Location Theory

Location theory focuses on the geography of economic activity with particular attention to industry. Four industrial categories are used: primary (agriculture, mining, and fishing), secondary (manufacturing of goods), tertiary (services), and quaternary (information).

In relation to the primary industry, Johann Heinrich von Thünen developed a theory of agricultural location in his 1826 work, Der Isolierte[Page 456]Staat (The Isolated State). He investigated the relationship between the distance from a market and the pattern of land use by hypothesizing an isolated area located in a homogeneous environmental plain. A single city served as the market and was surrounded by farmland. Von Thünen assumed that farmers attempt to maximize profit, or economic rent, with the determining factor being transportation costs. He also assumed that transportation costs rise with the distance from the market and that the fertility of the soil is equal across the area. Because transportation costs also increase as the weight of the specific farm product itself increases, the resultant geography is a series of concentric circles with a different crop planted in each circle.

Location theory exists for secondary industries as well, specifically goods production or manufacturing. In 1909, Alfred Weber developed the notion of a location triangle in his book, Über den Standort der Industrien (Theory of the Location of Industries). The location triangle is made up of three fixed locations: a market and two raw material sources. Weber sought to determine the optimum location of firms, given the requirement that they minimize transportation costs within the triangle. He assumed that production costs are the same everywhere. Thus, transport costs will control the choice of location. They are a function of the weight of the raw materials and the commodity being produced and the distances between the location of raw material sources, the market, and the firm. The optimum location is the center of gravity of the triangle as determined by transportation costs. To this, Weber added labor costs and the economies of agglomeration (i.e., the spatial concentration of firms). Minimizing transportation costs and labor costs and maximizing agglomeration economies results in an ideal location, one that minimizes total production costs.

A third major contribution to location theory is the central place theory developed by Walter Christaller in 1933. The main function of a central place is to supply goods and services to the surrounding population and to do so by minimizing the travel costs of the population in the surrounding region. The determining factor in its location is the threshold; that is, the smallest market or trade area that is needed to bring a new firm, service provider, or city into existence and keep it functioning. Once a threshold has been established, the central place will expand its economic activities by adding higher-order goods that have larger market areas. This will continue until the range—the maximum distance that consumers will travel to buy these services or goods—is reached.

Competitive forces will enable some places to have a greater proportion of higher-order goods— and thus more residents—than others, and this will lead to a hierarchy of places of different size. In this way, Christaller explained how settlements and places (or cities) are located in relation to one another and the number, distance between, and size of settlements within a region.

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