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Feb 12: Economic Geography, Location Theory and Theories of Firm Location

Feb 12: Economic Geography, Location Theory and Theories of Firm Location Alonso, William. "Location Theory," in Regional Policy. Cambridge: MIT Press, 1975, pp. 35-63. [Library reserves

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Feb 12: Economic Geography, Location Theory and Theories of Firm Location

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  1. Feb 12: Economic Geography, Location Theory and Theories of Firm Location Alonso, William. "Location Theory," in Regional Policy. Cambridge: MIT Press, 1975, pp. 35-63. [Library reserves Nelson, Arthur C. et. al. “Exurban Industrialization: Implications for Economic Development Policy” Economic Development Quarterly 9, 2 (May 1995) [Library reserves] Carlson, Virginia L. "Identifying Neighborhood Businesses: a Comparison of Business Listings." Economic Development Quarterly, Vol. 9, No. 1, February 1995, pp. 50-59. [Library reserves] see also:
EdgarM. Hoover and Frank Giarratani, An Introduction to Regional Economics (on-line edition)

  2. Carlson, Virginia L. "Identifying Neighborhood Businesses: a Comparison of Business Listings." Economic Development Quarterly, Vol. 9, No. 1, February 1995, pp. 50-59. [Library reserves] • Basic issue: how do you find accurate information on local businesses? • Comparison of various sources: • Dun’s Market indicators • Harris directory • Covered Employment and Wages file (ES202) • Manufacturers Directory • A local database

  3. Nelson, Arthur C. et. al. “Exurban Industrialization: Implications for Economic Development Policy” Economic Development Quarterly 9, 2 (May 1995) • Where are industries locating? Neither urban • nor rural hinterland, • but somewhere in between: “middle area exurbia”

  4. Bike Messenger Land/Urban Hipster Zone (within city) Lower East Side (NYC), Little Five Points (Atlanta), Pioneer Square (Seattle), Wicker Park (Chicago) Crunchy/Progressive Suburbs (urban exiles who still identify with city life) Takoma Park (MD). Professional Zone (affluent inner-ring suburbs, old-line communities) Bethesda (MD), Greenwich (CT), Tarrytown (NY), Winnekta (IL), Santa Monica (CA), Shaker Heights ( OH) Immigrant Enclaves (semi-residential, semi-industrial, often serving the professional zone) San Gabriel Valley (east of LA); Middlesex County (NJ) Suburban Core (the heart of suburbia; mid-ring) The Exurbs (big box malls, exit-ramp office parks)

  5. Location Quotients for Durable Goods

  6. follow Jobs people follow Where are the jobs (firm location/relocation)? industrial economics + geography = location theory Where are the people (labor force concentrations and migration)? labor economics + geography = economic demography + policy & politics + policy & politics

  7. CONCEPTS • Agglomeration economies • Central place theory • Spatial division of labor [update graph about division and clustering – i.e., from vertically-integrated to vertically disintegrated] • Input-oriented and output-oriented activities (e.g., weight-gaining and weight-losing sectors) • Hotelling Model • Tendencies to spread (decentralize) and tendencies to cluster (centralize) [e.g., corner convenience stores vs. jewelry stores • Product cycle/profit cycle theory • Active vs. passive locational attributes Ideas in location theory, economic geography, business siting

  8. How to explain uneven development? Gunnar Myrdal (1898 – 1987) “Spread and backwash effects” spread back wash Starting conditions

  9. How to explain uneven development? Gunnar Myrdal (1898 – 1987) “Spread and backwash effects” spread back wash after the effects take place

  10. 3 basic questions in location theory • Why does economic activity cluster? (e.g., why are there cities, industrial districts, etc.?) • Why does it initially cluster in a specific location? (e.g., steel in Pittsburgh, computers in the SF Bay Area, autos in Detroit, music in Nashville, etc.) • Why does the initial cluster remain or instead disperse and/or relocate? (e.g., the aerospace industry moved from the east coast and Midwest to Los Angeles, San Diego, Seattle, etc.)

  11. The connection between economic era and human settlement patterns two opposing forces centripetal centripetal sentri.pital, a. [f. mod.L. centripet-us (Newton) centre-seeking + -al1.] Tending toward the centre; centrifugal centrifugal sentri.fiugal, , a. [f. mod.L. centrifug-us (Newton, f. centrum centre + -fugus fleeing, avoiding) + -al1.] Flying or tending to fly off from the centre

  12. localization economies clustering among the same sectors (e.g., apparel) scale economies Spatial dimension Savings due to producing on a large scale (e.g., mass production of a Model T Ford) Applying the concept to economic geography urbanization economies clustering across sectors (and sharing urban infrastructure, etc.) Agglomeration Economies “economies” = savings two parts: + = agglomeration economies Savings due to clustering of economic activity in one place

  13. Central Place Theory Christaller, Walter. 1933. Die zentrale Orte in Süddeutschland. [Central Places in southern Germany] The larger the city, • the larger the market area • the greater the offering of goods and services • the greater the number of specialized economic activities

  14. How big is your market area? (a function of production costs and transportation costs)

  15. How big is your market area? (a function of production costs and transportation costs) tc - starting condition

  16. How big is your market area? (a function of production costs and transportation costs) tc’ - firms A and C lower production costs

  17. How big is your market area? (a function of production costs and transportation costs) tc’’ - all three firms lower per mile transportation costs

  18. the spatial division of labor Global cities have the prerequisite of the spatial division of labor, with the concentration of specialized, advanced service sectors (that pay high wages and control global capital flows). And the spatial division of labor goes hand in hand with trade. so the new international division of labor (NIDL) goes hand in hand with international trade. Once all located under one roof Single location: Boston, Mass. Corporate headquarters R&D production distribution

  19. the spatial division of labor Global cities have the prerequisite of the spatial division of labor, with the concentration of specialized, advanced service sectors (that pay high wages and control global capital flows). And the spatial division of labor goes hand in hand with trade. so the new international division of labor (NIDL) goes hand in hand with international trade. Midtown Manhattan Cambridge, Mass. R&D Corporate headquarters production distribution Spatial dispersion by function Phoenix, Hong Kong, Frankfurt Guangdong, China

  20. Spatial dispersion by function the spatial division of labor Cambridge, Mass. Midtown Manhattan R&D Corporate HQ R&D Corporate HQ production distribution production distribution R&D Corporate HQ production distribution R&D Corporate HQ R&D Corporate HQ production distribution production distribution Phoenix, Hong Kong, Frankfurt Guangdong, China

  21. Spatial dispersion by function the spatial division of labor Cambridge, Mass. Midtown Manhattan R&D Corporate HQ R&D Corporate HQ production distribution Corporate HQ production distribution R&D Corporate HQ R&D Corporate HQ R&D production distribution production distribution distribution production Phoenix, Hong Kong, Frankfurt Guangdong, China

  22. Spatial dispersion by function the spatial division of labor Cambridge, Mass. Midtown Manhattan R&D Corporate HQ R&D Corporate HQ Corporate HQ R&D production distribution R&D Corporate HQ Corporate HQ distribution R&D production production production distribution distribution distribution production Phoenix, Hong Kong, Frankfurt Guangdong, China

  23. Spatial dispersion by function the spatial division of labor Cambridge, Mass. Midtown Manhattan R&D Corporate HQ R&D R&D Corporate HQ Corporate HQ Corporate HQ R&D R&D Corporate HQ distribution production production production distribution distribution production distribution distribution production Phoenix, Hong Kong, Frankfurt Guangdong, China

  24. Spatial dispersion by function the spatial division of labor Cambridge, Mass. Midtown Manhattan R&D R&D Corporate HQ R&D Corporate HQ Corporate HQ Corporate HQ Corporate HQ R&D R&D production production distribution distribution distribution production distribution production distribution production Phoenix, Hong Kong, Frankfurt Guangdong, China

  25. WHERE DO YOU LOCATE PROCESSING? CLOSE TO THE RAW MATERIALS OR THE MARKET – OR A MID-POINT COMPROMISE? Raw Materials Market ? ? • ? process

  26. Input-oriented and output-oriented activities (e.g., weight-gaining and weight-losing sectors) Raw Materials Market process Weight losing: Iron ore processing, lumber milling, meat packing, raisin production, wine making, fruit canning, process Weight gaining: Beer, bread, Soft drinks, cement, newspaper printing

  27. The mid-point rarely makes sense… Raw Materials Market process

  28. Except… boat road Raw Materials Market • Transshipment Point

  29. The declining significance of transportation (time and money costs as a percent of total costs) – and therefore as a factor in industrial location

  30. Hotelling Model • 2 ice cream sellers at the beach • Customers evenly distributed on beach • Customers have one criterion of where to buy ice cream: which stand is closer? • QUESTION: where do the two stands locate?

  31. Hotelling Model • 2 ice cream sellers at the beach • Customers evenly distributed on beach • Customers have one criterion of where to buy ice cream: which stand is closer? • QUESTION: where do the two stands locate?

  32. Hotelling Model • 2 ice cream sellers at the beach • Customers evenly distributed on beach • Customers have one criterion of where to buy ice cream: which stand is closer? • QUESTION: where do the two stands locate?

  33. Hotelling Model • 2 ice cream sellers at the beach • Customers evenly distributed on beach • Customers have one criterion of where to buy ice cream: which stand is closer? • QUESTION: where do the two stands locate?

  34. Hotelling Model • 2 ice cream sellers at the beach • Customers evenly distributed on beach • Customers have one criterion of where to buy ice cream: which stand is closer? • QUESTION: where do the two stands locate? equilibrium

  35. Hotelling Model • 2 ice cream sellers at the beach • Customers evenly distributed on beach • Customers have one criterion of where to buy ice cream: which stand is closer? • QUESTION: where do the two stands locate? NO equilibrium with three…

  36. Hotelling Model • BUT WHAT IS THE SOCIALLY OPTIMAL? • (e.g., minimize the average distance walked (over hot sand) • or minimize the deviation of distance walked?

  37. Tendencies to spread (decentralize) [e.g., corner convenience stores] • Tendencies to cluster (centralize) [e.g., jewelry stores]

  38. Profit and product cycles

  39. http://www.fairchildsemi.com/graphics/productLifeCycle.gif

  40. http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/img/productlifecycle.gifhttp://people.hofstra.edu/geotrans/eng/ch5en/conc5en/img/productlifecycle.gif

  41. Add geography… Either further dispersion and/or reconcentration (but also restructured) Geographically concentrated Geographic dispersion http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/img/productlifecycle.gif

  42. Do you export production …. Or import labor?

  43. Passive or mechanistic or quantitative locational attributes: • Taxes • Transportation costs • Labor costs • Material costs • Land costs • Etc. • Active or dynamic or qualitative locational attributes: • Business culture, entrepreneurial culture • Strength of growth machine • Residential amenities and culture • Governance regarding permits, codes, etc.

  44. Three Waves of Economic Development • Source: Blakely, Edward J and Ted K Bradshaw. 2002. Planning Local Economic Development Theory and Practice: Third Edition. Sage. Page 45: Table 2.3

  45. Another historical view…. Fitzgerald, Joan and Nancey Green Leigh. 2002. Economic Revitalization: Cases and Strategies for City and Suburb. Sage. pp. 10-26

  46. If time, also cover these concepts (von Thünen, etc.)

  47. Source: James Heilbrun, Urban economics and public policy, St. Martin’s Press.

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