the state, while the Nashville metro area has moved ahead of metro Memphis as the state's largest center of foreign investment. However, Chattanooga attracted more new operations over the past decade than did any other location in Tennessee. In 1998, there were 17 foreign facilities operating in Chattanooga; today there are 28. Knoxville is right behind with an increase of 17 operations. La Vergne and Jackson are the other two cities in the state that saw an increase of 10 or more foreign operations in their localities over the decade.

For most people, the bottom line on foreign investment is the size of the economic benefit it brings to the state. In Tennessee, that benefit is sizable. Over the past decade, foreign investment in manufacturing and distribution has accounted for 20 percent or more of Tennessee's total new investment in these sectors in every year but two. Whether Tennessee is getting its "fair share" of foreign investment is a little more difficult to ascertain. The accompanying chart is a first cut. It shows the percentage of American greenfield investment that the state has attracted in each of the past 10 years. (Greenfield investment is new investment; it excludes investment that is simply a foreign company buying an existing U.S. firm. Most analysts believe that greenfield investment has by far the bigger economic impact.) The dotted line shows the size of Tennessee's economy compared to that of the nation. One way to think about "fair share" is to ask whether foreign investment into the state at least equals the amount that we would expect, simply based on the size of Tennessee's economy. Over the entire decade, the state appears to have exceeded this benchmark, thanks to very large investments in 2001 and 2002. On the other hand, since 2002, the state has annually underperformed in attracting investment. Because foreign investment comes in "clumps" of different sizes and at different times, it wouldn't be realistic to expect any state to beat the national average in every year. The Volkswagen decision will almost certainly end the recent relative dearth of foreign investment.

Foreign-owned operations are significant players in the state economy. Though still primarily dependent upon Japanese investment, the state continues to diversify both sources of investment and the economic sectors into which it goes. The history of the past decade, as well as the impact of the Volkswagen decision, shows the degree to which Tennessee's economic development, particularly in the manufacturing sector, is now linked to foreign investment.

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