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Locational Competition – A Neglected Paradigm in the International Division of Labour

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  • Horst Siebert
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    Abstract

    Krugman's verdict that competitiveness of countries is a largely meaningless concept is a serious misjudgement of the economics profession. Countries compete for the mobile factors of production, most importantly for capital and technology. The exit-option of these factors and of firms changes the calculus of national governments. This paper sets out the main elements of the concept of competition between locations - locational competition - and analyses its impact on welfare and employment of the capital-exporting country. It also looks at whether competition between countries necessarily results in a race to the bottom or whether it can function as a controlling mechanism for governments and as a discovery device. The paper discusses under which conditions common rules are needed to reduce transaction costs and to prevent strategic, opportunistic behaviour of countries and which common rules thus reduce transaction costs. Finally, it deals with the question whether one institutional equilibrium in the world economy can be expected or whether many national equilibriums can coexist.

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1258.

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    Length: 34 pages
    Date of creation: Oct 2005
    Date of revision:
    Handle: RePEc:kie:kieliw:1258

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    Keywords: Competitiveness of countries - Mobile and immobile factors of production - Exit option of capital - Impact of capital exports on the capital- exporting country and its employment - Capital exports and exports of goods as complements or substitutes - Manoeuvring space of governments- Locational competition as a discovery device - Locational competition and global public goods and externalities - Single world equilibrium versus many national equilibriums;

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