Foreign Direct Investment Relationship and Plant Exit: Evidence from the United States

Previous research has shown that U.S. manufacturing plants belonging to U.S. multinational companies (MNCs) are more likely to shut down than other manufacturing plants, once plant and industry attributes have been controlled for (Bernard A. and Jensen B., 2007). This research has concentrated on the importance of plant characteristics and the role of the firm structure, while largely ignoring the impact of the U.S. MNCs’ foreign operations. This study extends that research in two ways. First, this study looks at inward direct investment-that is, the U.S. manufacturing plants of foreign MNCs and not just the U.S. manufacturing plants of U.S. MNCs. It uses enterprise data from BEA’s survey of inward direct investment on the U.S. operations of foreign-owned MNCs combined with establishment data from the Census Bureau’s 1997 and 2002 Census of Manufacturing (CMF). The data are used to demonstrate that U.S. manufacturing plants of foreign MNCs are more likely to shut down than non-MNC plants and less likely to shut down than U.S. MNC plants, thereby providing the first empirical evidence for the United States.