Location theory has become an integral part of
economic geography
Economic geography is the subfield of human geography which studies economic activity and factors affecting them. It can also be considered a subfield or method in economics.
There are four branches of economic geography.
There is,
primary secto ...
,
regional science
Regional science is a field of the social sciences concerned with analytical approaches to problems that are specifically urban, rural, or regional. Topics in regional science include, but are not limited to location theory or spatial economics, ...
, and spatial economics. Location theory addresses questions of what economic activities are located where and why. Location theory or
microeconomic theory
Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics foc ...
generally assumes that agents act in their own self-interest. Firms thus choose locations that maximize their profits and individuals choose locations that maximize their utility.
History
Transportation costs
![Railway signals in Germany (5)](https://upload.wikimedia.org/wikipedia/commons/4/42/Railway_signals_in_Germany_%285%29.jpg)
While others should get some credit for earlier work (e.g.,
Richard Cantillon,
Etienne Bonnot de Condillac,
David Hume
David Hume (; born David Home; 7 May 1711 NS (26 April 1711 OS) – 25 August 1776) Cranston, Maurice, and Thomas Edmund Jessop. 2020 999br>David Hume" ''Encyclopædia Britannica''. Retrieved 18 May 2020. was a Scottish Enlightenment phil ...
,
Sir James D. Steuart, and
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
), it was not until the publication of
Johann Heinrich von Thünen
Johann Heinrich von Thünen (24 June 1783 – 22 September 1850), sometimes spelled Thuenen, was a prominent nineteenth century economist and a native of Mecklenburg-Strelitz, now in northern Germany.He "ranks alongside Marx as the greatest Ge ...
's first volume of ''Der Isolierte Staat'' in 1826 that location theory can be said to have really gotten underway. Indeed, the prominent
regional scientist
Regional science is a field of the social sciences concerned with analytical approaches to problems that are specifically urban, rural, or regional. Topics in regional science include, but are not limited to location theory or spatial economics, ...
Walter Isard
Walter Isard (April 19, 1919 – November 6, 2010) was a prominent American economist, the principal founder of the discipline of regional science, as well as one of the main founders of the discipline of peace studies and Peace economics.
Life an ...
has called von Thünen "the father of location theorists." In ''Der Isolierte Staat'', von Thünen notes that the costs of transporting goods consumes some of Ricardo's economic rent. He notes that because these transportation costs and, of course, economic rents, vary across goods, different land uses and use intensities will result with increased distance from the marketplace. However, the discussion was criticized since
Johann Heinrich von Thünen
Johann Heinrich von Thünen (24 June 1783 – 22 September 1850), sometimes spelled Thuenen, was a prominent nineteenth century economist and a native of Mecklenburg-Strelitz, now in northern Germany.He "ranks alongside Marx as the greatest Ge ...
oversimplified the problem with his assumptions of, for example, isolated states or single cities.
A German hegemony of sorts seems to have taken hold in location theory from the time of von Thünen through to
Walter Christaller
Walter Christaller (April 21, 1893 – March 9, 1969), was a German geographer whose principal contribution to the discipline is central place theory, first published in 1933. This groundbreaking theory was the foundation of the study of citie ...
's 1933 book ''Die Zentralen Orte in Sűddeutschland'', which formulated much of what is now understood as
central place theory
Central place theory is an urban geographical theory that seeks to explain the number, size and range of market services in a commercial system or human settlements in a residential system.Goodall, B. (1987) The Penguin Dictionary of Human Geo ...
. An especially notable contribution was made by
Alfred Weber
Alfred Weber (; 30 July 1868 – 2 May 1958) was a German economist, geographer, sociologist and theoretician of culture whose work was influential in the development of modern economic geography.
Life
Alfred Weber, younger brother of the ...
, who published ''Über den Standort der Industrien'' in 1909. Working from a model akin to a physical frame adapted from some ideas by
Pierre Varignon (a
Varignon frame), Weber applies freight rates of resources and finished goods, along with the finished good's production function, to develop an algorithm that identifies the optimal location for manufacturing plant. He also introduces distortions induced by labor and both agglomerative and deglomerative forces. Weber then discusses groupings of production units, anticipating
August Lösch
August Lösch (15 October 1906 – 30 May 1945) was a German economist, known for his seminal contributions to regional science and urban economics.
Born in Öhringen, Württemberg, Lösch obtained his doctorate from the University of Bonn in 1 ...
's market areas.
Carl Wilhelm Friedrich Launhardt conceived much of that for which Alfred Weber received credit, prior to Weber's work. Moreover, his contributions are surprisingly more modern in their analytical content than are Weber's. This suggests that Launhardt was ahead of his time and not readily understood by many of his contemporaries, for instance he showed that railways cannot be fully developed by private capital alone.
:
Whether Weber was familiar with Launhardt's publications remains unclear. Weber was most certainly influenced by others, most notably
Wilhelm Roscher
Wilhelm Georg Friedrich Roscher (; 21 October 18174 June 1894) was a German economist from Hanover.
Biography
Roscher studied at Göttingen, where he became a member of Corps Hannovera, and Berlin, and obtained a professorship at Göttingen in ...
and
Albert Schäffle, who seem likely to have read Launhardt's work. Regardless, location theoretical thought blossomed only after Weber's book was published.
The Swedish economist
Tord Palander
Tord Folkeson Palander (6 October 1902 – 1972) was a Swedish economist. His Ph.D. thesis, ''Beiträge zur Standortstheorie'' (Contributions to Location Theory), completed in 1935 at the Stockholm University College, laid foundations to regiona ...
completed a 1935 PhD, ''Contributions to Location Theory'', which considered the market area division of two competing firms. The American economist
William Henry Dean, Jr. completed his Harvard PhD in 1938, ''The theory of the geographic location of economic activities''.
Site selection
Literature on site selection theory used to look until recent years at the various issues only from a national point of view. By large, there are no international reviews to be found in these publications. In the US, a country in which industrial site selection played a role very early on, resulting in a very early search for methodical approaches, Edgar M. Hoover was one of the leading pioneers in the field of site analysis. In his book “The Location of Economic Activity”, Hoover compiled crucial criteria of industrial site selection as early as 1948 that still apply today. There were, however, some quite early attempts to combine theories of international trade with nationally oriented site theories in order to develop a site theory with an international perspective. One of these early authors was Ohlin (1952), followed by Sabathil (1969), Moore (1978), Tesch (1980), and Goette (1994) .
Nevertheless, even to this day, this situation has only changed to some extent. Even though since the 1990s it has no longer been only major corporations that expand abroad, and any foreign direct investment results in a site selection, there are still very few well-researched studies on this topic. A specifically international site selection theory is still not discernible. Many current and more recent publications either review site decisions made by individual corporations or analyze them as reference cases. Other publications focus on a cost-specific approach largely driven by site relocations in the context of cost structure optimization within major corporations. However, these publications only rarely and at best cursorily deal with issues of construction and real estate aspects.
Theodor Sabathil’s 1969 dissertation is considered one of the early in-depth studies in the area of international site selection. Therein, Sabathil largely focused on country selection, which is part of the site selection process. In this context, Sabathil compiled a comprehensive catalogue of site factors and a theoretical approach to site selection; the latter does not go into great detail. Neither does Sabathil take any legal, natural, or cultural site factors into consideration. However, he discusses in particular company-specific framework conditions and psychological factors.
The dissertation submitted in 1980 by Peter Tesch constitutes another milestone in the further development of international site theory. Tesch combines theories of international trade and investment with site theories. He is the first to include country-specific framework conditions in his analysis. The main basis for his comments on the various types of internationalization are location-specific competitive advantages. In this context, Tesch developed a catalogue of criteria for international site decisions grouped into three categories:
• site factors affecting all company activities
• availability and costs of the site factors impacting on the production factors
• turnover-related site factors.
Thomas Goette’s 1994 study tries to classify important international site factors and to structure the process of international site selection. Goette distinguishes between economic site conditions (sales potential, competitive conditions, infrastructure and transportation costs, labor, monetary conditions), political site conditions (tax legislation, environmental protection, institutional market entry barriers, support of business, political risks), cultural site conditions (differences in language, mentality, religion, and the lack of acceptancy of foreign companies), and geographical site conditions (climate, topography). This study again demonstrates that an attempt to cover all aspects will result in loss of quality as all factors were not or could not be taken into consideration. Goette also theorizes that, in particular, industrial site decisions within companies are usually once-off and division-related decision-making processes. Based on this, Goette assumes a relatively low learning curve, and hence little potential for improvement for subsequent projects.
As one of the last major contributions, Thomas Glatte aimed to enhance and globalize the known systems in his book "International Production Site Selection" by providing a 10-staged selection process, suggesting selected methods for each selection stage and offering a comprehensive list of criteria for the practitioner.
[Glatte, Thomas 2013. ''Industrial Production Site Selection'' Expert Verlag, Renningen, Germany]
Other uses
Location theory has also been used outside of
economics
Economics () is the social science that studies the production, distribution, and consumption of goods and services.
Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...
, for example in
conservation biology, where it can help to find areas that would be good to study, taking into account previous studies.
See also
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Industrial inertia Industrial inertia (geographical) describes a stage at which an industry prefers to run in its former location although the main alluring factors are gone. For example, the raw material source is depleted or an energy crisis has emerged.
An indu ...
*
Location model
In economics, a location model or spatial model refers to any monopolistic competition model that demonstrates consumer preference for particular brands of goods and their locations. Examples of location models include Hotelling’s Location Mo ...
*
Regional economics
Regional economics is a sub-discipline of economics and is often regarded as one of the fields of the social sciences. It addresses the economic aspect of the regional problems that are spatially analyzable so that theoretical or policy implication ...
*
Spatial planning
Spatial planning mediates between the respective claims on space of the state, market, and community. In so doing, three different mechanisms of involving stakeholders, integrating sectoral policies and promoting development projects mark the th ...
*
Weber problem
In geometry, the Weber problem, named after Alfred Weber, is one of the most famous problems in location theory. It requires finding a point in the plane that minimizes the sum of the transportation costs from this point to ''n'' destination point ...
References
External links
Günter Krumme on the history of Location Theory
{{Authority control
Economic geography
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