THE CONTRIBUTION OF IMPORTS TO MARYLAND ECONOMIC GROWTH
In economic development strategies, exports have long held center stage. Imports have been shunned, regarded as substitutes for locally-produced goods, competing with the manufacturing base. Discussion about the benefits of imports is fraught with complexities and concerns about the jobs and income thought to be lost when Americans buy foreign-made products. But as the high technology, global economy takes hold, the role of imports in Maryland demands deeper examination. This report focuses on imports for two major reasons. Imports account for a substantial share of the tonnage and value moving through Maryland's international gateways. In six of the past ten years, import tonnage passing through the Port of Baltimore has exceeded exports. In 1998, imports were almost twice as high as exports. Recently, international air freight moving through the Baltimore Customs District has been similarly skewed, with imports in 1998 outweighing exports by almost three to one. Second, in economic development strategies, there is a need to examine trade and competitiveness, both of companies and Maryland's state and local economies, as two-way streets. A blinkered focus on exports alone may hobble the very companies on which the state is depending to carry its prosperity forward in the 21st century.
In an effort to broaden thinking about the potential of imports as a critical part of the state's economic development strategy, this report explores the links between the movement of goods and employment in Maryland's importing companies. A number of studies have measured the impact that the passage of goods through the port has on the Maryland economy. In 1998, 126,000 jobs in the state were related to the Port of Baltimore. In the same year, BWI Airport was judged to be responsible for 75,543 jobs. Examining the scope and character of the modern logistics industry in the state using a broader definition, the Committee on Logistics and the Economy of the Johns Hopkins Institute for Policy Studies concluded that 623,600 citizens were employed in the distribution industry.
This report, the second sponsored by the Committee for Logistics and the Economy, takes the next step. In the first phase, data on freight movement and foreign-owned companies served as departure points for asking questions: How much of those imported goods stick to Maryland? What do Maryland workers do to them? What kinds of jobs are associated with adding value to imports? The data suggest ways in which value is added to goods in transit to or through Maryland. When goods are manipulated, fabricated, used in the manufacture of other goods, or packaged with services, additional labor is required. The economic impact of distribution activities is multiplied. The study uses surveys and case studies to capture these impacts.
In the second phase, with the assistance of the Committee on Logistics and the Economy, IPS researchers identified companies for case studies, based on several hypotheses about the ways that value added to imports creates jobs in the State of Maryland. Many of the companies examined are foreign-owned, since these companies account for a significant percentage of imports nationally. The value-added hypotheses are explored in four separate sections of the report, and include:
- services provided to customers after a sale,
- value-added processing of imported goods,
- incorporation of imports into products manufactured in the state, and
- expansion of functions by foreign-owned importers.
Third, to examine how foreign-owned companies expanded their original functions, case studies were supplemented by a survey of all the foreign-owned companies in the computer and electronic product manufacturing and electrical equipment, appliances, and component manufacturing industries in Maryland. The survey explored the patterns of market entry and growth in greater depth and revealed whether companies that began sales operations in Maryland subsequently expanded into distribution, manufacturing, and research and development.
Our primary conclusion is that imports matter. While a systematic analysis was not possible, the case studies and surveys reveal the multi-layered dimensions and often- unacknowledged benefits of imports:
- Significant Maryland users of imports in almost every major category of commodities moving through the port and airport were identified.
- After-sales customer service operations of the profiled importing companies accounted for one-quarter to one-third of the workforce.
- Processing and customization of imported goods by profiled companies accounted for 15 percent to 100 percent of their employment.
- Several of Maryland's largest manufacturers import nearly 100 percent of their inputs.
The survey of foreign-owned companies in the computer/instruments and electric equipment/components industries shows that foreign-owned sales offices often expand their functions over time. Although they did not follow the market entry progression that was hypothesized, half the companies surveyed expanded functions to some extent, thus adding value and jobs to the Maryland economy. Other findings include:
- Foreign-owned importing companies in the electric/electronic/instruments industries do not appear to routinely add manufacturing or research and development activities to U.S. operations initially established for sales or sales and distribution.
- However in other industries, examples of progressive expansion of functions along the hypothesized continuum have been found, suggesting that additional analysis is needed to produce conclusions that can be generalized across industry sectors.
- Foreign-owned companies use Maryland's port and airport extensively.
- Many of the surveyed foreign-owned importing companies have also begun to export from their Maryland locations.
The Maryland Department of Transportation (DOT) and the Maryland Department of Business and Economic Development, (DBED) acting both individually and together, have undertaken aggressive programs to promote export trade and to attract foreign direct investment. These investments can be further leveraged to enhance the economic impact of goods moving to and through Maryland from foreign sources.
The economic impact of imports can be enhanced through:
- adding instruments and communications equipment to the foreign direct investment targets;
- promoting Maryland as a good location for customer service centers associated with imported goods;
- redoubling efforts to attract foreign manufacturers;
- focusing on foreign research and development firms and organizations;
- strengthening and enhancing existing DBED/DOT collaboration in strategic targeting;
- continuing to promote the possibility of Latin American exports to importing firms.
- launching a cooperative DBED/DOT initiative to help firms position themselves in global markets: identifying and exploiting sales opportunities, taking advantage of the best suppliers worldwide, and thereby enhancing their competitiveness in local markets; and
- implementing current plans to enhance port and airport facilities.
The Committee for Logistics and the Economy brings together a group of Johns Hopkins researchers, company executives from the transportation and distribution industries, and representatives of related agencies of state government: the Maryland Department of Transportation and the Maryland Department of Business and Economic Development.
