Relocation : What Matters ? Competition or/and Co-ordination

With respect to relocation (delocalisation) issues two attitudes can be contrasted. According to the most standard one, relocation does not create any problem when full competition prevails in product, labour, and capital markets. Changes in transportation and production costs may generate changes in location by firms in manufacturing industry at the benefit of less developed countries. In more developed countries, jobs are shifting from e.g. manufacturing to services industry, and the negative impact on households' purchasing power of lower nominal wages, if any, will be more than offset by lower prices of imported final goods. Unemployment will be frictional and temporary, unless market labour rigidities prevent the necessary jobs' shifting. According to a different perspective, relocation may become a real issue when considering it as an aspect of a process of creative destruction that necessarily results in local distortions in the structure of productive capacity and hence in market disequilibria. In the latter perspective, relocation can no longer be viewed as an equilibrium phenomenon. It may be associated with an increasing rate of unemployment and make it necessary for public authorities to intervene. In fact, all depends on the way co-ordination issues are dealt with. But focusing on attractiveness and competitiveness of territories may lead public authorities to implicitly consider international trade as a zero (or negative) sum game and implement supply side oriented policies that are fundamentally misconceived and could increase market disequilibria. Thus it is necessary to consider how production location really takes place out of equilibrium and how relocation may end in a quasi-dynamic equilibrium. Public interventions are required, which consist in combining structural and macroeconomic policies, the former being efficient only if the latter are growth oriented. The aim of this paper is precisely to argue according to the latter perspective.