Alfred Weber’s Least Cost Theory of Industrial Location Hyeran Park

Alfred Weber Early 20th century German economist. Born on1868 and died on 1958. Set out to predict and explain where factories would choose to located and grow. Studied the locations of agricultural activities. Published Theory of the Location of Industries in 1909.

Least Cost Theory Predicts where industries would locate based on the places that would be the lowest cost to them. Industries wanting to locate where transportation costs are minimized must consider two issues: the distance of transportation to the market and the weight of the goods being transported. Main Idea: Cost of Transportation Proximity to Market Proximity to Raw Materials

Principles of Location Raw materials Labor supply and cost Processing costs Markets Transportation costs Government policies Human behavior

Assumptions in Weber’s Model Transportation cost is determined by the weight of the goods being shipped and the distance they are being shipped and the distance they are being shipped. The heavier the good and/or the farther the distance, the more expensive it is to ship. Industries are competitive and aim to minimize their costs and maximize their profits. Markets are in fixed locations. Labor exists only in certain places and is not mobile.

Break of Bulk/Transshipment Point A point where there is a need to change mode of transport due to Physical Reason - Port Artificial Reason - National Boundaries Costs rise each time cargo has to be loaded and unloaded Ship: the cheapest Rail: next cheapest Truck, or Air: most expensive

Transportations

Different Modes of Transportation

Transport Cost/Freight Rate Structure of transport cost

Weber’s Industrial Model Considering a product of w(M) tons to be sold at market M, w(S1) and w(S2) tons of materials coming respectively from S1 and S2 are necessary. The problem resides in finding an optimal factory location P located at the respective distances of d(M), d(S1) and d(S2).

Criticism of Weber’s Model Weber’s theory does not identify the fact that: Markets and labor are often mobile. Labor force varies in… age, skill sets, gender, language, and other traits. Some transportation costs, unlike in Weber’s model, are not directly proportional to distance. Important factors neglected Profit Diseconomies Technology Institutional and Behavioral Factors

Impact of Technology Production Transport Automation Use less amount of raw materials and/or power Use of substitutes (raw materials or power) Transport Lower freight rate Refrigeration Standardization (use of containers) Automation Less labor and skilled labor

Cited Sources http://www.sjsu.edu/faculty/watkins/weber.htm https://people.hofstra.edu/geotrans/eng/ch2en/conc2en/weberlocationtria ngle.html