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Regional Matters

March 22, 2017

Ties That Bind: The Carolinas in an Integrated Global Economy

For many years there has been a robust debate taking place in the public domain about the impacts of trade agreements, free trade, and globalization more generally. Unfortunately, most of the dialogue has focused on the perceived adverse impacts of globalization and what we must do to protect ourselves from it. And while increased global integration required painful adjustments for some workers and communities as well as companies and even entire industries, there have also been significant benefits to this global interconnectedness, including here in the Carolinas.

The links North Carolina and South Carolina have with the rest of the world expose producers in the states to a much broader and diverse customer base. Census export data show an increase in exports from the two-state region of more than 70 percent between 2009 and 2015. Nationally, the comparable growth rate was 42.4 percent.

When we take a closer look at the state-level data, however, it shows a significant difference in the rates of growth in North Carolina and South Carolina. While both exceeded the national pace, South Carolina’s growth surpassed North Carolina’s by a wide margin – 97.2 percent compared to 51.4 percent. South Carolina’s exceptional performance is largely a function of two particular industry strengths – light vehicles and aerospace.

The growth of South Carolina’s auto industry is well documented, and global auto sales increased dramatically coming out of the Great Recession. However, the growth of aerospace in the state is nothing short of astounding. In 2009, exports of aircraft and parts barely registered at all. However, by 2016, civilian aircraft and parts exports had accounted for about $5.6 billion and nearly 18 percent of the Palmetto State’s total manufactured exports. The combined industry (transportation equipment) saw exports from South Carolina increase more than 240 percent between 2009 and 2016 (see chart below).

SC Trans Equip

Source: Author's calculations using data from International Trade Administration

In North Carolina, no industries are as dominant as transportation equipment is in South Carolina, so its growth came from a broader array of manufactured goods, such as chemicals (including pharmaceuticals), transportation equipment, machinery, and computer and electric components.

NC Top 5

Source: International Trade Administration

SC Top 5

Source: International Trade Administration

Demand for exports produced in the Carolinas has helped support better-than-average job growth in the region. According to the International Trade Administration, the number of jobs supported by goods exports in the two states amounted to more than 316,400 in 2015, a number that includes employees working directly for exporters as well as employment in related industries in the supply chain. This represents an increase of approximately 61,400 (or 24.1 percent) since 2009.

The states’ export jobs performance is impressive in at least two respects. First, growth in exports-supported jobs in the region exceeded the comparable national increase (24.1 percent compared to 19.8 percent). Second, the increase in exports-supported jobs in the region exceeded overall job growth here by far. Total payroll employment in the two states was up by just 9.2 percent in the same time frame. In other words, exports-supported jobs played a key role in helping the Carolinas recover from the trauma of the Great Recession, particularly in its hard-hit manufacturing sector.

In addition to supporting demand for the goods and services produced here (and the jobs necessary to produce them), the states’ global connections attract investment dollars from other parts of the world that can be used to establish or expand operations here or provide a much-needed capital infusion into a domestically owned company.

In 2014, foreign-owned firms employed more than 242,000 workers in North Carolina, accounting for about 7.0 percent of total private employment in the state, with firms owned by investors in the United Kingdom, Germany, and Japan employing the largest numbers. In South Carolina, foreign-owned firms employed 132,000 workers, accounting for 8.2 percent of total private employment. In the Palmetto State, firms owned by investors in Germany, France, and Japan employed the most workers.

NC Emp

Source: International Trade Administration

SC Emp

Source: International Trade Administration

So while increased trade has had adverse impacts on some workers and businesses in the region, linkages to the global economy have had clear and quantifiable benefits for the economies of North Carolina and South Carolina. But the benefits go well beyond the measurable impacts of exports, jobs, and foreign investment discussed above.

These linkages are important in attracting global companies to the region and retaining them. These companies often bring talent with a different know-how from other parts of the nation and the world, as well as production techniques and processes that help push the boundaries of our own technology and innovation. Ultimately, these linkages can aid in stronger productivity growth, which is the key to increasing standards of living in the region.

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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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