Paper presented at the conference "Locational Competition in the World Economy," Kiel, 22-23 June 1994. I am grateful to the discussant Arye Hillman and other conference participants for valuable comments. Discussion with Devashish Mitra were also very helpful in preparing the final version of the paper. Arye Hillman's published comment goes far beyond the normal duties of a discussant and constitutes a valuable independent contribution to what I hope will be an ongoing discussion of these very interesting ideas.

While Standortswettbewerb  may be a familiar term in the German economics literature, with a long tradition in location theory going back to von Thunen and Losch, its English counterpart "locational competition" does not ring any bells, at least to me. One possible meaning, it would seem is the choice of sites by firms at which to locate various production of marketing facilities to maximize their profits, given what their competitors are doing. It thus constitutes the geographical dimension of competition between oligopolists and as such would bring into play the full panoply of the location theorist's exotic arsenal of hexagons, isodaphones, and whatever else have you.

Somehow I do not think this is what Professor Host Siebert has in mind when he invited me to write a paper on this subject, which is the theme of our conference. What he appears to want us to understand by this phrase is rather competition between nations,  not firms, to attract within their borders as much as possible of global pools of internationally mobile factors, this raising the incomes of complementary immobile factors confined within those borders. In any case, this is the sense in which I will interpret the term in this paper.