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CHAPTER II
Theories of Location
Till the early sixties, location theories were broadly based on two
approaches --least cost location and market area location.
Transport costs are the primary determinant Of plant location, and are
a function of weight and distance. The locational triangle is used to
find the least-transport-cost location. Industries are either material-
oriented or market-oriented depending on whether the material index of
an industry (which is the proportion of the weight of faw materials
used to the weight of the product) is greater than or less than unity.
A plant can be diverted from the least-transport-cost location if
labour is cheaper elsewhere. The location decision involves finding
the optimum substitution between the transport and non-transport cost
factors. Two concepts providing measures of the 'pull I of labour are
used. The index of 1abour cost is the average cost of labour required
to produce one unit weight of product. Labour coefficient is the
ratio of labour cost per unit weight of output to the total weight of
product and material to be moved. The costs of transport and labour
are'decentralizing forces because each draws industry to a minimum
'. .' .. .... " . ',..'
.•••••• ' I' " . .' ~'.'
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materia 1:oriented and late stages are
• .. • • • • •• Co ~.. • ," • • .' '..
market-ori~nted
'.. • ~ ~
\:'lhi 1e . int~r- ,
... .' •
The main limitations of the von Thunen-Weber type theory are : (a) the
emphasis on the search for the least-cost location whereas, in reality,
a site is chosen on the basis of costs as well as demand; (b) demand is
assumed to be unlimited and constant at certain points, and is unaffec-
ted by a seller's choice of location whereas, actually, demand is
variable depending on and affecting (c) locational interdependence
between firms and consumers. This aspect is entirely ignored.
"Christaller starts with the good that has the widest spatial range and
develops his organization from above while Losch ... starts with the
good having the smallest spatial range and ... derives the organization
from below. ,,4 Losch's model applies to transportable commodities and
The main limitations of the Central Place theories are the uniformity
assumptions; neither natural resources nor demand are evenly distri-
buted over space. Even if they were to start with, interdependence
would lead to unevenness in the location of demand. The other problem
is that they do not provide a theory of development because they only
try to explain the existence of certain patterns of centres, and not
how these patterns came into existence nor how they will change. It
may be observed that the least-cost theories ignore the demand factor,
whereas the locational interdependence theories virtually exclude the
"cost, fat tor . ' The' "maximum profit 1ocation'~ theory provides a' "
~ynthesis.
the greater the demand elasticity for a product, the more dispersed
the industry will be. The location of smaller firms is influenced by
external economies, which larger firms can ignore since they can
generate their own internal economies of scale.
While all the theories of location outlined above aim at finding the
optimum location patterns under given sets of assumptions and condi-
tions, the theories now dealt with are basically theories of develop-
ment, and treat the spatial element of growth as part of development
in the national economy.
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impul$es ,to its
• . '
en~ironment.,
. '
has a high abil ity to inno,vate aDd belongs
4 .. • •• " • " . . "
The growth pole theory is a theory of how growth takes place' through
the development of poles which are successively replaced by new poles
when the old ones stagnate. But it does not explain why the poles
are formed in some places and not in others, nor how the growth
impulses generated by these poles are spatially transmitted. The
works of Hirschman, Myrdal and Williamson attempt to tackle these
aspects, and are essentially development theories based on economic,
as well as social, cultural and political, aspects of development.
Starting from the observation, like the French school, that growth is
always regionally unbalanced and spatially concentrated, he contended
that such concentration of growth is essential for faster national
growth. The process of development is carried out through chains of
diseguilibria operating from the growth poles. An advance at one
,
point sets up pressures towards growth at subsequent pOints. If all
these pOints are within the same growth space, the country tends to
be split up into .progressive and backward regions. This is especially
because investors tend.to over-estimate the external economies due to
the pol es so that they "spend a long time roopping up all the opportu-
nities around some 'growth pole ' and neglect those that may have
arisen or could be made to arise elsewhere. u7 This sustained growth
in one or a few parts of a country affect the other parts, both
favourably and unfavourably. The most serious of the unfavourable or
..... · .. polari~a~io~. ef~ec.ts. i.~. t~~.~. t~~ . . d~vel.QJ?~?, are.as may ~rain .. all. th~ ..
skills and enterprise, as'well as capital, from the depressed areas.
. .. .'
The Httl e industry that ·the backward I South' possesses· may become
depressed due to 'Northern' competition. However, Hirschman expected
the favourable or trickling-down effects to ultimately gain the upper
hand. Growth impulses would be transmitted to the 'South' through
inter-regional trade and investment, especially as congestion in the
developed areas increased and Northern , industrial expansion was
I
While all these theories try to explain the process of regional growth
and development, none of them provide a key as to how development can
be initiated in a backward region. However, several strategies have
been evolved on the basis of these theories.
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upon a few areas. However, J1t{) date, these strategies have not been"
'notably 'suctesSful ~ pr'iinar'ily beccfuse they nave sUffered from a" , "
This has impl ications for the choice of locations,; for growth poles.
Either lagging regions or regions intermediate to the advanced and
transmitted to the whole region, and not remain limited to the centre
itself, the region should have people and organizations capable of
absorbing the benefits and exploiting the opportunities made available.
It is felt, therefore, that intermediate locations provide a better
medium for initiating growth and require fewer·resources than very
backward locations. Attention needs to be paid to the kind of
industries that are promoted in these selected growth centres, as well
as to the development of human resources in the less advanced areas.
Though a growth centre strategy may provide a useful basis for the
development of the lagging regions, special incentives to attract
industries to the new growth centres may still be required. In general,
incentives of some sort are necessary to promote industrial develop-
ment in the less developed areas, irrespective of whether a growth
centre policy is adopted or not.
high cost of labour, land and congested facilities. But, "the price
mechan"ism is'"not"allowe"d to 'work" pro"per"y~" ~'K~ritS" are no"t"allowed
to rise as much as they should .... High transport costs do not rest
where they belong .... New firms coming into the area are shielded"
from some of the additional costs they impose ... 20 Hence, the
incentive to industry to locate outside the congested areas ;s
diminished. Negative measures should be used to overcome such price
distortions.