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Feb 12: Economic Geography, Location Theory and Theories of Firm Location Alonso, William. "Location Theory," in Regional Policy. Cambridge: MIT Press,

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Presentation on theme: "Feb 12: Economic Geography, Location Theory and Theories of Firm Location Alonso, William. "Location Theory," in Regional Policy. Cambridge: MIT Press,"— Presentation transcript:

1 Feb 12: Economic Geography, Location Theory and Theories of Firm Location Alonso, William. "Location Theory," in Regional Policy. Cambridge: MIT Press, 1975, pp [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 [Library reserves] see also: Edgar M. Hoover and Frank Giarratani, An Introduction to Regional Economics (on-line edition)

2 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 Carlson, Virginia L. "Identifying Neighborhood Businesses: a Comparison of Business Listings." Economic Development Quarterly, Vol. 9, No. 1, February 1995, pp [Library reserves]

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

4 1.Bike Messenger Land/Urban Hipster Zone (within city) Lower East Side (NYC), Little Five Points (Atlanta), Pioneer Square (Seattle), Wicker Park (Chicago) 2.Crunchy/Progressive Suburbs (urban exiles who still identify with city life) Takoma Park (MD). 3.Professional Zone (affluent inner-ring suburbs, old-line communities) Bethesda (MD), Greenwich (CT), Tarrytown (NY), Winnekta (IL), Santa Monica (CA), Shaker Heights ( OH) 4.Immigrant Enclaves (semi-residential, semi-industrial, often serving the professional zone) San Gabriel Valley (east of LA); Middlesex County (NJ) 5.Suburban Core (the heart of suburbia; mid-ring) 6.The Exurbs (big box malls, exit-ramp office parks)

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6 Location Quotients for Durable Goods

7 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

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

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

11 3 basic questions in location theory 1.Why does economic activity cluster? (e.g., why are there cities, industrial districts, etc.?) 1.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.) 1.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.)

12 The connection between economic era and human settlement patterns centripetal centripetal sentri.pital, a. [f. mod.L. centripet-us (Newton) centre-seeking + -al 1.] Tending toward the centre; centrifugal centrifugal sentri.fiugal,, a. [f. mod.L. centrifug- us (Newton, f. centrum centre + -fugus fleeing, avoiding) + -al 1.] Flying or tending to fly off from the centre two opposing forces

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

14 Christaller, Walter 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

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

16 tc - starting condition

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

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

19 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. R&D Corporate headquarters productiondistribution Once all located under one roof Single location: Boston, Mass.

20 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. Spatial dispersion by function R&D Corporate headquarters productiondistribution Cambridge, Mass. Midtown Manhattan Guangdong, China Phoenix, Hong Kong, Frankfurt

21 Spatial dispersion by function R&D Corporate HQ productiondistribution Cambridge, Mass.Midtown Manhattan Guangdong, China Phoenix, Hong Kong, Frankfurt R&D Corporate HQ productiondistribution R&D Corporate HQ productiondistribution R&D Corporate HQ productiondistribution R&D Corporate HQ productiondistribution

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

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

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

25 Spatial dispersion by function R&D Corporate HQ production distribution Cambridge, Mass.Midtown Manhattan Guangdong, China Phoenix, Hong Kong, Frankfurt R&D Corporate HQ production distribution R&D Corporate HQ production distribution R&D Corporate HQ productiondistribution R&D Corporate HQ production distribution

26 Raw MaterialsMarket pro cess ???

27 Raw MaterialsMarket Weight gaining: Beer, bread, Soft drinks, cement, newspaper printing pro cess Weight losing: Iron ore processing, lumber milling, meat packing, raisin production, wine making, fruit canning,

28 Raw MaterialsMarket pro cess

29 Raw MaterialsMarket boatroad

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

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36 equilibrium

37 NO equilibrium with three…

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40 Profit and product cycles

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43 Add geography…

44 Do you export production …. Or import labor?

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46 ComponentFirst WaveSecond WaveThird Wave Location assetsDiscount them to attract outside business Reduce taxes and provide incentives to all businesses Build regional collaboration Business focusOutside firmsAssist all local firms Create context for better relations among firms Human resources Create jobs for local unemployed people Develop training programs Utilize workforce training to build businesses Community Base Physical resources Social and physical resources Leadership and development of quality environment Three Waves of Economic Development Source: Blakely, Edward J and Ted K Bradshaw Planning Local Economic Development Theory and Practice: Third Edition. Sage. Page 45: Table 2.3

47 Another historical view…. Fitzgerald, Joan and Nancey Green Leigh Economic Revitalization: Cases and Strategies for City and Suburb. Sage. pp PHASESelective characteristics 1. State Industrial Recruitment (starting in the 1930s) Create good business climate (taxes, loans, infrastructure, etc.) “greasing the skids” for business corporatist paradigm 2. Political Critiques of Local Economic Development Activity (starting in the late 1960s) Focus on who is paying and who benefits. ED actors as political agents political economic analysis critique of “smokestack chasing” recognition of tension between footloose capital and communities 3. Entrepreneurialism and Equity StrategiesTwo separate movements: Promoting high tech (mimic Silicon Valley) and pushing equity/redistribution (e.g., Mayor Harold Washington’s initiatives in Chicago, 1980s). 4. Sustainability with JusticeBalancing economic development, social justice and environmentalism. Brownfield development. 5. Privatization and InterdependenceMarket solutions (e.g., Michael Porter’s competitive inner cities) and regional/metropolitan strategies.

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

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

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52 Von Thünen

53 Twenty Really Useful Concepts in Understanding Local Economic Development agglomeration economy cumulative causation vs. equilibrium models cyclical versus structural change deindustrialization equity vs. efficiency Externalities (both positive and negative) “leaky bucket” theory of money flows in local economies globalization growth vs. development innovation (process versus product) linkages (forward and backward) location theory market failure multiplier (and basic vs. non-basic employment) opportunity costs public-private partnerships spatial division of labor supply-side vs. demand-side approaches value added zero-sum game


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