Will labour intensive industries always locate in labour abundant countries?
Loading...
Date
1998-03
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
The purpose of this paper is to analyse how trade liberalization affects location decisions of firms in vertically linked industries with different factor intensities. Firms can choose to locate either in a low wage, labour abundant country or a low rental capital abundant country. We derive a number of results. At high levels of trade costs upstream and downstream firms locate in both countries. At low levels of trade costs location is according to comparative cost, with labour intensive firms locating in the low wage country and capital intensive firms in the low rental country. For some intermediate levels of trade costs there may be an agglomeration of upsteram and downstream firms in one country. Whether the industries agglomerate in the low wage or the rental country is likely to depend on the relative differences in factor prices.
Description
Keywords
downstream firms, trade liberalisation, trade costs, upstream firms, vertical links