Firm Location when Countries Differ in Infrastructures or Incomes

Abstract

This paper analyzes, in a linear market with two adjacent countries, how f i r m location and optimal plant size depend on diff e r ences 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 infrastru c t u r es 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 diff e r ence in qualities of infrastru c t u r es between countries or -1998-86) is gratefully acknowledged. We thank an anonymous referee for helpful suggestion.© 2 0 0 0 -Center for International Economics, Sejong Institution. All rights reserved.