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Classics of Economic Science:
Adam Smith, David Ricardo in the theories of factor advantages (absolute and relative) determined the factors of production location:
- natural resources;
- human resources;
- economic traditions.
The Theory of Eli Heckscher and Bertil Ohlin
The theory of Eli Heckscher and Bertil Ohlin, known as the theory of βfactor proportionsβ, is an important contribution to economic science. This theory was developed by Swedish economists Eli Heckscher and Bertil Ohlin in the mid-20th century and highlights the relationship between factors of production and trade between countries.
The main principles of the theory include:
- Expanded list of factors:Β
The theory considers not only labor and capital but also land as a factor of production. This expands the understanding of the production process and the impact of factors on economic development.
- Factors divided into two groups:Β
Factors of production are divided into scarce (which are limited in production conditions) and non-scarce (which are more accessible). This helps analyze which factors are important in production in different countries.
- Mobility of factors of production:Β
The theory assumes that factors of production can move between sectors of the economy and countries, depending on their efficiency and cost. This is taken into account when considering trade and specialization of countries in production.
Factors of Industrial Location
Classical factors β defined at an early stage of industrial production development (dominant industries β metallurgy, mining, textile industry, sugar production, etc.)
Alfred Weber formulated the first comprehensive theory of industrial location in his monograph βTheory of the Location of Industries,β 1909. He introduced the concept of βlocation factorβ (βstandort factorβ) as the economic benefit of economic activity depending on location.
As factors, Weber identified raw materials, labor, transportation costs. He also introduced the concept of agglomeration, which provides additional resource savings.
Transport engineer Wilhelm Launhardt at the end of the 19th century studied the impact of the transport factor on the location of enterprises and concluded that the location of production should ensure the minimization of transportation costs for the delivery of raw materials, auxiliary materials, and finished products.
Economist Achille Loria (late 19th century) emphasized the importance of considering the availability of labor when locating a specific enterprise. He believed that labor-intensive industries should be located in agricultural areas with high population density, which require additional income for survival.
Modern Factors of Industrial Location
An important feature of the modern stage of industrial development is a high level of competition
Therefore, there is now a shift from traditional, classical factors (price of raw materials, fuel, labor) to narrowly specialized (availability of labor resources of certain qualifications, scientific institutions of a certain scientific direction, etc.).
This is emphasized in the works of Michael Porter
Conditions for Successful Production Development (according to Michael Porter)
- Factor conditions, that is, those specific factors (for example, qualified labor or infrastructure) that are needed for successful competition in a given industry
- Demand conditions, that is, what the demand is in the domestic market for the products or services offered by this industry
- Related and supporting industries, that is, the presence or absence of related and supporting industries in the country that are competitive in the international market
- Firm strategy, structure, and rivals, that is, what the conditions are in the country that determine the management processes of firms, and what the nature of competition is in the domestic market
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