Session II
INDUSTRIAL LOCATION
McCann 2001
Urban and Regional Economics
Kuliah Ekonomi Regional
Sabtu, 26 Januari 2007
D.S. Priyarsono
McCann 2001
URBAN AND REGIONAL ECONOMICS
1. Industrial Location: The Location of the Firm in
Theory
2. The Spatial Distribution of Activities
3. The Spatial Structure of the Urban Economy
4. Regional Specialization, Trade, and Multiplier
Analysis
5. Regional and Inter-Regional Labor Market
Analysis
6. Regional Growth, Factor Allocation, and
Balance of Payment
7. Urban and Regional Economic Policy Analysis
Capello 2007
REGIONAL ECONOMICS
1.
2.
3.
4.
5.
6.
7.
Agglomeration and Location
Accessibility and Location
Hierarchy and Location
Productive Structure and Development
Demand
Factor Endowment
Territorial Competitiveness and Exogenous
Development
8. Territorial Competitiveness and Endogenous
Development
9. Territorial Competitiveness and Cumulative
Demand/Supply Growth
10. Territorial Competitiveness and Endogenous Growth
11. Toward a Synthesis
INDUSTRIAL LOCATION
The Location of the Firm in Theory
1.Introduction (Blair & McCann)
2.The Weber Model
3.The Moses Model
4.Market Area Analysis
5.Behavioral Theories of Firm Location
1.1 INTRODUCTION TO
CLASSICAL AND NEOCLASSICAL
MODELS OF LOCATION
Factors of output (economic activity) and
wealth
Variation over regions: population density,
investment, wages, land prices
What determines the level and type of
capital invested in a particular region?
LOCATIONAL FACTORS
Inertia
Transportation Cost
Production Costs
Labor Costs
Quality of Life
Taxes
Government Incentives
Local Business Climate
Site Costs
National Political Climate and Stability
Energy Costs
1.2 THE WEBER
LOCATION-PRODUCTION
MODEL
Weber location-production triangle
Two inputs, one output, fixed input-output
relationship, perfect competition
TC = Min mi ti di
TC = Transport Cost
m weight, t transport rates, d distance
The Weber Model: The Location
Effect of Input Transport Cost
Output: car
Input 1: steel, input 2: plastic
Car (2 tons) = steel (1 ton) + plastic (1 ton)
Scenario 1: transporting plastic is more
expensive than transporting steel
Scenario 2: composition of inputs changes
Location effect?
The Weber Model: The Location
Effect of Output Transport Costs
Output: electricity
Input 1: coal, input 2: coke
Output transport cost almost zero, one
dimensional location problem
Scenario 1: Firm A discards 70% of the
production process, firm B 40%
Scenario 2: bulkiness of the product
The Weber Model: The Location
Effect of Varying Factor Prices
Isodapane analysis
Distance-isodapane equilibrium labor prices
Inter-regional equilibrium wage gradient
The Weber Model:
The Locational Effect of New
Input Sources and New Markets
New suppliers and new markets
Key features of The Weber Model:
Price condition locations for investment
Evolutionary process: changes in factor prices
changes in location behavior changes in
supply linkages (suppliers-firms-markets)
1.3 THE MOSES LOCATIONPRODUCTION MODEL
Firms will substitute in favor of relatively
cheaper inputs.
Weber Moses Triangle
Budget constraints at the end points I and J
The envelope budget constraint
The optimum input mix and the optimum
location of the firm are always jointly
determined
The Moses Model:
Comparative Statics
Price changes and loc-prod behavior
Output changes and loc-prod behavior
(If IJ is not fixed), the optimum location will
be independent of the level of output, as long
as the prod fn & transp tech are constant return
to scale.
Prod behavior and loc behavior are completely
intertwined issues --- overlooked in
discussions of industrial ec. and th. of the firm
The Moses Model:
Limitations & Extensions
Limitations:
Market price of output good plays no role
The emphasis of transport costs as a locational
issue
Extensions:
The logistics-costs model, from distancetransport costs to total logistic costs.
1.4 MARKET AREA ANALYSIS:
SPATIAL MONOPOLY POWER
Spatial market areas: a one dimensional
model with equal transport rate
Spatial market areas: one dimensional
models with varying transport rates and
production costs
The Hotelling
Model of Spatial Competition
The Hotelling location game
The welfare implications
The effect of price competition
Other applications of Hotelling Model:
Industrial economics: Product differentiation
Politics: Election
1.5 BEHAVIORAL THEORIES
OF FIRM LOCATION
Firms make decision to achieve alternative goals,
other than simply profit maximization.
Bounded rationality: limited information available
Conflicting goals: max. profit, sales, market share,
efficiency, min. industrial disputes
Relocation costs.
Relocation is not used as competitive weapon
Behavioral approach is not prescriptive
DISCUSSION QUESTIONS
How does the location of input sources and output
markets determine the location behavior of the
firm?
To what extent are firm-locational changes
dependent on the substitution characteristics of the
firms production function?
In what ways can space confer monopoly power?
What role can location play in the competitive
strategy of firms, and how are location and price
strategies interrelated?
What role do logistics costs play in determining
location behavior?
What insights are provided for industrial location
analysis by behavioral theories of firm behavior?
