IWe analyze the location choice of a multinational corporation (MNC) between two host countries with dierent market structures, i.e., the number of competing domestic rms in them. We consider the eects of import tari and lump-sum subsidy instruments on the MNC's choice. Our ndings include: (i) when the domestic rms export, with lump-sum subsidy, the country with fewer rms always gets the MNC. In contrast, with taris, the country with more rms gets the MNC if they are suffciently ineffcient, (ii) when the domestic rms do not export, the country with more domestic rms may get the MNC when the domestic rms are suffciently ineffcient with either of the two instruments, and (iii) with either instrument, the MNC location decision may crucially depend on which instrument is used to attract the MNC.
Discussion Paper 2009-05
JEL Classications: F210; F230; H200