Infrastructure and Industrial Location in LDCs
Distinguishing between national and international infrastructure, this paper investigates how differences in infrastructure quality may affect the location of firms between countries. The paper employs a model which is particularly well suited for the less-developed-country (LDC) context. The main results are as follows: (i) improvements in international infrastructure stimulates decentralization of industrial activity between countries; (ii) differences in national infrastructure quality make firms locate in the county with the superior national infrastructure; (iii) if a country's overall infrastructure is insufficiently superior, firms may choose to locate in separate countries. In an extension to the model, a formal sector wage premium is introduced. This creates potential market failure, and a role for government intervention.
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