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Shackling the footloose firm? Factor interests and majority voting


  • Belfrage, Carl-Johan

    () (Department of Economics, Lund University)

  • Gallo, Fredrik

    () (Department of Economics, Lund University)


Adding majority voting to a simple new economic geography model, we analyse under which circumstances politically determined barriers to international firm relocation exist. Two countries, differing in market size, consider abolishing restrictions on firm mobility. Eliminating these restrictions will fully or partially de-industrialize the small country as firms relocate to the larger market. We show that there is unanimous support for (resistance against) the removal of obstacles to firm relocation in the large (small) country if the country size difference is small, while a large difference in size gives rise to domestic conflicts of interest and international cross-factor alignments of interests. Furthermore, trade liberalisation may have facilitated the removal of barriers to firm relocation in large countries. Finally, political integration between trading countries is likely to contribute to the removal of barriers to firm relocation, and support for (resistance against) such a development comes primarily from the immobile factor in the large (small) country.

Suggested Citation

  • Belfrage, Carl-Johan & Gallo, Fredrik, 2006. "Shackling the footloose firm? Factor interests and majority voting," Working Papers 2006:16, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2006_016

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    References listed on IDEAS

    1. Robert-Nicoud, Frederic & Sbergami, Federica, 2004. "Home-market vs. vote-market effect: Location equilibrium in a probabilistic voting model," European Economic Review, Elsevier, vol. 48(1), pages 155-179, February.
    2. Fredrik Andersson & Rikard Forslid, 2003. "Tax Competition and Economic Geography," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 279-303, April.
    3. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December.
    4. Kind, Hans Jarle & Knarvik, Karen Helene Midelfart & Schjelderup, Guttorm, 2000. "Competing for capital in a 'lumpy' world," Journal of Public Economics, Elsevier, vol. 78(3), pages 253-274, November.
    5. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
    6. Stephen S. Golub, 2003. "Measures of Restrictions on Inward Foreign Direct Investment for OECD Countries," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 85-116.
    7. Stephen S. Golub, 2003. "Measures of Restrictions on Inward Foreign Direct Investment for OECD Countries," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 85-116.
    8. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
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    More about this item


    barriers to firm relocation; new economic geography; majority voting; public policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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