The Impact of the Inflation Reduction Act on Foreign Direct Investment Into the U.S. Renewable Energy and Clean Technology Sectors

Abstract

This thesis investigates how the Inflation Reduction Act shapes foreign direct investment in the U.S. cleantech and renewable energy sectors. Using a mixed-methods approach, combining quantitative investment data with thematic analysis of firm-level interviews and corporate disclosures, it explores how foreign investors interpret and respond to the IRA’s provisions within an evolving political and institutional context. The findings reveal that the IRA is not experienced as a singular driver but fulfills multiple, overlapping roles depending on firm strategy and sectoral dynamics. Specifically, the IRA acts as a Requirement for otherwise unviable projects, an Amplifier of already-attractive opportunities, a Signal of long-term institutional commitment, and a Gatekeeper through eligibility criteria and localization mandates. Investment motivations are often multi-causal and convergent, shaped by a blend of direct incentives and indirect mechanisms such as regulatory clarity and demand-side stimulation. These insights suggest that industrial policy like the IRA plays a formative, not merely facilitative role in shaping FDI logic, especially in capital-intensive, policy-sensitive sectors. The thesis further contributes to FDI theory by extending Dunning’s OLI framework: while created assets such as incentives and regulatory frameworks are acknowledged as components of location advantage, this study demonstrates how these assets drive investment decisions through differentiated functional roles. Moreover, it highlights the fragility of these roles under political uncertainty, particularly under the 2025 Trump administration, and the rising strategic importance of institutional continuity. In sum, this research positions industrial policy as a central determinant of modern FDI, showing that in clean energy, policy not only shapes where firms invest, but why.