Modeling the Location Choice: Evidence from an Evolutionary Game Based on Regional Input-Output Analysis

Abstract

This paper combines evolutionary game theory and input–output analysis to assess firms’ strategic location choice. To evaluate the model, firms competed in the automotive sector of Mercosur. To decide where to locate, the following exogenous factors were considered: potential market; local productive interdependence; tax incentive; and macroeconomic stability. Firms assigned weights to these factors in their location decision. It was found that competing in a market where there is tax exemption is not always an ideal location decision, contradicting the common-sense assumption by which there is a direct relationship between government incentives and the attractiveness of regions.

Keywords: location decision, strategic interaction, input–output analysis

JEL Classification: C70, R12