Soft Infrastructure and the Location Choice of Multinational Firms:Evidence from Japanese Investment in the United States in the 1980s

Abstract

We examine whether culture-specific educational infrastructure influenced the location decisions of multinational enterprises by analyzing Japanese foreign direct investment (FDI) in the United States during the 1980s. Using the quasi-natural experiment of politically-driven Japanese FDI following Reagan-era trade tensions, we test whether pre-existing Japanese Studies programs in U.S. universities predict subsequent Japanese investment across 722 commuting zones. We find that zones with Japanese Studies programs in 1980 were 21-29% more likely to receive new Japanese manufacturing investment by 1992, controlling for traditional determinants likemanufacturing infrastructure, agglomeration, and market access. Our results suggest that soft infrastructure —culture-specific human capital pipelines—represents an overlooked location advantage that complements traditional hard infrastructure in attracting FDI. These findings have implications for understanding how regions can strategically develop cultural competencies to attract foreign investment