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  Location Theory

Location Theory:

This theory, in geography and economics, theory regarded along with the geographic location of economic activity; this has turn into an integral part of regional science, spatial economics and economic geography. This theory addresses the questions of what economic activities are assigned where and why. The position of economic activities can be finding out on a broad level like: metropolitan area or a region, or upon a narrow one as a zone, city block, neighborhood, or a particular site.

This theory addresses the significant questions of who generates what services or goods in which locations, and why. Since several government policies occupy to attempts for shift production, one should first examine the origin for the original location decisions in order to know the impact of changing incentives.

Practically 200 years ago, the initial concern of early location theorists, mostly notably Johann-Heinrich von Thunen (1783-1850), which was the optimal location of farms and cities, balancing both transport costs and land costs. Within von Thunen’s model, concentric rings of agricultural activity develop near a city. The production of perishable goods or and goods requiring to acquire to market quickly locate in the rings near to the city, and the other activities as ranching locate in outer rings. As von Thunen, several the other scholars have proposed much complex location models, incorporating the production of agricultural and industrial services and goods.

Several of the questions addressed in this theory are highly related to international economics. For instance, trade theory illustrates patterns of international production and trade. The same, much of the research on FDI that is foreign direct investment seems as where multinational firms place different activities. Policy applications of such theory comprise examined manners where various countries, regions, and states can actively compete to be production locations for both foreign straight investment and trade. Before turning to the applications of this theory in international economics, this is significant to review the fundamental elements of this theory.

Main assumptions:

Mainly in theories of economic location begin along with these major assumptions:

1. The produce process for exacting goods is identical, independent of locations. Producing crop needs a specific amount of a specific quality of land, chemicals, farm machinery, and climate and so no. Thus, several locations are more appropriate for growing crops than others. Factors of production cannot be substituted for one the other. For instance, superior farm machines cannot alternate for scarce land to produce crop in a large city.

2. The demand for products is separated from the supply, or production of the products. The producers desire to put the money they earn from farming in the banks in cities. Bankers in cities want to use agricultural goods. Therefore, transportation costs affect where goods are produced. If both Iowa and Nebraska have the same amount of corn-producing factors of production, but most of the demand for corn is in some City, the other things being identical.

3. Factors of production are immobile. Inhabitants of any one City cannot import cheap land to produce crop locally, and cannot import bankers. Whereas several factors as capital, migrant workers, are in fact land, mobile and mainly natural resources are not. Theories based upon these assumptions make the clear prediction that, for minimize transportation and production costs, specific locations will specialize in the production of specific goods and services and ‘‘export’’ such goods to the other locations.

Origin and Development of Location theory:

The original work on Location Theory is accredited to Von Thunen in 1783-1850 a north German academic along with formal scientific practical and training experience like a farmer. He was interested in whether; there was a natural location for specific type of endeavor.  He postulated a circular isolated form of about 40 miles diameter along with a city at the centre and then identified the nature and weight of the product, perish-ability, transport costs as all transportation horse-powered and the density and location of the market for understood products.  He developed an easy mathematical formula that consequences in what are identified as Von Thunen’s Rings as demonstrated in figure below, all rings absolutely advantageous for a specific type of activity or enterprise.

For the subsequent century these concepts were developed in North America, particularly along with a view to finding out the suitable location for latest industries. Circa 1950 in Chicago, Prof. Harris was advising industry upon locations that would give the maximum sales opportunity along with minimum expensive. A visiting professor from the United Kingdom imbibed this and developed this additionally in his role like director of a research institute at Oxford, i.e. Professor Colin Clark. It made Colin Clark the suitable candidate to implement a main project to find out the effect on the United Kingdom manufacturing industries of joining the EEC.

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