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

  • Horst Siebert
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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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File URL: https://www.ifw-members.ifw-kiel.de/publications/locational-competition-a-neglected-paradigm-in-the-international-division-of-labour
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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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  1. Siebert, Horst & Koop, Michael J., 1993. "Institutional competition versus centralization: Quo vadis Europe?," Kiel Working Papers 548, Kiel Institute for the World Economy (IfW).
  2. Marin, Dalia, 2004. "A Nation of Poets and Thinkers - Less so with Eastern Enlargement? Austria and Germany," CEPR Discussion Papers 4358, C.E.P.R. Discussion Papers.
  3. Konings, Jozef, 2004. "The employment effects of foreign direct investment," EIB Papers 4/2004, European Investment Bank, Economics Department.
  4. Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
  5. Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-56, August.
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