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A distinction between the relocation of organized economic activity and that of primary factors is here implied. Although the two concepts can hardly be separated, there are some problems connected with the former which are distinctive in their implications. In dealing with the relocation of factors, traditional location theory, as Isard points out, treated capital as a “combination free” factor with little attention to the mobility of existing equipment and the adaptability of the capital stock over the short-run (see: Walter Isard,Location and Space-Economy, New York, Wiley, 1956, p. 41). We may add to this statement the contention that relocation of organized activity involves entrepreneurship and consequently, attitudes toward maximizing income, interdependence of investment, and the role of existing institutions including government. These all are elements that make for greater complexities than are generally considered in resource relocation. Less developed countries are even more rigid in face of the need for such adjustments.
See, e.g.: George Coutsoumaris,The Morphology of Greek Industry (Research Monograph Series 6), Athens, Center of Economic Research, 1963, ch. 4.
In Greece, for instance, only one region (that of the Athens metropolitan area) has a level of per capita income which exceeds the national average. Income per capita in this region is twice that of the per capita income in almost all other regions of the country. See: Benjamin Ward,Problems of Greek Regional Development, Athens, Center of Economic Research, 1963, p. 54.
A recent study on the regional development of the United States by Perloff and associates, indicated that population, technology, organization, and natural resources and environment have been the four most important elements in the regional economic growth of the U.S. See: Harvey S. Perloff, Edgar S. Dunn, Jr., Eric E. Lampard and Richard F. Muth,Regions, Resources, and Economic Growth, Baltimore, The Johns Hopkins Press, 1960, ch. 18; and also, H.B. Chenery, “The Interdependence of Investment Decisions,” in Moses Abramovitz, et al,The Allocation of Economic Resources, Palo Alto, California, Stanford University Press, 1959. The mounting interest in promoting development in the underdeveloped areas has increasingly focused the attention upon understanding the forces which determine spatial allocation of resources and the economic growth of the regions, and upon the factors which underlie the observed sharp regional income disparities. Modern location theory has been increasingly concerned with regional development analysis, evidently in an effort to provide an understanding of the locational attributes of economic activity, and of the behavioral regularities which shape regional economic growth. See, for example: J. Meyer, “Regional Economics: A Survey,”.American Economic Review, vol. 62 no. 1, March 1963, pp. 19–54.
Perloff, et al,op. cit. indicated that population, technology, organization, and natural resources and environment have been the four most important elements in the regional economic growth of the U.S. See: Harvey S. Perloff, Edgar S. Dunn, Jr., Eric E. Lampard and Richard F. Muth,Regions, Resources, and Economic Growth, Baltimore, The Johns Hopkins Press, 1960, ch. 18; and also, H.B. Chenery, “The Interdependence of Investment Decisions,” in Moses Abramovitz, et al,The Allocation of Economic Resources, Palo Alto, California, Stanford University Press, 1959. The mounting interest in promoting development in the underdeveloped areas has increasingly focused the attention upon understanding the forces which determine spatial allocation of resources and the economic growth of the regions, and upon the factors which underlie the observed sharp regional income disparities. Modern location theory has been increasingly concerned with regional development analysis, evidently in an effort to provide an understanding of the locational attributes of economic activity, and of the behavioral regularities which shape regional economic growth. See, for example: J. Meyer, “Regional Economics: A Survey,”.American Economic Review, vol. 62 no. 1, March 1963, pp. 19–54.
Such protests and pressures have recently become more frequent in Greece as a result of the abovementioned government effort to encourage the development of large units. The point is reminiscent of the experience of the United States during the large merger movement between 1870 and 1900. It is an unavoidable process toward economic progress and growth. See: R. G. D. Allen,The Structure of Industry in Britain: A Study in Economic Change, London, Longmans, 1961.
Isard,op. cit.,Location and Space-Economy, New York, Wiley, 1956, p. 41)., attempts to illustrate, with a hypothetical case, the impacts and the difficulties involved in the transition toward a new situation.
Evidently, relocation problems relate to the development process both “over time” and in the “extent of space”.
Location theory explains the factors which determine location in terms of substitution of outlays, including transport outlays, and of agglomeration economies or diseconomies. The question that may be raised is whether current outlays or opportunity costs among regions and activities should be taken into account. The point is of significance in the case of capital assets whose changing market values affect rate of returns.
The firm by relocating its plant shifts further to the right the efficiency curve of the capital assets it possesses in terms of current values. This means that the firm by relocating its activity will maximize revenue by utilizing the additional market value which economic expansion in the area produced for its scarce factor. In terms of equilibrium of the firm the situation may be stated as follows: Original equilibrium position: AR=MC=MR=MOC (among products)=ALOR (average locational opprotunity revenue); New position: AR=MC=MR=MOC<ALOR.
Normally with elastic substitution relationships, firms adjust to new conditions not by changing location but by using their scarce factors more efficiently through changes in product-mix. Such an adjustment, however, although usual in agriculture, does not seem to be a common case with manufacturing firms.
See: Coutsoumaris,op. cit., ch. 5.
Evidently, the fact that immobile fixed capital has to be depreciated induces firms to continue producing, even if opportunities for higher profits in a more economical location are developed.
Evidently such adjustments in the price of the product strengthens further the competitive locational advantages of other regions. This, in turn, ought to induce new investment to go into such low opportunity-cost areas. However, this is hardly the case with a small, less developed economy, characterized by a limited market for products and a highly defective capital market. The result is that regional income differentials become even greater than before.
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Coutsoumaris, G. Regional activity relocation problems in a developing economy. Papers of the Regional Science Association 12, 79–86 (1964). https://doi.org/10.1007/BF01941241
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DOI: https://doi.org/10.1007/BF01941241