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Firm Location when Countries Differ in Infrastructures or Incomes

Author

Listed:
  • M. Martín-Arroyuelos, Ana

    () (Universidad del País Vasco (UPV-EHU))

  • M. Usategu, José

    () (Universidad del País Vasco (UPV-EHU))

Abstract

This paper analyzes, in a linear market with two adjacent countries, how firm location and optimal plant size depend on differences in the quality of infrastructures and income levels between countries. The study considers also how a free trade agreement may change, in this context where geography is made explicit, the country where a firm locates and discusses when variations in infrastructures or incomes provide incentives for firm delocation. Among the results we obtain that an increase in income in the country with lower income may induce a firm to locate in the other country and that an increase in the difference in qualities of infrastructures between countries or a free trade agreement may move the optimal location of a firm from the country with worst infrastructure to the country with better infrastructure.

Suggested Citation

  • M. Martín-Arroyuelos, Ana & M. Usategu, José, 2000. "Firm Location when Countries Differ in Infrastructures or Incomes," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 294-313.
  • Handle: RePEc:ris:integr:0134
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    More about this item

    Keywords

    firm location; infrastructure; income differences; linear market; economic integration;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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