Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/26021 
Year of Publication: 
2007
Series/Report no.: 
CESifo Working Paper No. 1976
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We set up a model of generalised oligopoly where two countries of different size compete for an exogenous, but variable, number of identical firms. The model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed. As economic integration proceeds, equilibrium taxes decline, switching from positive to negative levels, and then rise as trade costs fall even further. A range of trade costs is identified where economic integration raises the welfare of the small country, but lowers welfare in the large country.
JEL: 
H25
H73
F15
F23
Document Type: 
Working Paper
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