The production location and foreign investment decisions of multinational corporations (MNCs) are at the forefront of debate over trade policy. The recent NAFTA debate in the U.S. and the social dumping debate in Europe amply demonstrated the public concern over large investment flows among countries.; A related question is whether large employers, such as MNCs, prefer to locate production in countries with relatively low wages and non-unionized labor forces. A few studies have examined capital movement from high labor cost countries to low labor cost countries or from highly unionized countries to low union density countries. In addition, large employers are believed to prefer decentralized bargaining because it can give them relatively more bargaining power and more production flexibility. Thus, it has been argued that MNCs choose among the industrial relations environments of candidate countries in planning the locations of prospective production facilities.; This dissertation attempts to examine whether large employers such as MNCs are likely to prefer countries with low unionization, low strike intensity, and a collective bargaining structure that favors the employers' bargaining power. If these variables reflect favorably on production costs and production stability, then U.S. MNCs will tend to expand or locate new production in that country. To test the location preference of U.S. MNCs, I examine various operational activities of U.S. majority-owned foreign affiliates between 1982 and 1991. I used U.S. Department of Commerce's benchmark and annual survey data for two digit manufacturing industries. The industry data are disaggregated into 22 countries: 15 European countries plus Japan, Australia, New Zealand, Singapore, Korea, Mexico, and Canada. Operational activities of U.S. foreign affiliates in those countries are measured by total sales, net sales, and employment of U.S. majority-owned affiliates.; Results show that during the 1980s U.S. multinational corporations tended to locate facilities in countries where the industrial relations environment favors corporate interests, giving them greater flexibility and stability in production. That is, U.S. MNCs tend to invest in countries with decentralized bargaining structure and low union densities.
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