Growing costs: free trade, industry location and environmental effects*

Abstract

Despite the efforts of many developing economies to create national welfare by attracting foreign investors, industry location seems a key point to focus since industries should be placed in areas with low agglomeration to attract people to leave crowded cities and foster new environments with sustainability. Nowadays developing economies promote their industrial sectors to grow by providing supportive regulations, subsidies and credits, also they encourage foreign companies to invest in these countries, by creating labor force in marginal zones, where utilities and facilities are hardly found in the hope of raising its economy and making it sustainable. Agglomerations in large city raise costs for the local and national governmental institutions, because it creates a bench in wages, utility levels diminish and congestions costs arise. These are the reasons why countries encourage industrial sectors to move to smaller cities, with low government frictions in which population may find incentives in the short and long run, as low taxes, new infrastructure with new policies to make the economy grow. This document will explain the relationship between free trade affecting developing economies and how they promote the industry location in areas where people should be reallocated to create welfare and how these chain of events create an environmental impact.