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Locational Theories of Industry

Locational Theories of Industry. Industrial Revolution: driven by new methods of power and transport Late 18 th century- replaced human and animal muscle with energy generated by machines Steam engine- James Watt 1st rail road 1825- major cities connected by rail. Location Theories.

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Locational Theories of Industry

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  1. Locational Theories of Industry

  2. Industrial Revolution: driven by new methods of power and transport Late 18th century- replaced human and animal muscle with energy generated by machines Steam engine- James Watt 1st rail road 1825- major cities connected by rail

  3. Location Theories • Least-Cost Theory – Weber 1909 • Model for location of secondary industries (vs. Von Thunen- land value, transportation cost and perishable) • Explains patterns of economic activities • Optimum location of manufacturing industries depends on three factors: A. Transport Cost (“optimum point of production”) B. Labor Cost C. Agglomeration Costs

  4. Transportation Transport costs: moving raw materials to factories and finished products to market • line-haul cost (actual movement) Cheaper Transportation Cost Truck Transport- short distance Rail Road- medium distance Ships- over long distance B. Terminal cost (loading, packing, unloading) - Cheaper for trucks and most expensive for ships C. Fixed costs (land plant, equipment)

  5. Labor Maquiladoras in Mexico - Cheaper labor makes up for higher transportation cost

  6. Agglomeration Several industries cluster and provide support by sharing talents, services, and facilities Agglomeration economic (i.e. Silicone Valley in California/ Bangalore, Indian Deglomeration- exodus of businesses from a crowed area- as a result of agglomeration- leads to increase in population- increase in demand of goods and services- increases labor cost

  7. Weakness of Weber’s Theory 1. Substitution principle- cost can be juggled in they don’t all go up at once 2. Locational Interdependence Theory (Hotelling) • When firm location is influenced by its competitors 3. Profit Maximization Theory A. maximize profits, minimize costs B. elastic demand (price sensitive)- luxury items C. inelastic demand (not subject to price change)- gas

  8. Other Considerations Fordism Post Fordism (flexible manufacturing) - “Footlose” firms - outsourcing - offshore labor Comparative Advantage- ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another.

  9. New International Division of Labor - an outcome of globalization - movement of manufacturing industries from advanced capitalist countries to developing countries —an ongoing geographic reorganization of production, which finds its origins in ideas about a global division of labor. It is a spatial division of labor which occurs when the process of production is no longer confined to national economies.

  10. Old Division of Labor until around 1970, underdeveloped areas were incorporated into the world economy principally as suppliers of minerals and agriculturalcommodities. However, as developing economies are merged into the world economy, more production takes place in these economies.

  11. Transnational corporation: How many? 60,000 TNC’s with 500,000 subsidiaries (25% of global economy, with 90% in the U.S, Japan or EU.)

  12. World Manufacturing Regions

  13. World Manufacturing Regions Four Primary Manufacturing Regions • Anglo-America • West and Central Europe • East Europe/ Russia • East Asia

  14. Anglo- America (U.S and Canada) Manufacturing areas in the U.S urban areas of the northeast U.S and southeast Canada • Anglo America Manufacturing Belt (today known as “The Rust Belt”) • Megalopolis areas (600 mile stretch of cities from Maine to Virginia) • S.E of U.S = textiles, tobacco, food processing, wood products, furniture • Gulf coast/ Texas= petroleum/ natural gas • NW coast= aircraft • Silicon valley= computer/high-tech Denver/ C.L

  15. 1960: 28% of U.S economy based on manufacturing 2000: manufacturing down to 16%

  16. Western and Central Europe • Manufacturing began in England in the 1750’s with the Industrial Revolution and spread to the rest of the continent during the 1800’s. • Coal replaced wood- England had abundant coal reserves- eventually using reserve of colonies • 1900: Europe 90% of all global manufacturing reining the midland of England to the Ural mountains • Deindustrialization occurring through western Europe (depletion of ore ) • Coal and iron field: Germany (Ruhr River Valley) France and Belgium

  17. Eastern Europe/ Russia • Manufacturing developed after WWII • Around coal and iron: Slovakia, Czech republic, Poland, Ukraine

  18. East Asia • Japan is the most developed manufacturing country in Asia. (behind are U.S) • China- up and coming, communist industrialization 2nd highest GDP in the world • Indian: also on the rise • Asian tigers- Hog Kong, South Korea, Taiwan, Singapore, all advanced industrial economies • Malaysia, Philippines, Vietnam, Thailand, Indonesia- secondary (smaller) industrial areas

  19. The Tertiary and Beyond

  20. Biggest High-Tech Producers Japan, U.S, E.U, China, South Korea, Singapore • High-tech produces from “the core” to the periphery” • “white collar” jobs in the quaternary/ quinary (communications, computers, software, pharmaceuticals, biotechnology, aerospace, robotics)

  21. Knowledge Economy • - employment growth in high-tech industries created 8 million new jobs in U.S (1986-2000) where?? • Regional concentrations agglomerated in: • California, Pacific N.W, New England (Toronto, Canada)

  22. Why Agglomerated? • Proximity to universities • Avoid areas of strong unionization • Local venture capital • Quality of life • Facilitation of communication and transportation links • Special economic zones (SEZ): specific area within a country in which tax and investment incentives are implemented to attract foreign (and domestic) businesses and investment.

  23. Service Economy • Tertiary: service sector jobs (restaurants, banking, education, offices, fast food, retail, hotels, tourism) • 1850s: 60% of labor force in primary sector • In the post Industrial U.S economy today (2000): 2% of jobs in the primary sector/ 80% in tertiary • Service Industry Giant- Tourism • 11% of all the jobs around the world in 1997, employing 260 million (expected to reach 400 million next decade) $4 trillion economic value

  24. Geographical Dimensions of the Service Economy • New Influences on Location: • Information technologies • Energy Sources • Telecommunications increases market accessibility • Presence of the multinational corporations

  25. High Technology Corridors • An area designated by local or state government to create high-tech jobs • E.g. Silicon Valley, Ca/ Boulder, Co Technopole- an agglomerated area planned for high-tech companies (i.e. Route 128 corridor in Boston- near Harvard and MIT)

  26. Major companies with significant locations in the broader Route 128 area included: Digital Equipment CorporationData GeneralBBN Technologies Thermo Electron and Fisher Scientific, later merged as Thermo Fisher Scientific Analog DevicesComputervisionMicrosoft GTEHoneywell Information SystemsMITREPolaroid Sun MicrosystemsBEA SystemsTurbine, Inc.EMC CorporationAutodesk RaytheonWang LaboratoriesApollo ComputerPrime ComputerCullinet

  27. Black Market Economy – “The Informal Economy” • More than half the world works in the informal sector • The informal economy is the cheapest way to allocate scare resources for the highest possible returns • Communist economies (U.S.S.R, Cuba) tend to have large black markets. • Offshore financial centers (mostly in the Caribbean and south pacific)

  28. Nigerian man buys fuel on the black market in Lagos

  29. Development • The world is of divided into two broad categories of countries • 1. The more developed countries (MDCs) and • 2. The less developed countries (LDCs)- Developing

  30. The Most Commonly Used Measures of Economic Development • 1. GNP per capita: GNP is the total market value of all final good services produced by a country in a year. It is a measure of economic activity or how much is produced in a country. The more developed it is assumed to be • 2. population growth: in general, poorer countries have more rapid rates of population growth • 3. occupational structure of the labor force percent workers in agriculture • 4. urbanization: urbanization is the percentage of a country’s population who live in urban areas

  31. 5. energy consumption per capita: the richer a country is the more its citizens consume (TVs, phones, cars, per capita) • 6. Infrastructure: a country’s infrastructure is defined by our author as the foundations of the society urban centers, transport networks communication, energy distribution systems, farms, factories, mines and such facilities as schools, hospitals, postal services, and police and armed forces

  32. 7. Social Conditions • literacy rate • Life expectancy • Health expectancy • Caloric intake • Infant mortality

  33. I. Economic Measures of Development • PPP, GNP, Non-Agricultural Employment, Energy consumption, Technology, Caloric Intake

  34. II. Non- Economic Measures of Development • There are also a variety of noneconomic measures of development: • 1. Literacy levels (education) gives an indication of a nation’s standard of living • Denmark: teacher-student ration: 1:12 • Burkina Faso: 1:270 • 2. public services and the creation of facilities to care for the health of the populate are evidence of development (includes access to potable drinking water)

  35. In developing countries 1.1 billion people lack access to safe drinking water • a billion people have no safe sanitation facilities • Water- related diseases contribute to nearly 4 million child death each year • People in rural Africa, mainly women and girls, spend as many as 40 billion hours each year hauling water

  36. 3. Health and well-being of populations • Developed countries doctor-population ratio 1:350 • sub-Saharan 1:18,500 • AIDs epidemic (Swaziland= 75% of population infected with AIDs virus)

  37. 4. Women’s Role • Social relationship that create gender role differences (status of women and men) • Gender: the socio-cultural creation of femininity and masculinity (not biological) • Gender empowerment measure

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