Strategic policies towards international factor movement

In this paper we analyse the optimal policies of two active countries towards international movement of both labour and capital in a two-stage non-cooperative game. We show that a complete buy-out of both factors by either country can never be a Nash equilibrium, although a partial buy-out is possible. Furthermore, in equilibrium the 'large' country tends either to remain virtually passive or to play along with the 'small' country, whereas the small country adopts more significant policies.