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Discrete plant-location decisions in an applied general-equilibrium model of trade liberalization

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  • James Markusen
  • Thomas Rutherford

Abstract

Theoretical and applied work in industrial-organization approaches to international trade typically assume either that there are fixed numbers of firms, or that there is free entry and exit with a continuum of firms. This paper makes a first step toward a more realistic approach in which firms face discrete choices about the numbers and locations of their plants. The model is applied to the North American auto industry in the context of the draft North American Free Trade Agreement. Results include: (1) production appears to be excessively geographically diversified initially; (2) autos are produced in fewer locations as trade barriers are lowered; (3) a 'non-monotonicity' case is produced in which a plant is first closed and then reopened as trade barriers are progressively lowered; (4) an example of the misleading nature of marginalist analysis is presented in which plants in Canada and Mexico increase production when locations are fixed but closed down when locations are endogenous and optimized.
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  • James Markusen & Thomas Rutherford, 1994. "Discrete plant-location decisions in an applied general-equilibrium model of trade liberalization," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 133-151, March.
    • Handle: RePEc:spr:weltar:v:130:y:1994:i:1:p:133-151
    DOI: 10.1007/BF02706013
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    1. James R. MARKUSEN, 2021. "Trade And The Gains From Trade With Imperfect Competition," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 14, pages 303-323, World Scientific Publishing Co. Pte. Ltd..
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    7. Steven Berry & Vittorio Grilli & F. Lopez-de-Silanes, 1992. "The Automobile Industry and The Mexico-Us Free Trade Agreement," NBER Working Papers 4152, National Bureau of Economic Research, Inc.
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    Cited by:

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    3. Magdalena Olczyk, 2016. "A systematic retrieval of international competitiveness literature: a bibliometric study," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(3), pages 429-457, December.
    4. Magdalena Olczyk, 2016. "Bibliometric approach to tracking the concept of international competitiveness," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 17(6), pages 945-959, November.

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    More about this item

    Keywords

    F12; F23;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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