Until recently, the U.S. economy depended little on the export of products and the attraction of foreign investment for expansion. Huge domestic markets and abundant local capital obviated the need for American companies to look overseas to increase sales or finance expansion.

Times have changed. From 1970 to 1985 the level of direct foreign investment in the U.S. increased from $13.3 billion to $183 billion.' In addition, the U.S. Department of Commerce reports:2

-Exports rose 27% from June 1987 to June 1988.

-Merchandise exports accounted for 5.5 million jobs in 1987.

-Approximately 20% of American industrial output and one

third of U.S. grain production was sold overseas in 1987.

-One in six U.S. manufacturing jobs is now tied to exports. -Each $1 billion in exports results in 25,000 U.S. jobs.

At the same time that the importance of exports is increasing, the outlook for further export growth is favorable. Growing foreign economies and improved exchange rates have combined with improved productivity, stable labor costs, and better quality to make U.S. exports more appealing.3 The same conditions also make investing in the U.S. look betterand better. Yen, marks, and pounds go much further than they did a few years ago.

Clearly the nation is looking outward. Why is export-led growth being pursued? There are many sound economic reasons. For one, exports encourage the expansion of industries and companies that are competitive worldwide, thus resulting in a more efficient allocation of resources.4 Increasing American exports also tends to strengthen the dollarand atthe sametime hold down the inflation caused by trade deficits and the protectionism that can follow such a condition.

Also at issue is economic growth. When imports exceed exports there is a contractionary effect on national income. When exports exceed imports the opposite occurs. In fact, if exports increase at a faster rate than savings and imports, then the resulting rise in national income will be greater than the increase in exports because of the "multiplier effect" that results when money is turned over repeatedly in the econo.  How great this multiplier effect is depends on the marginal propensity to save and import. The significance this has forthe nation also applies to states because in both cases the income created is generated by outside funds, signaling a net inflow of wealth.

As seemingly isolated as it is, West Virginia has not been immune to the many effects resulting from the globalization of the world economy. Accelerated interdependence between nations has combined with the maturation of the American economyand the continuing federal budget deficit to force all 50 states to take a hard look at their economic development policies. Increased competition in thedomestic market and a slower comparative growth rate for the United States means that the individual American states will have to look elsewhere for expansion. Indeed, the West Virginia Export Council concluded recently: "All the growth is overseas."6

West Virginia Exports

The current impact of exports on the West Virginia economy is substantial, though often unrecognized and difficult to measure. Part of the problem stems from the arduous task of distinguishing exports from domestic business sales.7 Nonetheless, some sorting out of the impact of international trade on the West Virginia economy is possible.

There are two types of exports, direct and supporting. Direct exports would be sales by West Virginia companies to foreign purchasers. Supporting exports include shipments by West Virginia firms of components, parts, supplies, etc. used by plants producing the export product. Supporting exports are hard to trace and thus the true impact of exports on the West Virginia economy is most likely understated.

Added to the problem of keeping track of supporting exports is the technical burden of crediting the correct state at the U.S. port of exit. It is not uncommon forthe state which is the point of export to get credit for anotherstate's product.8 This dilemma can have the effect of overstating the activity of coastal or border states while shortchanging states like West Virginia that are landlocked or have small air facilities.

Figures for the value of West Virginia exports in millions of dollars and percent of total manufactured goods for export, for the years 1983 through 1987. With manufactured exports at 19.6% of all manufacturing in 1986, West Virginia ranks fifth nationwide in that category and well above the national average of 13%. None of the bordering states (Kentucky, Maryland, Ohio, Pennsylvania, Tennessee, or Virginia) has a rate higherthan West Virginia. All told there has been a 30% rise in the dollar value of total manufactured export-related shipments in West Virginia from 1983 to 1986 and a 40% increase in the dollar value of direct manufactured exports from 1983 to 1987.

The trends in manufactured exports for West Virginia and the United States as a whole for the years 1980 through 1987. In both cases it is clear that after failing in the early eighties, manufactured exports began making a comeback in 1984. In terms of employment, exports play a substantial role in West Virginia. Exports accounted for 14.4% of manufacturing jobs in 1986; at least 6000 jobs in mining and agriculture; and 25,000 jobs overall, or3.6%of civilian employment.

Where West Virginia stands compared to the nation as a whole with regard to the level of manufactured and civilian employment that is export related.  These figures represent conditions in these areas for the years 1980 through 1986. Although data for 1982 was not reported by the Annual Survey of Manufacturers, the trend is evident even without the data for that year.

The level of manufactured employment tied to exports has been greater in West Virginia than the national average throughout the period under study. Export related manufacturing employment rose from 12.3% of total in 1983 to 14.4% in 1986. This 17% increase is noteworthy and consistent with the national trend. Even so, the level of manufacturing employment tied to exports in West Virginia was three percentage points or 17% lower in 1986 than it was in 1980.

the level of civilian employment dependent upon exports, tells another story. Here, the West Virginia rate falls below the national rate. This disparity between manufacturing employment and civilian employment can be explained by three phenomena. First, the recession of 1982 hollowed out many American manufacturing enterprises, forcing some firms to go out of business and othersto cut staff to increase efficiency, thereby lowering employment overall. Second, the high dollar of the mid1980s retarded expor ' t growth in all sectors. Finally, a growing share of today's exports are in the form of services and information, areas in which West Virginia has not competed well.

Coal, West Virginia's single largest export commodity, is somewhat easier to track than manufacturers. West Virginia was responsible for 30% of all U.S. coal exports in 1986, or 25 million tons, with a total mine-mouth value of about $773 million. As impressive as that figure seems, it is significantly less than the figure for 1982 when West Virginia exported over44 million tons with a value of about $1.7 billion. Perhaps more significant is the fact that coal exports supported only about 5,200jobs in 1986, down from 10,000 jobs in 1983. This dramatic change can be accounted for by more capitalintensive production techniques, such as long wall mining, that have been instituted in recent years. Preliminary reports indicate, however, that coal exports rose to about $845 million in 1987.

Trends in coal exportation forWest Virginia and the nation as a whole. The volume of exports in millions of tons, the value. Though both the volume and value of coal exported from West Virginia increased slightly in 1987 over 1986, in contrast to the national trend, over the past eight years West Virginia and the nation as a whole generally have been moving in the same direction. Coal revenue and volume fell sharply in 1982 following the fall in oil prices and have yet to recover. Fears over the growing dangers of fossil fuel emissions could further hamper that recovery.

Based on 1986 U.S. Commerce Department figures for total exports, other leading export sectors in West Virginia were chemicals and allied products-$1148.9 million; primary metal products-$566.2 million; stone, clay, and glass products-$86 million; fabricated metals-$60 million; petroleum and coal products-$43.8 million; electric and electronic equipment-$39.7 million; and nonelectrical machinery-$35.5 million.

The companies that do the bulk of West Virginia exporting, in addition to the Consolidation and Eastern Associates coal companies, are the major national corporations of General Electric, Union Carbide, Borg-Warner, and Dupont. To date, small and medium-sized companies are not a significant part of the state's export effort, but they would appear to hold great potential.

Foreign Investment in West Virginia

West Virginia has not had a history of pursuing foreign investment. In 1986, Governor Arch Moore proposed setting up an overseas office, but because of budgeting constraints this did not materialize. The state welcomes investment, but otherthan the joint GOCID-Rockefeller mission to Japanese industrial companies that is occurring this year, there has been no concerted effort to attract foreign companies. The Wheeling-Nisshin steel plant investment is a recent major exception, but other examples are hard to come by.

This disinclination toward foreign investment belies the noteworthy role foreign-owned affiliates play in the West Virginia economy. In 1985, the U.S. Department of Commerce reported that foreign-owned affiliates employed 32,404West Virginians or 6.2% of private sector employment. The three biggest industries in terms of employment were chemicals12,542; mining-5,203; and retail-4,785. How West Virginia compares with its neighbors in terms of jobs from foreignowned affiliates and as a percent of private employment.

West Virginia depends more heavily on foreign-owned operations for employment than do its neighbors. Although there is surely some overlap of these employment figures, the degree of international integration in the West Virginia economy is substantial, especially when employment from exports is added.

Canada is the biggest foreign investor in West Virginia with eight wholly or partly owned concerns. All told there are 20 wholly or partly foreign-owned companies in West Virginia representing seven different countries.

West Virginia Export Promotion

The West Virginia export promotion effort is a multifaceted operation involving state officials, educators, the federal government, and private organizations. A summary of West Virginia trade development activities provides a good starting point for an examination of potential export enhancement,

With regard to trade and investment, there are two "generations" of state strategies. First generation strategies are meant to increase exports or investment incrementally. Included are trade leads, marketing studies, export directories, trade missions for exports, investment missions, and special tax abatements for investment. These are the most popular types of strategic initiatives. Second generation strategies, on the other hand, are meant to demonstrate the commitment of the state to the global economy and its own long term competitiveness. Provision for a "pro-business environment" is one prominent example. Both types of strategies are important, but as we shall see, West Virginia has given more attention to the former than the latter.

GOCID

The International Development Division (IDD) of the Governor's Office of Community and Industrial Development (GOCID) is the focal point of the state's international trade effort. The IDDconsistsof two professionals: a Directorand a Trade Representative. Created in 1985 and currently operating with a budget of approximately $100,000, the IDD is charged with promoting West Virginia exports and attracting international investment.

Convincing West Virginia companies to export is no easy task. Of course, the larger companies that already have international sales divisions need little help. Small and medium-sized companies, however, need to be encouraged and at times, led through the maze of trade regulations and protocol. All companies want to make profits, but they only look to exports as a last resort to that end when domestic sales falter.9 Financing fears, lackluster marketing, and a disinclination to adjust to the demands of foreign buyer demands are afewof theobstaclesthe IDD tries to overcome.

The mainstay of the IDD is the Trade Opportunities Program (TOPS) wherebytrade leadsare received daily from the U.S. Department of Commerce and passed on to West Virginia companies interested in exporting. These "trade leads" are reports indicating a need ordesirefora product by a foreign company. Thus far, 435 leads have been passed on to West Virginia companies.

The IDD also publishes an International Buyers Guide which is made available to foreign importers interested in purchasing from West Virginia companies. Another publication, the West Virginia International Report, is produced quarterly in coordination with the U.S. Department of Commerce to announce available programs as well as advertise the successes of West Virginia exporters to other businesses in the state.

In addition, the IDD organizes overseas and domestictrade missions and solicits the participation of West Virginia companies in trade shows to showcase West Virginia products. In 1987, the IDD Division organized a hardwood promotion visit to Japan and the Governor's trade mission to Japan, Korea, and Taiwan. The IDD also arranged for the participation of dozens of West Virginia companies in various trade shows in Korea.

The IDD student intern program is another activity that holds great potential. By getting students involved early and directly in international trade matters, a more positive global market orientation is likely to develop among West Virginia residents and business people. Student interns usually are given the responsibility of developing an overseas marketing strategy for a specific West Virginia company.

The IDD also has begun targeting specific industriesthat it feels hold particular export growth potential where West Virginia has a comparative advantage. Among the targeted areas are hardwood lumber, automotive parts, and mining machineryand equipment. Advice on export procedures, the availability of market research, and other sources of information can be found at the International Development Division.

U.S. Department of Commerce

The International Trade Administration of the U.S. Department of Commerce in Charleston answers export inquiries from 325 to 350 West Virginia companies yearly. The Charleston office can offer such services as:

-market research through the Commercial Information
 Management System (CIMS);
-surveys of prices of competing products;
-contact with foreign agents and distributors;

-World Trade Data Reports which are background checks

on potential trading partners; -the organization of trade fairs and missions; and -information on export licensing.

A nominal fee may be charged for some of these services.

Educational Programs

Marshall University- Institute for International Trade Development

Created in 1986, the Institute for International Trade was designed to facilitate faculty involvement in the formation and continuation of international market entry and development strategy. In addition to providing research and analysis to the legislative and executive branches, the Institute coordinates seminars dealing with trade-related matters. Recent seminars have covered such topics as the U.S.Canada Trade Agreement and the feasibility of creating a West Virginia port authority. The Institute has also begun a Sister Cities program where a commitment is made to develop trade between a specific city or country and the state.

West Virginia University-Appalachian International Trade Development Center for Hardwood Products

With the receipt of at least $500,000 in federal funds per year for the next five years, this Center will provide market research and trade promotion assistance for the export of processed and finished wood products from the Appalachian region. West Virginia's timber industry is currently dominated by low-tech logging operations. The Center will concentrate its energies on the development of the much more profitable manufacturing side of the lumber industry.

West Virginia University- In terna tional Studies Major and Other International Programs

The International Studies Program within the College of Arts and Sciences is a multidisciplinary program designed to provide businesses and government with people who ". . . possess the cultural and linguistic skills that enable them to compete effectively abroad." There are also opportunities for foreign study in Europe and South America through the Faculty and Course Development in International Studies (FACDIS) program. Other West Virginia University units having an international focus to varying degrees are the Regional Research Institute, the College of Agriculture and Forestry, the Centerfor Economic Research, the Energy and Water Research Center, the College of Engineering, and the Extension Service, among others.

The payoff of such programs is often overlooked. Yet such activities directly encourage a climate conducive to enhanced trade. Indeed, the Southern Governor's Association recently published a study that showed a direct link between international education and trade performance.10

Congressional Delegation

The office of U.S. SenatorJohn D. Rockefeller IV has taken a particularly active role in promoting West Virginia exports, especially coal, and attracting foreign investment to the state. In recent years, for example, Senator Rockefeller has made a special effort to visit Japan annually and to meet with the Japanese Prime Minister and other top government officials. According to Senator Rockefeller's office, a 20% tonnage increase in coal sales to Japan in 1988 over 1987 has resulted from these special contacts. As noted earlier, Senator Rockefeller, in coordination with the IDD, is also in the process of organizing an investment mission from Japan that will arrive later this year.

Senator Robert Byrd's office has also been active in promoting international trade. As Senate majority leader, he played a major role in shepherding the Omnibus Trade bill through the Senate. The promotion of foreign trade at the national level does, of course, assist West Virginia as well. In addition, he has frequently met with foreign trade representatives overseas, most notably promoting West Virginia coal in Italy and Turkey.

In the House of Representatives, the proposed Staggers Rail Act, if passed, would lower transport costs for coal shipments and thus make West Virginia coal more price competitive.

Finally, the entire West Virginia delegation is also actively attempting to persuade the President to increase funding for the U.S. Foreign and Commercial Service to augment America's competitiveness around the world.

Private Efforts

The West Virginia Export Council, a 22-member board appointed by the local International Trade Administration representative, is charged with encouraging West Virginia companies to export. The council meets quarterlyto develop strategies to bring West Virginia companies into the export sector.

Sometime in 1989 the West Virginia World Trade Association, headed by an Executive at Union Carbide, will be formed. The World Trade Association will serve as a forum where West Virginia businesses and political leaders can obtain international news and other information related to trade.

Promotion of West Virginia coal was formerly the responsibility of the state Coal Development Authority. However, that Authority was recently eliminated and, according to a spokesperson for the West Virginia Coal Association, export promotion is now primarily left to the individual coal companies.

All of the activities mentioned above, with the exception of Senator Rockefeller's and GOCID's efforttoattract Japanese investment, are dedicated solely to promoting exports. In general, attracting foreign investment has not been a high priority in recent years and little money has been budgeted toward that end, perhaps because of the overall severe budget constraints in the state government.

Programs of Other States

It is important to recognize that West Virginia export promotion practices do not exist in a vacuum. In an increasingly competitive global economy, export sales by one state are often made at the expense of another. The same holds true for investment. For these reasons it is important to compare West Virginia efforts in both areas with those of surrounding states.

According to the National Association of State Development Agencies (NASDA), export promotion and investment attraction areof growing significanceto most state economic development departments. In 1988, total state appropriations for international tradeand investment topped $62 million, up from $40 million in 1986and $21 million in 1984. Theaverage state budget for trade and investment promotion was about $1.2 million in 1988.

This state-level growth is in part a reaction to a more restricted federal role brought on by budget constraints. In fact, the federal role in export promotion has increasingly become an advisory one: informing states of general trade leads and overseas economic trends and acting as a cheerleader by encouraging firms to export.

In terms of the scope of programs other states offer, West Virginia compares favorably with thestatesthat it borders. West Virginia offers a comprehensive list of export promotion services. Of the sixteen basic services listed, West Virginia offers thirteen, as many as any other state listed. Where West Virginia falls short, however, is in funding. The comparative budget levels of state international development authorities, staff allocations, and spending per capita in the region. This demonstrates that though West Virginia is involved in many export promotion areas, its funding level is inadequate to achieve its task. Indeed, West Virginia state funding is less than one tenth of the national average.

There are two areas in particular where the West Virginia effort is deficient: export financing and investment attraction. According to a report on export financing issued by the House Subcommittee on International Finance, Trade, and Monetary Policy (1988), fear of nonpayment is one of the biggest obstacles facing potential exporters. Unfortunately, though the state of West Virginia passed export financing legislation in 1985, the program has yet to be funded and is not operational. In addition, there is no commercial bank in the state that will underwrite an international letter of credit. Federal programs, particularly the Export-Import Bank (Eximbank), are oriented towards major corporations. In fact, local U.S. Commerce Department officials have no recollection of any West Virginia company ever receiving Eximbank assistance.

On the other hand, Tennessee, Pennsylvania, Maryland, and Ohio have either direct state export lending programsor programs that work in concert with local commercial banks or federal agencies. The Ohio Export Credit Insurance Program is part of the state's small business development program, which has $100,000,000 per year available to small and medium-sized businesses. Such programs are necessary if small and medium-sized companies are to be successfully recruited into the export market.

With regard to attracting foreign investment, West Virginia has no ongoing program. Compare that fact with the commitment made by neighboring states in terms of the percentages of their total international division budgets that are devoted to attracting investment. Indeed, as shown in Table 7, some states, such as Maryland and Tennessee, have separate international investment departments. The most notable action other states take toward attracting investment is the establishment of overseas offices. The locations, budgets, and staffing levels of other states' offices are displayed in Table 8. Tennessee, which maintains no overseas offices, has been very successful in attracting investmentthrough the use of investment missions, usually headed by the Governor or other high-ranking officials.

Tennessee and Ohio have been particularly successful at attracting foreign investment, especially Japanese concerns. Indeed, research conducted at West Virginia University has shown that, in regard to Japanese investment in North

American automobile production for the last two years, while subsidies can be marginally effective inducements inattracting Japanese companies, particularly infrastructure  support like roads and sewage, overall the Japanese choose auto plant locations according to other criteria. Proximity to
 the traditional auto production center in Michigan, the education level of the workforce, and the flexibility, not necessarily the cost, of labor are important. The shift in production from Japan to the United States, whether out of fear of American protectionism, the weak dollar, or in-
 adequate capacity at home, has not translated into investment in West Virginia despite its regional proximity to Tennessee and Ohio. Again, research at West Virginia University points out that it is very important symbolically to reach out to the Japanese if one wants to do business with
 them. Foreign investment is important in anotherway: it can help bolster exports." When foreign firms establish production facilities in the U.S., they do so not only with the intention of
 reaching the U.S. market. Indeed, a goodly percentage of the Japanese autos manufactured in the U.S. are sold in Europe; and with the recent drop in the,yen, some have even been shipped back to Japan.  Also worth noting is the role tourism can play in drawing foreign investment. Most states use their overseas offices to attract tourists in the belief that if visitors like their state, they will be more inclined to invest and trade there. Without an overseas office West Virginia is hampered when it comes to drawing overseas travelers.
  As mentioned earlier, there are two generations of state trade and investment strategies. The services are first generation strategies. They will build on the foundation that already exists, but they will not broaden that base. Second generation strategies are required to do this. Second generation strategies are commitments to the longterm competitiveness of the state and are an acknowledg-
 ment of its role in the global economy. They usually do not offer an immediate payoff. Instead, second generation strategies prepare the public, businesses, and the state leadership structure to work and prosper in the international marketplace. These second generation strategies can take many forms. The most important is the provision of a pro-business environment within the state. In their promotional literature, the states of Ohio, Tennessee, Virginia, and Pennsylvania highlight their tax policies, their education programs (particularly those with an international focus), private and
 government research facilities, the cost of energy and labor, and transportation facilities such as highways, ports, and airports. They emphasize business stability, security, and cooperation, always letting it be known that the state government is concerned and taking the lead in ensuring economic growth. These states also translate such promotional material into many languages and send it all over Staff the world. West Virginia, unfortunately, does not.  The above four states also make particular note of their industrial job training programs whereby the state will pay the training or retraining costs of businesses locating in the state.
 
The 1987 Grant Thornton Manufacturing Climate study ranks the manufacturing climate of each state according to five manufacturing-related factors. The performanceof West Virginia in this study was not encouraging. Out of the 48 lowerstates, WestVirginia ranked 43. The best performers in
 the region were Tennessee and Maryland at 18 and 20, respectively. Ranking is based on a combination of government controlled (state and local government fiscal policies and employment costs) and non-government controlled (labor costs, availability of resources, quality of life) costs.
 West Virginia ranked in the bottom ten in the state-regulated employment costs and labor cost factors. West Virginia received its highest ranking in the quality of life factors,  where it stood at 20.

Similarly, the Corporation for Enterprise Development recently released its annual report on state economic climates, and West Virginia did poorly in this as well. West Virginia was one of 13 states to receive no A's or B's in any of the four categories measured-economic performance, business vitality, resource capacity, and development policy. The poor mix of industries was cited as a particularly important contributing factor in this low rating. West Virginia's need to diversify is apparent.

Developing the capability to take part in federal-level trade policy debates is also a second generation strategy. Every state has a stake in trade regulation, policies that can enhance or hamper American competitiveness overseas, and funding for federal departments like the U.S. Commerce Department and Customs Service. Such a practice is not the sole responsibility of the Governor's office. Kentucky and Tennessee have permanent state legislative committees that deal with trade issues.13 These committees, in conjunction with the Governor's export divisions, provide the capability to react to foreign policy proposals, research trade positions, and keep abreast of foreign economic development policies that may affectthe state. State officials must understand that trade and investment are of concern not only at the state level; they are also important to every individual district and community within the state.

Conclusion

Exports play a vital role in the West Virginia economy. Unfortunately, West Virginia's reliance on a single commodity-coal-for up to 50% of its direct exports, both creates a climate of complacency and places the state in a precarious position when the market for that commodity falls. If West Virginia is to profit from the national export boom, it must diversify its export base and improve its overall business climate. The same is true of investment attraction.

The problem is not only one of funding, however, but also of attitude. The International Development Division of the

Governor's Officeof Commuhityand Industrial Development notes, for example, that it is difficult to obtain feedback from West Virginia companies on their export activities. West Virginia businesses are reluctant to discuss sales completed and are not aggressive in following up on the leads they have been provided.

TheWestVirginia programsand policies currently in effect are a good foundation, but they are only that. West Virginia cannot hope to compete successfully with other states until it allots adequate resources to the programs mentioned above and develops a commitment to the global market.

NOTES

'U.S., Small Business Administration, International Trade and the States, Washington, D.C., 1987.

2U.S., Department of Commerce, Business America, September 1988. 3U.S., Department of Commerce, 1989 U.S. Industrial Outlook.

4President's Export Council, The Export Imperative, Vol. 1, Washington, D.C. 1980: 51,

5Bo Sodersten, International Economics (New York: Harper and Row, 1970), pp.249,251.

6West Virginia Governor's Office of Community and Industrial Development and the U.S. Department of Commerce, West Virginia International Report Charleston District Office, Fall, 1988.

7Roger Fortner, International Trade Administration, Charleston, WestVirginia. 8Steve Spence, Directorofthe International Development Division (IDD), West Virginia Governor's Office of Community and Industrial Development (GOCID) 91bid.

1OCarol Conway and John M. Kline, "Second Generation Strategies forTrade and Investment," Southern International Perspectives, Southern Growth Policies Board, Research Triangle Park, N.C., Winter 1987, Part It: 10.

"Rudiger W. Dornbusch, "Welcome, Foreign Investors," Technology Review, April 1988, p. 24.

12Conway and Kline, Winter 1987, Part 1:2.

13Conway and Kline, Spring 1987, Part 11:3.