international, trade, regional, exports, Tennessee

Steven G. Livingston

English

Research Papers in Economics

￿  Business and Economic Research Center  ￿ Jennings A. Jones College of Business  ￿ Middle Tennessee State University  ￿
T
he decision of Volkswagen to locate in the Chattanooga
area heralds the largest single foreign investment into
this state in some years. Its announced investment ($1 bil-
lion) will equal five percent of all current foreign invest-
ment in the state. Perhaps it’s a good time to look more
generally at recent trends in foreign investment into Ten-
nessee. Net foreign direct investment (FDI) into Tennessee
has grown by nearly $5 billion over the past 10 years.
According to the state’s Department of Economic and
Community Development, foreign companies hold invest-
ments valued at $19.47 billion in the state as of July 2008.
On the other hand, this net investment position is down by
$3 billion from its peak two years ago. This is mostly due
to a significant decline in net investment from Canada and
the U.K. Net foreign investment is, however, perhaps not
the best way to measure the impact of foreign investment
on the Tennessee economy, as it includes the sales of pre-
viously owned operations as well as new purchases and
new investment put into the economy. If we look at gross
foreign investment into the state, we find that it has
expanded rather steadily throughout the past decade.
By this summer, there were 667 foreign-owned opera-
tions in the state.
1 This is nearly 200 more than a decade
ago. Sixty-seven new foreign operations have begun in just
the past three years. There are probably not too many sur-
prises regarding where this investment comes from. Japan
remains by far the largest source of foreign investment in
Tennessee. It is the home of one-fifth of the state’s for-
eign-owned facilities and just under 60 percent of all
announced foreign investment. Even before the Volkswa-
gen announcement, Germany was the state’s second-
largest source of foreign investment ($2.1 billion).
Tennessee has added six new German-owned operations in
the past three years, placing it behind Japan, the U.K., and
Canada in the number of foreign facilities operating in the
state. An interesting change is the steady growth of foreign
investment from the developing world. Ten years ago, the
state hosted only 19 operations, with an investment value
of about $270 million, from what used to be called the
“third world.” Today there are 51 operations valued at
$631 million. With 19 operations, Mexico leads in number,
but Brazil leads in value, with Brazilian-owned investment
worth $273 million. 
Foreign operations are overwhelmingly in either the
manufacturing sector or in wholesaling and distribution.
The state continues to hold a higher percentage of employ-
ment in foreign-owned firms than does the nation. Almost
Tennessee and the International Economy
       Volume 14 Number 2 Fall 2008
GlobalCommerce
FOREIGN INVESTMENT 
VOLKSWAGEN IN CONTEXT
by Steven G. Livingston 
continued on page 2
1
0
-1
-2
Japan
Germany
Developing World
France Italy
Australia
Canada
U.K.
Other
Europe
Change in Investment since 2005 Gross Foreign Investment in Tennessee
in $ billions
$30
$24
$18
$12
$6
1998 2001 2004 2007
18 percent of Tennessee’s manufacturing employment is in
foreign-owned operations versus 11 percent for the nation.
This gap has actually been increasing over the past decade.
However, overall employment in foreign-owned firms has
dropped a bit in recent years after peaking in 2006. In
2008, about 113,276 individuals held jobs in foreign com-
panies, barely more than the 112,903 of 10 years earlier.
The lion’s share of this investment remains in elec-
tronics and automotive-related manufacturing. Denso’s
December 2007 announcement that it was expanding its
Maryville plant, at a cost of $185 million, is just one of
several large automotive investments made recently by
Japanese companies. Nissan continues to be the state’s
biggest single foreign investor. The Volkswagen decision,
of course, reinforces this concentration.
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 (Chat-
tanooga) and Davidson, Rutherford, and Sumner (all
Nashville area). Shelby County remains the most heavily
invested county in the state, while the Nashville metro area
2
continued on page 6
Employment in Foreign-Owned Firms Foreign-Owned Firms, by County
Foreign Direct Investment as % of Total State Investment Tennessee’s % of New American Greenfield Investment
FOREIGN
continued from page 1 
in thousands
Other
Sumner
Davidson
Rutherford
Knox
Shelby
Hamilton
140
130
120
110
1998
2000
2002
2004
2006
2008
2007
0% 5% 10% 15% 20% 25% 30% 35% 40%
14%
10%
6%
2%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
% of US GDP
TN GSP

Tennessee’s Leading Trade Partners
Canada
Mexico
China
United Kingdom
Japan
Germany
Netherlands
Belgium
Australia
Italy
3
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800
Tennessee’s Largest Export Sectors 
Change from  Change from 
Exports Last Year  Last Quarter
Transportation Equipment $975,897,487 3.2% -5.7%
Chemicals $938,472,114 16.9% 8.1%
Computer and Electronic Products  $829,757,540 12.0% -1.8%
Miscellaneous Manufactured Goods $680,442,738 20.1% 14.3%
Nonelectrical Machinery $565,058,063 13.3% 17.5%
Primary Metal Manufacturing $211,420,650 -10.2% -5.1%
Fabricated Metal Products $200,727,625 13.1% 6.9%

MEXICO WAS THE
ONLY MAJOR
MARKET IN THE RED.
FIVE OF THE TOP
SEVEN SECTORS
POSTED DOUBLE-
DIGIT GAINS.
THE MIDDLE EAST
WAS HOME TO BOTH
THE BEST AND THE
WORST OF THE
STATE’S MARKETS.


2nd Quarter 2008
2nd Quarter 2008 Fastest-Changing Export Destinations 
(Among countries averaging more than $2 million in sales per quarter)
Value of Exports  Gain   Decline
COUNTRIES WITH THE GREATEST GROWTH
Oman $18,024,774 680.2%
Hungary $11,103,497 155.4%
Vietnam $21,554,455 143.6%
Poland $7,421,648 134.1%
United Arab Emirates $92,204,797 133.5%
COUNTRIES WITH THE GREATEST DECLINE
Afghanistan $190,911 -95.3% 
Portugal $2,842,513 -60.4%
Kuwait $14,566,432 -33.6%
Jamaica $8,993,707 -31.9%
Denmark $7,251,615 -30.3%
2nd Quarter 2008
2nd Quarter 2007
(Exports in millions)Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
Jun-03
Jun-02
Jun-01
Jun-00
Jun-99
Jun-98
(Seasonally adjusted, expressed in year 2000 dollars)
20
10
0
30
40
4
2.4
2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8
-10
Tennessee Monthly Exports

Exports in $ billions
A Tennessee Board of Regents university, MTSU is an equal opportunity, nonracially identifiable, educational institution that does not discriminate against individuals with disabilities. 
NOMINAL
GROWTH RATE
(%)
What’s Hot and What’s Not*
Value of Exports   Growth Decline
SECTORS WITH THE GREATEST GROWTH
Tapeless Video Player/Recorder  $13,132,420 28,866.2%
Chemical Woodpulp $16,392,741 1,515.5%
Machinery for Mixing Bitumen Substances $17,921,781 287.0%
Electronic Integrated Circuits $43,494,305 279.5%
Miscellaneous Nonwired Sheet Glass $17,054,931 262.9%
SECTORS WITH THE GREATEST DECLINE
Turbojets > 25kn $20,250,000 -67.6%
Charitable Donations  $22,062,382 -52.2%
Road Tractors for Semi-Trailers $12,793,549 -44.3%
Nonplasticized Cellulose Acetates $50,272,413 -34.4%
Aluminum Plates > .2mm $72,853,283 -34.1%
Global Commerce, published quarterly by the
Business and Economic Research Center,
Jennings A. Jones College of Business,
Middle Tennessee State University, is
available free of charge to interested
individuals and institutions. 
Editor: Steven G. Livingston
Publications Editor/Designer:
Sally Ham Govan
615-898-2610
www.mtsu.edu/~berc
2nd Quarter 2008

*Among Tennessee’s top 100 exported goodsI
n the second quarter, Tennessee exports grew by
more than $500 million. This amounts to a healthy
11.7 percent gain over the second quarter of last
year. But once again, Tennessee’s performance
paled compared to that of the nation. American
exports were up 18.8 percent over this same period.
If Tennessee’s foreign sales had grown as fast, the
state would have earned an additional $380 million.
In that light, the state’s figures don’t look quite as
impressive.
The good news was provided by a variety of
export industries that were able to leverage the
cheap dollar into large gains throughout the world.
The bad news came from only several sectors and
was confined to but a few markets. Unfortunately,
both the sectors and the markets were big ones. 
Canada, Mexico, and China are Tennessee’s —
and America’s—largest markets. In each, the state
far underperformed the nation. U.S. exports to
Canada grew more than 12 percent for the quarter.
Tennessee’s were up 5.45 percent, from $1.561 to
$1.646 billion. This was still one-fifth of the state’s
total export gain for the quarter, but this rate of
growth is substantially lower than that to which
Tennessee has become accustomed. Laptop comput-
ers were at the heart of the state’s problems. Sales
to Canada dropped $30 million for the quarter.
Auto-related sales also could have been better. Car
exports were up (especially at the end of the quar-
ter, suggesting that we may soon see better news).
But SUV sales were off (down from $44 to $32
million), and auto body parts fell as well. Because
these products are the state’s largest exports to
Canada, the very strong performance by other state
exporters could not make up the difference. Exports
of machinery, appliances, fabricated metals, and
software were all up substantially. There would be
little to complain about if computers and automo-
biles could return to something close to their
export growth of two years ago. 
Tennessee’s trade with Mexico remains over-
whelmingly automotive-based. The slowdown in
that sector cost the state heavily in the second
quarter. Exports to Mexico actually declined ($618
to $611 million), while those of the United States
advanced by 10 percent. The bad news was indeed
all automotive. Transportation exports fell by $40
million, and shipments of aluminum alloy plates,
destined for building cars and SUVs, fell by
another $30 million. Just as with Canada, robust
growth in other sectors, such as paper products and
chemicals, could not compensate.
China completes the triad. American exports rose
16.4 percent, while Tennessee eked out a 2.87 percent
gain (to $325 million). Tennessee exports to China were
up only $11 million in total, in spite of a $5 million
increase in artificial filament exports, a $13 million gain
in textiles, and a further $11 million gain in the chemical
sector. This is because growth elsewhere was offset by a
substantial fall in cotton shipments (from $47 to $28 mil-
lion). Computer and electronics sales also fared poorly,
losing $5 million for the quarter. 
It’s not often that the biggest markets are also the
worst performers, but that was the case for Tennessee this
past quarter. Elsewhere in the world, state exporters did
extremely well. Medical equipment sales were again very
strong. They are by now the state’s largest single exported
product ($362 million in the 2nd quarter). Japan (up $14
million) and Belgium (up $25 million) were their two best
markets. Orthopedics also had a fine quarter, with exports
up more than $30 million, roughly to the same markets.
Car sales may have been slow in Canada and Mexico, but
the Middle East was a different story. Kuwait, Oman, and
the other Gulf States increased their auto purchases by
more than $40 million for the quarter. Artificial filament
continued its recent strong sales, with gains in a number
of countries, such as China, Russia, Indonesia, and
Turkey. Global chemical sales grew almost 17 percent,
enough to allow the industry to reclaim its old position as
the state’s second largest export industry (at the expense
of the computer industry). Purchases in Switzerland led to
a gain of more than $40 million in integrated circuitry
exports. The result is that, outside the big three markets,
the state did very well. Exports to the U.K., Eastern
Europe, Japan, and the Middle East all increased by over
20 percent. Sales to the euro markets and to South Amer-
ica each grew by more than $100 million. So there were
undoubtedly plenty of bright spots for the quarter. 
July 2008 figures offer an early hint that the third
quarter might at last reverse the state’s recent lagging
export performance. Tennessee exports grew more than
20 percent for the month, finally beating the figures for
the entire U.S. (16 percent). 
5
2nd Quarter 2008
ONCE AGAIN, TENNESSEE’S PERFORMANCE
PALED COMPARED TO THAT OF THE NATION.
TENNESSEE INTERNATIONAL TRADE REPORT

Tennessee Trade-Weighted Dollar Index
120
80
115
110
105
100
95
90
85
Aug-99
Aug-01
Aug-03
Aug-05
Aug-07has 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 opera-
tions. 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 invest-
ment 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 distribu-
tion 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 for-
eign 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 invest-
ment is new investment; it excludes investment that is sim-
ply 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 Ten-
nessee’s economic development, particularly in the manu-
facturing sector, is now linked to foreign investment. 
1. The federal Bureau of Economic Affairs actually credits Ten-
nessee with nearly 800 foreign-owned operations, due to differences of
recording and definition. It also reports a higher figure for employment in
foreign-owned operations. The figures given here are those announced by
the state’s Department of Economic and Community Development.
Non-Profit
Organization
U.S. POSTAGE
PAID
Permit No. 169
Murfreesboro, TN
Change service requested
Business and Economic Research Center
P.O. Box 102
Middle Tennessee State University
1301 E. Main St.
Murfreesboro, TN 37132
6

FOREIGN
continued from page 2

Current Foreign Investment in Tennessee: Putting Volkswagen in Context

http://frank.mtsu.edu/~berc/global/fall08/gcfall08.pdf

Current Foreign Investment in Tennessee: Putting Volkswagen in Context

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