Kiel Working Papers, Kiel Institute for World Economics
No 1258:
Locational Competition – A Neglected Paradigm in the International Division of Labour
Horst Siebert
Abstract: 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.
Keywords: Competitiveness of countries - Mobile and immobile factors of production - Exit option of capital - Impact of capital exports on the capital- exporting country and its employment - Capital exports and exports of goods as complements or substitutes - Manoeuvring space of governments- Locational competition as a discovery device - Locational competition and global public goods and externalities - Single world equilibrium versus many national equilibriums; (follow links to similar papers)
JEL-Codes: F,; H,; J; (follow links to similar papers)
34 pages, October 2005
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