Regional Integration and the (Re)Location Choice of MNCs

How does regional integration affect the location of MultiNational Companies, and member countries ’ investment incentives? The welfare effects of integration and sub-sidy competition are found to depend crucially on market structure, technological dif-ferences, ownership, positive externalities to the MNC’s investment and the interplay between subsidies and tariffs. We show how Subsidy Competition may reduce welfare relative to the mutual interdiction of subsidies. We find justifications for intra-regional transfers and identify under which conditions the gain associated with supra-regional agreements increases with integration. We also identify conditions under which, with a local MNC in oligopoly, integration may reduce regional welfare