Chapter 5: Theoretical Considerations • Key factors underlying location decisions • The Weberian model • Relationship between scale, location and technology • Basis for firm growth and development • The geographic organization of corporations • Social contexts and relations in the behavior of firms • Business cycles and long-waves • Role of the state in shaping economic landscapes
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Chapter 5: Theoretical Considerations Key factors underlying location decisions The Weberian model Relationship between scale, location and technology.
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Chapter 5: Theoretical Considerations
• Key factors underlying location decisions• The Weberian model• Relationship between scale, location and
technology• Basis for firm growth and development• The geographic organization of corporations• Social contexts and relations in the behavior of
firms• Business cycles and long-waves• Role of the state in shaping economic
landscapes
Basic Considerations• Theory: “A theory is what separates
description from explanation. A theory allows us to establish causality, to test hypotheses, to justify arguments and make claims to truth. Theories are simplifications about the world that allow us to gain understanding.” p. 150
• Alternative theoretical approaches: neoclassical, behavioral, political economy or structural
• Apply to all categories of industry, not just manufacturing
Factors of Location
• Labor (L)• Land (A)• Capital (C)• Managerial and Technical Skills (T)• Brought together in a production function: O = f(L,A,C,T)• Basic problem: How to combine factors, at
what scale of output, at what location, and serving what geographic markets?
Labor• Labor as an important determinant of location –
Why?• Required in all types of economic activity, but
significant variation in labor cost and use• Long-run substitution of capital for labor• Regional variation in labor costs → migration• Importance of labor productivity• “…the labor process is saturated with politics.”
• Local land cost related to accessibility (Figure 5.3)
• Intrametropolitan location & transportation system development
• Fixed capital vs. liquid or variable capital
• Spatial supply/demand conditions for capital
• Capital-labor substitution – Figure 5.4
Managerial & Technical Skills
• All businesses require these skills• Their deployment and formality varies
significantly by firm size• Concentrations of the largest corporate
headquarters in largest metro areas (Figure 5.5), but deconcentration and decentralization has occurred
• Clusters of industry-specific headquarters (Figure 5.6)
Major Corporate Headquarters 2004
Change in Headquarters Concentration
Weber’s Model of Manufacturing Industry
Production• Developed in the early 20th Century in
southern Germany
• Input factors are not ubiquitous
• This means that:– physical resources are not found everywhere– human labor is differentiated by skill & ability – capital availability varies– other inputs are also differentiated
Weber hypothesized that:
• Given market prices, producers would seek to minimize production costs to maximize profits.
• This leads to a taxonomy of production cost situations, considering
– factor costs– transport costs on factors– transport costs on finished goods
In the Weber Model, If producers Minimize Costs, then:
Min: ipiqi+ iriqidi +rqqdjj
e.g.
Minimize sum of factor costs + transport costs
on factor inputs + transport cost on shipment of product to the market
If factor costs are “given,” then the problem becomes how to minimize transport costs.
The Material Index Principle as a guide to manufacturing locationMaterial index = weight of localized material
weight of product (unit)
If M.I. < or = 1.0, locate at market
Material types:
“Pure” materials: no weight loss in production
“Weight-losing materials”
“ubiquities”
Weber’s Cost Minimizing Model & the Principle of Material Orientation
Example: 2T local materials
3T ubiquities
MI = 2/5 = .4, locate at market
Alternative Situations
(1) Ubiquities only, MI = 0, locate at market
(2) Pure Materials only
(a) 1 pure material, MI = 1
M C
Material Index Cases, Cont.(b) 1 pure material + ubiquities
MI < 1, locate at market
(c) several pure materials only
MI = 1, locate at market
(d) several pure materials + ubiquities
MI < 1, locate at market
(3) Weight Losing Materials
(a) 1 weight losing material
MI > 1, locate at material locationM C
Material Index Cases, Cont. (b) 1 weight losing material + ubiquities