Does North–South Integration Affect Multinational Firms’ Strategies?

This paper aims to develop a theoretical model that shows how a firm's decision to make a foreign direct investment is influenced by a North–South regional economic integration. Our results suggest that tariff‐jumping and export‐platform strategies depend on a tradeoff between variable trade costs and fixed costs, in addition to wage differences. Furthermore, insiders may affect the strategic location of outsiders by dampening the market accessibility advantages induced by the trade liberalization process, which results in an eviction of the outsiders from the area. This effect, however, depends heavily on the level of fixed costs. Indeed, a decrease in the costs of implanting in the low‐wage country gives the insiders a first‐mover advantage that allows them to later evict their competitors.