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Factors of Production and Spatial Differentiation

(http://faculty.washington.edu/krumme/207/indgeog.html)

As we now deal with "spatial facets of economic activities", we first want to focus on their geographically significant attributes. For this purpose, we wish to distinguish between
(1) "inputs",
(2) the activities themselves, and
(3) the "outputs".

"Inputs" may be "ubiquitous" or "localized", i.e. their spatial distribution may be even or uneven and clustered. Thus, inputs may have to be transported to the location of production. Similarly, markets may be local, i.e. at the place of the activity, or they may be distant. Clearly, there are transport costs to consider when considering the location of activities.

The inputs (factors of production) are combined during the production process in ways which are described or accounted for by the "production function"; in other words, the products produced by the activity are a function of the inputs and the production relations between the inputs. (outputs = f[labor, land, capital, know-how, organization, entrepreneurship, inputs from the environment etc.]).

The factor l a n d is a geographically particularly interesting and important factor, since land is of limited availability within any one region, and it is immobile. Land used for one activity is essentially not available for other activities (unless they can be stacked up in skyscrapers). Thus, activities which are "land intensive", i.e. use a relative large amount of this factor "land" per unit of output, contribute to "dispersion" of economic activities. Thus, the 'need for land' is our second (the first being "transport costs") so-called "space-differentiating force".

And the third space-differentiating force? Let's call it "internal and external agglomeration economies" (=cost reductions). If it is less costly to produce certain outputs either in a large-scale plant or close to other activities, this will tend to lead to agglomeration (not to dispersion). On the other hand, agglomerations (big Boeing plant, large downtowns) tend to lead to longer distances for travel/ transportation and higher transport costs and to more intensive land uses (Popular Midterm-QUESTION: What is the difference between "intensive land uses" and "land-intensive type of activities"???). Thus, we can explain a large part of the delicate or not so delicate balances in the spatial structures we are living in by focusing on:

  1. transport costs = "frictions of space"; [imperfect mobility of goods and services]
  2. need for land; [complete or partial immobility of land and other productive factors]
  3. internal and external economies of
    • scale (size, volume, length of production run) and
    • scope (diversity).
    [incl. the result of imperfect divisibility]

These are some of the other attributes of production processes we are interested in as economic geographers:

  • other factor intensities (not just land); e.g. labor intensity (and its response to geographically variable labor costs)

  • besides land or space intensity: also "time-intensity" (how long are inputs tied up by the production process and subject to interest costs for the capital invested in these inputs;

  • factor productivity (how productively is e.g. labor used in the production process, and how does this vary between locations?)

  • factor substitutability and flexibility (how difficult or costly is it to change the proportions of inputs; can I use, e.g., different materials from another source if I run out of my preferred materials; or: if the transport costs for one input increase, can I use more of another input for which the transport costs have not increased?

  • factor transformation, e.g. weight-loss, or loss of bulk; i.e. is it more costly to transport raw materials to the production location or to transport finished products to the market (= locational "raw-material orientation" or "market orientation").

  • product (output) substitutability (how difficult or costly is it to change the nature of [or proportions between] different products being produced in the same production process or under the same roof). Since different products tend to be served to different markets, a change in output combinations will tend to have an impact on market orientation.

  • finally, we are interested in the mobility of the activity, ranging from the mobility of an ocean liner to the immobility of a blast furnace used in converting iron ore to pig iron. This mobility has a lot to do with the nature of the activity and the "locational inertia" associated with the invested capital, local "good will" and business contacts etc..


Literature:

Böventer, Edwin von [mainly 1963 & 1967]

Hoover, E., Introduction to Regional Economics, 1985, Ch.1.2 "THREE FOUNDATION STONES"

Economies of Scale:

"The traditional notion of economies of scale and the more recently fashionable idea of economies of scope both appear in neoclassical economic theory as purely technical flow relationships. [...using a larger pipe doubles throughput without doubling the materials needed to make the pipe] ... Economists have also toyed with another notion of "scale" in which lower costs at higher outputs arise because of the growth of knowledge such scale enables..... Via the concept of the learning curve, the knowledge-increasing effects of scale have entered the mainstream literature (e. g., Spence 1981)."


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