JUE insight: Soft infrastructure and the location choice of multinational firms: Evidence from Japanese investment in the United States in the 1980s

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 over the 1980s. Using the expansion of Japanese FDI following Reagan-era trade tensions, we test whether preexisting Japanese Studies programs at U.S. universities predict subsequent Japanese investment across 722 commuting zones. We find that zones with Japanese Studies programs in 1975 were approximately 25 percentage points more likely to receive Japanese investment in 1992, controlling for traditional determinants like Japanese population, manufacturing infrastructure, agglomeration, and market access. The results are robust to alternative empirical methods, including the instrumental variable approach. Our results suggest that “soft infrastructure”—culture-specific human capital pipelines—represents an overlooked location advantage in attracting FDI.