SUBJECT: Economic Geography and Public Policy

TOPIC: Spatial Economics

Submitted by,
Harikrishnan T
Reg No: 33218415
 SPATIAL ECONOMICS
Introduction:
Spatial economics is concerned with the allocation of (scarce) resources over space and the
location of economic activity. On the one hand, economic activity has to take place somewhere
so that spatial economics may be concerned with anything that economics is concerned about.
On the other hand, location analysis focuses mostly on one economic question, namely,
location choice. This is only one decision among a large number of economic decisions.

“Spatial Economics creates original solutions and products and provides practical advice to
assist planners, urban and regional economists and policy analysts understand the urban and
regional environment”.

Network and spatial economics:

Networks and Spatial Economics is devoted to the mathematical and numerical study of
economic activities facilitated by human infrastructure. The range of topics is broadly defined
to include technologies pertinent to information, telecommunications, the Internet,
transportation, energy storage and transmission, and water resources.

Theories Associated with Spatial Economy:

Von Thunen model or Location Theory:

The Von Thunen model of agricultural land use (also called location theory) was created
by the farmer, landowner, and amateur economist Johann Heinrich Von Thunen (1783–1850)
in 1826 in a book called "The Isolated State," but it wasn't translated into English until 1966.
Von Thunen's model was created before industrialization and is based on the following limiting
assumptions,

 The city is located centrally within an "Isolated State" that is self-sufficient and has no
external influences.
 The Isolated State is surrounded by an unoccupied wilderness.
 The land of the State is completely flat and has no rivers or mountains to interrupt the
terrain.
 The soil quality and climate are consistent throughout the State.
 Farmers in the Isolated State transport their own goods to market via oxcart, across
the land, directly to the central city. Therefore, there are no roads.
  Farmers act to maximize profits.

In an Isolated State with the foregoing statements being true, Von Thunen
hypothesized that a pattern of rings around the city would develop based on land cost
and transportation cost.

The Four Rings:

Dairying and intensive farming occur in the ring closest to the city. Because vegetables, fruit,
milk, and other dairy products must get to market quickly, they would be produced close to the
city. (Remember, people didn't have refrigerated oxcarts!) The first ring of land is also more
expensive, so the agricultural products would have to be highly valuable ones and the rate of
return maximized.

Timber and firewood would be produced for fuel and building materials in the second zone.
Before industrialization (and coal power), wood was a very important fuel for heating and
cooking. Wood is very heavy and difficult to transport, so it is located as close to the city as
possible.

The third zone consists of extensive field crops such as grains for bread. Because grains last
longer than dairy products and are much lighter than fuel, reducing transport costs, they can be
located farther from the city.

Ranching is located in the final ring surrounding the central city. Animals can be raised far
from the city because they are self-transporting. Animals can walk to the central city for sale
or for butchering.

Beyond the fourth ring lies the unoccupied wilderness, which is too great a distance from
the central city for any type of agricultural product because the amount earned for the product
doesn't justify the expenses of producing it after transportation to the city is factored in.

Industrial Location Theory:

This theory is based on the ‘least cost principle’ which is used to account for location of a
manufacturing industry. The theory is based upon a single, isolated country with homogeneous
conditions. Some of the natural resources in this setting are found everywhere, while some
have fixed locations. The workforce has fixed locations. Transportation costs, in this situation,
are a function of cargo weight and the distance. Demand is uniform throughout for all products,
hence, there is uniform price for all products at all locations.

The theory claims that the costs will get influenced by transportation costs, labor costs and
by the agglomeration factor.

Spatial Economies Approach

 Henderson (1974) “Urban systems” In this type of framework, cities arise

endogenously as the result of a trade-off between agglomeration economies
and urban crowding.

 Urban concentration and policies and mapping have been widespread

 The rural planning is a timely need for highly concentration. Filled with open
space, rich soil, and air, natural resources, filled with agricultural land. Once
the natural resources are lost, its hard to renew or convert it back.

 The one of the major problem faced by spatial economics is that many
fundamental issues having to do with regional and urban development call for
general equilibrium modelling.

 For instance, some cities can afford to specialize because they can trade with
other cities.

 Hence, looking at one isolated city in the tradition of Thunen and Alonso
(theory of location and land use) may not be enough for some purposes.
Similarly, the agglomeration of economic activity in core regions may occur
because firms find larger markets there and because consumers find cheaper
and more diverse supplies.

Spatial Economic Issues:

 Common errors in precision and accuracy of position and space; mathematics of space
 Tools available for analysis- uses and users
 Census data and individual privacy
  Availability of data or access

These problems represent a challenge in spatial analysis because of the power of maps as
medium of presentation and a powerful tools for Analysis.

Problem Solving from Spatial Economics:

1. Manage assets

2. Urban Regional development

3. Sustainable development

4. Distribution and allocation of resources

5. Market Proposal and development strategies

6. Price economics

7. Poverty alleviation

Uses of Spatial Economics:

1. Management issue of local capacity building

2. Attract investment through competent market allocation

3. Improve network building

4. Infrastructure development and management

5. Population - Human resources allocation

6. Focus on the regional and local development policies

7. Policy improvement

References:
 Alonso, W. 1964. Location and Land Use. Cambridge, MA: Cambridge University
Press.
 https://www.thoughtco.com/von-thunen-model-1435806.
 https://www.encyclopedia.com/social-sciences/applied-and-social-sciences-
magazines/spatial-economics.
 Majid Hussion, Human Geography, 2012.