The Location of Industry

Location theory must be one of economic theory's least appliedbranches. The theoretical literature on industrial location isextensive, the empirical evidence sparse. There are many reasons for thegap between theory and evidence. It has proved difficult to measure theimpact of location on costs and returns since data are not available onenterprises with similar production functions, but different locations.The responses of industrialists to questions about location decisionsgive unreliable results since sample surveys of industrialists areinevitably biased by the exclusion of those who considered but rejecteda particular location or who failed because they made the wronglocational decisions. Surveys also suffer from rationalizations andex-post explanations. Even if a location decision was based on a rumouror accident, an industrialist may well develop a more logicalexplanation afterwards. Surveys also obtain a picture of the averagereason for investment over time and it is difficult to deter¬mine thepredominant reason at any particular time. Without a time profile of thereasons for decisions, one cannot link them to causal factors whichundoubt¬edly changed over time. Dynamic and accidental factors areespecially important in location decisions and are difficult to analyze.For instance, the first factory in an industry may be located because anempty building exists. Later investors in the new industry may locatenear the pioneer just because they draw assurance from his success. Boththe initial accident and the later nonrational elements are unlikely tobe uncovered by a survey or other techniques.