On the concept of locational competition

Locational competition means that the immobile factors of production in a country compete for internationally mobile capital and technology. Locational competition influences the restraint set of national players and redefines their opportunity costs. Thus, the bargaining position of the trade unions is affected. Also the manoeuvring space of government in terms of taxation and institutional arrangements is reduced. Governments are more or less forced into an economic policy (and institutional) benchmarking. A high degree of openness means that a country is exposed more to external changes. We therefore can expect that smaller countries will be the innovators in world wide institutional competition.