In the context of politics, the researchers examined the following questions: What can policymakers do to increase the attractiveness of their seats and thus increase the likelihood of multinational firms decides to choose a specific location? Much of the work in this area came from two important areas of research. First, the new trade theory (see Krugman, 1994) introduced the economies of scale in the theory of international trade.
In extreme cases, some industries such as manufacturing of aircraft and semiconductors are so costly to establish that the world can support only a very small number of firms. In this case, a country can “win” the two countries in a game in which each country decides to subsidize its own firm so the firm can reduce its cost, and take the whole world market for the production of a particular product (see Brander and Spencer, 1985). Such a policy often referred to as “strategic trade policy”.
Despite the lack of empirical evidence of the industry, such extreme patterns of production, which supports only one global firm (suitable targets subsidies), many billions of dollars are spent each year, countries and states in the form of subsidies to the game “win” a larger share in world production. Knowing the countries and states are willing to offer payments to lure and retain manufacturing gives companies an incentive to threaten to move. In many cases, these threats will lead to trade wars, which reduce costs to the company at the expense of countries and states. Secondly, the publication of Michael Porter’s competitive advantage Nations (1998) and directly address the positive role of governments in allocating places more attractive. Unlike the strategic trade policy in favor of a broader Porter types of policy measures to enhance the attractiveness of the location. These measures include an increase in spending on education and R & D, government expenditure on infrastructure development, institutional development, etc. The goal of this policy would create aSilicon Valley- like clusters by improving the quality of domestic factors of production such as labor and capital. With high quality inputs can be deployed in many different sectors, there is much less waste involved in politics, that the factor of improvement than in policies that simply seek to redistribute seats in the existing economic activities.