On the selection of industry location alternatives

Consider the problem of a firm contemplating a plant location in a developing country where production costs are lower but risks are higher as opposed to operating from a home-country location. This paper extends the traditional profit maximization framework to model the linkage between profits and the investment needed to generate them. In this way, measures of relative profitability may be used as alternative location criteria. Taxes are also introduced to evaluate the potential of fiscal policies in providing some extra competitive edge to a given location. Finally, a sensitivity analysis is presented to assess the effect on the various decision criteria such as changes in the level of revenue per dollar invested, in the labour to capital ratio, in taxes and in productivity measures related to capital, equipment and labor requirements.