DISCRETE PLANT-LOCATION DECISIONS IN AN APPLIED GENERAL-EQUILIBRIUM MODEL OF TRADE LIBERALIZATION

This paper makes a first step toward a more realistic approach to incr easing-returns trade models in which firms face discrete choices about the numbers and locations of their plants. The model is applied to th e North American auto industry in the NAFTA context. Results include: (1) production appears to be excessively geographically diversified in itially; (2) autos are produced in fewer locations as trade barriers a re lowered; (3) a ''non-monotonicity'' case is produced in which a pla nt is first closed and then reopened as trade barriers are progressive ly lowered; (4) an example of the misleading nature of marginalist ana lysis is presented in which plants in Canada and Mexico increase produ ction when locations are fixed but close down when locations are endog enous and optimized. JEL No. F12, F23