Abstract

We analyze the location choice of a multinational corporation (MNC) between two host countries connected via international trade. We do so when the host governments are passive as well as when they compete with each other for the MNC. In particular, we examine the role of relative production efficiencies of domestic firms, and of market structure, in the host countries, in the MNC's locational choice. We consider two scenarios: domestic firms export and they do not. Our findings include: (i) when the domestic firms export, the country with fewer firms always gets the MNC, but the MNC is indifferent between hosts with domestic firms that have different efficiency levels, (ii) when the domestic firms do not export, the country with more domestic firms gets the MNC if the domestic firms are sufficiently inefficient, and the MNC locates in the country with less efficient domestic firms.

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