Stay or Leave? Choice of Plant Location with Cost Heterogeneity

Jota Ishikawa and Yoshimasa Komoriya

Chapter 9 in Strategic Trade Policy, 2026, pp 201-229 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Using a two-country model, we examine location choices by two domestic firms when they serve only the domestic market and their cost structures differ. The findings indicate that whether the firm that has a greater incentive for foreign direct investment (FDI) is more or less efficient depends on the differences in domestic and foreign marginal costs, trade costs, and the presence of fixed costs. Plant locations may not be uniquely determined. In particular, a small change in trade costs may reverse plant location. Moreover, a decrease in transport costs in the presence of FDI may deteriorate domestic welfare.

Keywords: Strategic Trade Policy; Rent-shifting; Monopoly; Oligopoly; Oligopsony; Trade Liberalization; Trade Costs; Tariffs; Subsidies; Foreign Direct Investment; Outsourcing; Segmented Markets; Integrated Markets; Intermediate Products; Vertical Market Structure; Information (search for similar items in EconPapers)
JEL-codes: F1 F10 F13 L1 (search for similar items in EconPapers)
Date: 2026
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