In western Europe, highly integrated product markets coexist with profound differences between national labour market regimes in terms of both material labour standards and industrial relations institutions. This offers transnational firms the opportunity to target investment towards regimes where labour standards are lowest and regulatory institutions least restrict management prerogatives. How far such `regime shopping' occurs is tested by examining the impact of labour market regimes on US foreign direct investment across 14 western European countries from 1981 to 1992. Empirical evidence suggests that investors neither attribute high priority to labour market regimes when selecting locations nor pursue a coherent strategy regarding such regimes. The article concludes by discussing explanations for this finding.
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