Abstract

This paper develops a simple partial equilibrium model with two regions, North and South, to fathom the effects of firms’ relocation in a context of international and imperfect competition. Two different production technologies are considered, a relatively clean technology and a dirty one, and the effects of relocation according to the kind of technology used by the relocated firms are determined. We consider one immobile dirty firm located in the South and two mobile firms one relatively clean and one dirty firm. This paper demonstrates that the offshoring of a dirty firm as compared to the offshoring of a relatively clean firm is worse  for the environment, better for northern consumers, and better for the domestic profits.

Practical information