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Lecture 4
NGUYỄN LƯU BẢO ĐOAN

Industrial location

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(A) Ratio of the number of workers in manufacturing, construction, trade and services to agriculture and mining in 2016;
(B) Net increase of worker numbers during 2011- 2016 in manufacturing, construction, trade and services; (B) Net
increase in the ratio of (A) in 2011 – 2016.
Source: Vietnam Urbanization Review, 2019

B C
A

Source: Nguyen 2022 Source: Nguyen 2022 Source: Nguyen 2022

(A) Employment density in Ho Chi Minh City (employees/m2) by district declines with distance
from the city center (Q.1) (2017)
(B) Distribution of number of FDI firms in Ho Chi Minh City by district (2017)
(C) Distribution of assets and investment owned by firms in Ho Chi Minh City by district (2017)

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(A) & (B) Net increases in firm

and employment counts in Ho
Chi Minh City by district (2006-
2016)
(C) & (D) Net increases in firm
and employment counts in
Hanoi by district (2006-2016)
Population growth is stronger
within the boundaries of the
two cities but labor growth is
stronger in their neighboring
border districts.
Ho Chi Minh City exhibits a
more concentrated job growth
in its eastern and western
border districts. Unlike Ha Noi,
HCMC metro has a high degree
of job concentration around
the central city.

Source: Vietnam Urbanization Review, 2019

The two metropolitan areas have high levels of labor concentration, corresponding to high
levels of urbanization and population concentration.

Source: Vietnam Urbanization Review, 2019

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Application of
monocentric model
to industrial land

The city has a single port or transportation

terminal for import and export of goods, d:
distance to port, s: shipping cost

Firms produce an identical product using the

same production process, Q: output

Land market There is no factor substitution, C: structure rent,

with a CBD rc(d): land rent, f: land used by firm

Output and input markets are perfectly

competitive, with free entry into the industry,
economic profit is zero for all firms

Land is allocated or rented to that use and to

those plants or offices that yield the greatest
rent.

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Each firm sells Q units of goods at the unit price of ρ, the total revenue is ρQ
Profit of each firm is:
𝜋 = 𝑄 ρ − 𝐴 − 𝑠𝑑 − 𝐶 − 𝑟 𝑑 𝑓
Because of the zero-profit assumption, we can determine land rent per acre as a
residual
Land rent per acre

𝑟 𝑑 =

Implications
In the model, transport costs at city center (d=0) are 0

and 𝑟 0 = ; so moving out from the city center, land rents

decline by the increase in transport costs per acre:

We achieve spatial equilibrium when firms have no incentive to move

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Land
rent Land rent for residences rises as we move to the CBD. At m,
rent paid by firms must be equal to the opportunity rent from
residences who occupy the land if firms do not. Left of m,
firms pay additional location rent. In other words,

𝑟 𝑑
𝑠𝑄 𝑚 − 𝑑
𝑟 𝑑 =𝑟 𝑚 +
𝑓

Firms
𝑟 𝑑
𝑟

Residences

m d

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Implications
Within the CBD, those types of firms that produce high output per
acre and whose products are expensive to ship ( ) will have a steeper
rent gradient.
Firms with lower output per acre and/or firms whose goods are
easier to ship will have a rent gradient that is somewhat flatter.
Since the level of output per acre is closely related to firm land
consumption, those firms locating most centrally will tend to be those
whose facilities are most dense.

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Decentralization
of manufacturing
Changes in
transportation
technology, introduction
of highways, changes in
production process
require more land,
manufacturing firms
are willing to pay less
per unit of land for
central locations than
residences and
commerce. This is now
the reality in the US.

Source: US. Department of Commerce, Economics and Statistics Administration, 2013

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Land
rent

Firm

Firm
Residences

Firm
𝑟

m1 m2 m3 m4 d

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Distance to market

Distance to important labor

Determinants
of demand
for industrial Distance to raw material
land
Distance to other firms

Infrastructure planning and

construction

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Retail
development

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Retail location patterns

Retail development is clearly clustered or
concentrated in a select number of
municipalities.
Over the region as a whole, there is no sense
of centrality to the location of retail
employment.

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Frequency and shopping

behavior
How do consumers determine their shopping frequency?
It depends on the type of commodity, the frequency of its use, and the
cost of the trip to obtain it.
v: purchase frequency per year (1/v: time between trips)
u: units of good consumed annually (u = vQ)
Q: Quantity purchase per trip (Q/2: average inventory or u/2v)
P: price per unit of good
i: storage cost per dollar of purchase
k: transport cost per trip

Cost of consuming: 𝐶𝐶 = 𝑃𝑢 + 𝑘𝑣 + 𝑖( )

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Frequency and shopping

behavior
Consumers will select trip frequency to minimize total cost of
consuming, including initial purchase, travel cost, and storage
expenses.
Cost of consuming: 𝐶𝐶 = 𝑃𝑢 + 𝑘𝑣 + 𝑖( )

Take derivative of the equation with respect to v.

𝜕𝐶𝐶 𝑖𝑃𝑢
=𝑘− =0
𝜕𝑣 2𝑣
Thus, 𝑣 = ( ) /

How v varies with i, P, u, k?

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Frequency and shopping

behavior
Neighborhood centers contain store that sell high purchase frequency
goods, perishable goods.
Regional centers contain stores that sell low purchase frequency
goods
Distribution of stores is influenced by fixed costs of establishing the
stores and ability of retailers to lower prices to partially compensate
consumers for making trips.

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Classical retail
competition
theory
In retail competition, each
store is not a price taker but
set a price to maximize
profits. Higher prices
expand unit profits but
reduce market area and
sales.

If stores are sufficiently

apart, they can set higher
prices but remain profitable.
In denser areas, stores may
lose customers when setting
higher prices.

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Classical retail
competition
theory
Goods purchased more
frequently will generate
store networks that are
denser, with increased
competition and tighter
profit margins.

When the fixed costs

associated with retailing a
particular good are higher,
sparse store networks will
emerge with higher profit
margins.

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Neo-Classical
retailing
Classical theory of
retailing does not explain
why retail facilities
cluster at common sites in
shopping centers or malls.
Joint purchase trip:
consumers tend to save
time and cost of shopping
by making a single trip to
a common source where
commodities are available.

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Neo-Classical retailing
Interdependent product demand: the demand for one store’s products
depends not just on the store’s pricing policy. Consumers tend to shop
at a center with a right number and mix of stores.
Retail mix and center leases: a store should worry that the center’s
owners admit a competitor (ground rent + overage rent & anchor
stores)

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