ABSTRACT
Countries compete for the mobile factors of production on a global basis (section 12.1). The essential channel of locational competition is the mobility of capital (section 12.2). The economic instruments used are the supply of public goods and taxation (sections 12.3 and 12.4). Locational competition has a major impact on the position of the immobile factor labor and restricts the maneuvering space of national economic policy (sections 12.5 and 12.6). Furthermore, it can be interpreted as institutional competition, that is competition between different institutional set-ups (section 12.7). It is quite controversial, in how far locational competition will lead to a race to the bottom (section 12.8). Locational competition controls excessive government power, the Leviathan (section 12.9). Especially the smaller countries of the world economy are exposed to locational competition (section 12.10).
