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Samenvatting Location Theory and EU Regional Policy (B-KUL-HMH32F)
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- Katholieke Universiteit Leuven (KU Leuven)
Samenvatting Location Theory and EU Regional Policy (B-KUL-HMH32F)
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Location Theory and Regional PolicyInhoudsopgave
1 Introduction ................................................................................................................................................. 2
PART I : Location factor production and consumers .................................................................................. 3
1 Location of factor of production – labour .................................................................................................... 3
2 Location of factor of production - resources................................................................................................ 9
3 Transport costs .......................................................................................................................................... 11
PART II : Location Theory ......................................................................................................................... 15
4 Precursors of the neg theories ................................................................................................................... 15
5 NEG theory ................................................................................................................................................ 20
PART III : Location Policy ........................................................................................................................... 45
6 General analysis ........................................................................................................................................ 45
7 Policy experiment ...................................................................................................................................... 48
8 EU Regional Policy ..................................................................................................................................... 50
PART IV : Location empirics ....................................................................................................................... 54
9 Guest lecture Elias Van Herwaarden ......................................................................................................... 54
, 1 INTRODUCTION
What is location theory?
If you were to set up a new firm; where would you do it and what would be important to decide where you
want to locate it? In function of following resources:
First nature theory: The second nature theories: The new Government / policy
Neo classical trade theory (NCT) economic geography theories (NEG) (try to have impact on
® exogenous** à endogenous*** location of first company)
right’ workers Competition* Taxes
labor costs Spillovers of knowledge Regulations / policies
Presence if intermate suppliers/ firms
raw material needed present Infrastructure
that demand your goods.
Consumers (closeness to final consumers
Trade agreements
that you sell your goods to)
* other firms being also present there it might be negative because it is competition, but on the other hand it is
going to give push- and pull factors, because you might have spill-overs of knowledge (think of silicon valley).
** = factors that determine exactly where economic activity will take place
Given outside of the model (you guys are high skilled labor and we also have so connection, attract each other)
*** the models change. = no longer first nature but you set your economic activity there but without a specific
reason Ex. Firms locating around the harbor not because they need the harbor but because it becomes
interesting region and more people live around it etc. there is no direct reason but it is a snowball effect. They
go there because there are already firms and so they think it is important area and they also go there.
To decide where biggest demand you need to look at which country has the biggest GDP?
No it gives a first impression but you need to know how rich they are. So GDP and NDP per capita is more
important and you should take into account.
In Silicon Valley more firms are leaving why? There are high income taxes, the renting
prices to rent or buy are really high. à those are push factors.
Example to illustrate the importance of location decisions
Trump: produce cars in US or pay 35% tariff on imported cars from Mexico. US firm that has to make a location
decision on whether or not it will locate in the US or import from Mexico to sell/export after in the Eu market
USA (20 trade agreement) Mexico (more than 80 trade agreements)
Labour costs Labor cost is higher > Labor cost is lower
Infrastructure cost ( to bring The state of the road is better but < The state of the roads are worse but he
goods to harbor)* the cost of the drivers will be higher cost of the drivers will be lower
Costs of intermediate inputs > Because they have a lot of trade
agreements which makes the imported
taxes etc much lower
Costs of reaching final > cheaper to export my goods from Mexico
consumers (export costs) due to the trade agreement with Europe
Which of the 2 countries will have biggest amount of trade agreements? For small countries trade is really
important and so to quickly engage in trade agreements think at Belgium. The smaller the country is the more
dependent of the agreement the country is.
à better to locate in Mexico
- Lower wages - Worse infrastructure - More trade agreements (40 versus 22 countries)
,PART I : Location factor production and consumers
1 LOCATION OF FACTOR OF PRODUCTION – LABOUR
1.1. D ESCRIPTION OF POPULATION ( DIVISION AND GROWTH ) IN THE WORLD
People are both producers and consumers of goods; as we grow, we ask ourselves whether there is a
disequilibrium between the two: does population growth render further growth unsustainable?
Therefore: analyse causes and consequences of population growth for developed and developing countries
Division of the population (7.9 billion total)
• ABSOLUTELY: large population clusters: East-Asia, South-Asia, Europe and East of US and
Canada ® top 5 (2020): China, India, US, Indonesia, Pakistan
• RELATIVELY: population density; no relation between population density and the welfare of a
country
Each country in proportion to its population
World population/m2
Concentration of people in certain regions of the country
Factors influencing population distribution?
• Physical environment: middle of desert not so famous
• Economic factors: labour market, infrastructure, job opportunities (chicken or egg? ® Is
it because there are jobs opportunities that firms move their or because there are firms
there that high-skilled people move there?)
• Demographic elements (births, deaths)
• Government policy
• Historical circumstances: wars, colonisation, …
Population Growth
Until industrial revolution: growth rate zero
From industrial revolution onwards: exponential population growth; 80 mio extra per year
• Doubling times: 70/growth% per year ® if change is 1%, you need 70 years for a
population to double
• Population change = (births – deaths) + (in-migration – out-migration) = calcul
3
, 1.2. E XPLANATIONS FOR AND CONSEQUENCES OF POPULATION GROWTH
1.2.1 Malthus
“Population grows exponentially (blue line) BUT food production grows
linearly (CRS or DRS) (black line)”
® Consequence: without intervention disaster is inevitable, there’s not going
to be food for everybody
Three mistakes in this reasoning:
• Industrial revolution increased productivity
• Use of new lands (N-Am, Australia) increased production of grain,
evolution in production of food
• Number of births decreased since industrial revolution, population
didn’t keep on increase exponentially
ð The disaster that Malthus predicted never happened.
1.2.1.1 Neo-Malthusians (Club of Rome 1960s):
Acknowledge the shortcomings but follow Malthus’ long run predictions – there are limitations togrowth
because non-renewable natural resources (e.g., oil) will become exhausted.
In favour of birth control in LDC’s (Less-Developing Countries) Criticism?
o Other inputs
o Large families are valuable in LDC’s based on agriculture.
Evolution according to Club of Rome
Because the oil is going to collapse, the amount of
populationis also going to collapse.
Neo-Malthusianism refers to the belief that
population control through the use of
contraception is essential for the survival of
the earth’s human population.
Conclusion:
1.2.1.2 What is the theory of Maltus and why didn’t it come true?
Malthus believed that the population could be controlled in order to balance the food supply through positive
checks and preventative checks.
Malthus says; food production would increase linearly and population growth will increase exponential, after a
certain point there are too many people for not enough food.
But worldwide there is enough food for everybody, so it did not happen. Because of technologically increase
and there are less children so it does not grow like before the people growth.
1.2.2 Demographic transition theory
Theory investigates changes in births, deaths, and growth rates when an economy switches from agriculture to
industry (industrial revolution in the west)
There are 4 stages (where the growth in population changes):
• Pre-industrial society
• Early industrial society
• Late industrial society
• Post-industrial society
4
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