It comes down to who wants it more. If you have some kind of rare special experience that would be hard for them to find locally, then your location doesn't matter because they will be happy to have you on board. If you are replaceable then expect to be paid accordingly.
Anyone can pay as much/little as they want, and get paid as much/little as they are willing to accept, obviously. But IMO it is worth remembering that ultimately what matters is the value added. If you live in a cheap location, negotiate hard, because you're adding as much value as someone that lives in an expensive location.