LOCATION THEORY
Emile Deferme
,Inhoudsopgave
Introduction: what is location theory?........................................................................................................... 1
Chapter 1: Location of factor of production labor........................................................................................... 2
Chapter 2: Location of factor of production – resources..................................................................................3
Chapter 3: Transport costs............................................................................................................................. 3
Chapter 4: Precursors of the NEG theories...................................................................................................... 5
Chapter 5: NEG theories................................................................................................................................. 6
Dixit-Stiglitz model...............................................................................................................................................7
Krugman-model..................................................................................................................................................11
Venables-model..................................................................................................................................................14
Picard and Toulemonde model..........................................................................................................................16
Chapter 6: Location policy: general analysis.................................................................................................. 19
Importance of threshold effects, hysteresis, and bifurcations...........................................................................19
Less extreme forms of non-linearity...................................................................................................................20
Interaction trade policy with other policies.......................................................................................................21
Chapter 8: EU Regional Policy....................................................................................................................... 22
Introduction: what is location theory?
1
, Each region has their advantage (ex. Building car, cheaper to produce in Mexico)
Mexico vs. US (car factories):
1. Labor costs (Mexico has lower labor costs)
2. Cost of transport to harbor (lower in the US)
3. Cost of import intermediate impots (lower in Mexico)
4. Costs of reaching the final consumers (lower in Mexico)
Mexico has more trade agreements, small countries are more dependent on trade
3 theories on determinants for choosing a location:
Neo Classic Theories (NCT): first nature and are exogenous (given outside the model):
- Right workers for the firm
- Labor costs
New Economic Theories (NEG): second nature and are endogenous (changes within the
model) firms see other firms move somewhere which makes it more attractive
- Competition
- Spillovers of knowledge
- Closeness of final consumer
- Firms that demand your good
Government policy, how the government influences the decisions of firms:
- Regulations
- Infrastructure
- Taxes
- Trade agreements
Chapter 1: Location of factor of production labor
Demographic: population is very unevenly distributed, clustering (no relation between
population density and welfare)
Exponential growth of world population, consequences:
- Malthus: food production increases linear and population exponentially
did not happen due to technological progression in the farming industry
Still some truth to it because of exhaustion of nonrenewable resources
- Demographic transition: analyzes 4 stages in the transition from agriculture to
industry
Stage 1: high fertility rates because children can help on the farm BUT also high
mortality rate
Stage 2: high fertility because although industrialization, still a lot of agriculture BUT
lower mortality rate (better living conditions) Malthus growth
2
Emile Deferme
,Inhoudsopgave
Introduction: what is location theory?........................................................................................................... 1
Chapter 1: Location of factor of production labor........................................................................................... 2
Chapter 2: Location of factor of production – resources..................................................................................3
Chapter 3: Transport costs............................................................................................................................. 3
Chapter 4: Precursors of the NEG theories...................................................................................................... 5
Chapter 5: NEG theories................................................................................................................................. 6
Dixit-Stiglitz model...............................................................................................................................................7
Krugman-model..................................................................................................................................................11
Venables-model..................................................................................................................................................14
Picard and Toulemonde model..........................................................................................................................16
Chapter 6: Location policy: general analysis.................................................................................................. 19
Importance of threshold effects, hysteresis, and bifurcations...........................................................................19
Less extreme forms of non-linearity...................................................................................................................20
Interaction trade policy with other policies.......................................................................................................21
Chapter 8: EU Regional Policy....................................................................................................................... 22
Introduction: what is location theory?
1
, Each region has their advantage (ex. Building car, cheaper to produce in Mexico)
Mexico vs. US (car factories):
1. Labor costs (Mexico has lower labor costs)
2. Cost of transport to harbor (lower in the US)
3. Cost of import intermediate impots (lower in Mexico)
4. Costs of reaching the final consumers (lower in Mexico)
Mexico has more trade agreements, small countries are more dependent on trade
3 theories on determinants for choosing a location:
Neo Classic Theories (NCT): first nature and are exogenous (given outside the model):
- Right workers for the firm
- Labor costs
New Economic Theories (NEG): second nature and are endogenous (changes within the
model) firms see other firms move somewhere which makes it more attractive
- Competition
- Spillovers of knowledge
- Closeness of final consumer
- Firms that demand your good
Government policy, how the government influences the decisions of firms:
- Regulations
- Infrastructure
- Taxes
- Trade agreements
Chapter 1: Location of factor of production labor
Demographic: population is very unevenly distributed, clustering (no relation between
population density and welfare)
Exponential growth of world population, consequences:
- Malthus: food production increases linear and population exponentially
did not happen due to technological progression in the farming industry
Still some truth to it because of exhaustion of nonrenewable resources
- Demographic transition: analyzes 4 stages in the transition from agriculture to
industry
Stage 1: high fertility rates because children can help on the farm BUT also high
mortality rate
Stage 2: high fertility because although industrialization, still a lot of agriculture BUT
lower mortality rate (better living conditions) Malthus growth
2
