Economic Integration, Environmental Harmonization and Firm Relocation
Environment and Development Economics, Vol. 12, No. 3, pp. 379-402, June 2007
Posted: 3 Mar 2008
As different regions of the world integrate, many questions arise regarding the effect on the location of firms. A firm's decision to relocate operations when its home country integrates with another region is in general influenced by the relative marginal cost of production between the regions, the cost of relocation, the cost of exporting its goods across borders, as well as the relative size of the two regions. Except for market size, these variables crucially depend upon the degree of economic integration, ranging from simple bilateral trade agreements, to agreements that make foreign direct investment easier and cheaper, to full economic integration that harmonizes policies across the regions. We develop a model in which we explore the possible forms of integration in the context of two illustrative applications: US-Mexico under NAFTA and Central and Eastern European countries and the European Union.
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