ABSTRACT
Whereas the mobility of factors of production gives rise to benefits in the international division of labor, countries compete for the mobile factors of production on a global basis (section 15.1). The essential channel of locational competition is the mobility of capital (section 15.2). The economic instruments used are the supply of public goods and taxation (section 15.3). Locational competition has a major impact on the position of the immobile factor labor and restricts the maneuvering space of national economic policy (sections 15.4 and 15.5). Furthermore, it can be interpreted as institutional competition; that is, competition between different institutional set-ups (section 15.6). It is quite controversial, in how far locational competition will lead to a race to the bottom (section 15.7). Locational competition can also be interpreted as controlling excessive government power, the Leviathan (section 15.8). In particular, the smaller countries of the world economy are accustomed to locational competition (section 15.9).
