Regional Integration and the Location of Multinational Corporations

The massive increase in global foreign direct investment (FDI) during the past decades has brought back international mobility of factors of production and economic geography to the academic agenda. Two forces have spearheaded the increase in global FDI: First, production technology has been adapted to fit smaller units, thereby allowing a greater geographical dispersion of production. In addition, and perhaps more important are the advances in information technology, thus making effective monitoring and communication of geographically dispersed units possible. Second, the dismantling of trade barriers and capital controls have made the location of production much more sensitive to differences in skills, costs, institutional settings, etc., across countries.
The issues addressed in this thesis concern the implication of factor mobility on a country's specialization and comparative advantage. Special attention is directed towards integration and the response by insider and outsider firms. Although focus is on the empirical analysis, the theoretical side is not neglected and both general equilibrium and partial equilibrium effects of FDI are considered in the thesis.