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Document costs, the best locations are those with good access to markets (backward linkage) and suppliers (forward linkage). But access to markets and suppliers will be best precisely at those points at which producers have concentrated, and hence drawn mobile factors of production to their vicinity. Page 91 But not all factors are mobile, and the presence of immobile factors provides the centrifugal force that works against agglomeration. In principle, one should include urban land rents as part of the story; in the models I have worked out so far, however, this force is disregarded. Instead, the only force working against agglomeration is the incentive to set up new facilities to serve a dispersed agricultural hinterland. Many of the elements of this story have been familiar to geographers for some time. (Useful surveys of the geography literature may be found in Dicken and Lloyd [1990] and Chisholm [1990].) As suggested in lecture 2, we may identify three main strands of "outcast" literature that bear on the approach taken here. Closest in spirit to this model is the literature on "market potential," begun by Harris (1954). This literature argues that the desirability of a location as a production site depends on its access to markets, and that the quality of that access may be described by an index of "market potential," which is a weighted sum of the purchasing power of all locations, with the weights depending inversely on distance. Thus if Yk is the income of location k, and Djk is the distance between j and k, then the market potential of location j would be determined by an index of the form 0091-01.gif where g(.) is some declining function. file:///D|/Export2/www.netlibrary.com/nlreader/nlreader.dll@bookid=409&filename=page_91.html [4/18/2007 10:30:42 AM]
Document Harris showed that the traditional manufacturing belt in the United States was, for a variety of g(.) functions, the area of highest market potential; while he did not have an explicit model, he noted informally that the persistence of that belt could be attributed to the circular relationship in which industrial concentration tended both to follow and to create market access: "[M]anufacturing has developed partly in areas or regions of largest markets and in turn the size of these markets has been augmented and other favorable conditions have been developed by the very growth of this industry" (Harris 1954, p. 315, quoted by Chisholm 1990.) Market potential analyses have been a staple of geographical discussion, especially in Europe (see, for example, Keeble et al. 1982). The main theoretical weakness of the approach is a lack of microeconomic foundations: while it is plausible that some index of market potential should help determine production location, there is no explicit representation of how the market actually works. Page 92 A second, closely related literature emphasizes the role of cumulative processes in regional growth. Pred (1966), drawing on the ideas of Myrdal (1957), suggested that agglomerations, by providing a large local market, are able to attract new industries, which further enlarges their local market, and so on. Other authors, such as Dixon and Thirlwall (1975), have proposed alternative motives for agglomeration but similar dynamics. Such cumulative causation suggests that initial advantages due to historical accident may play a major role in explaining the pattern of location. Like the market potential literature, however, the cumulative process literature lacks microfoundations. Finally, we must mention central-place theory. Developed by Christaller (1933) and Lösch (1940), this theory file:///D|/Export2/www.netlibrary.com/nlreader/nlreader.dll@bookid=409&filename=page_92.html [4/18/2007 10:30:43 AM]
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