A theoretical analysis on location and production composition industrial park
- As firms’ production activity becomes large enough to cover the whole world, price and cost cutting competition become harsher among the manufacturing firms. In order to deal with the cost competition many manufacturing firms fragment the production process into small blocs, and they move the small fragmented blocs to new location sites which provide the factories with favorable production condition and reduce production costs. In searching new location site of a fragmented production process, an industrial park is reevaluated as a location factor by the governments of the countries as well as the manufacturing firms. Because industrial parks provide the factories with various sorts of external economies and they can attract the factories from foreign industrial countries into a few specific sites in their territories. Present paper theoretically analyzes the location and production composition of industrial park: First, the paper clarifies the mechanisms in which the developer of the industrial park determines the location site of the industrial park by examining the firms’ location selections. Second, this paper analyzes how external economies generated in the industrial parks influence on the production composition in the park; the combination of the business types of the factories, the numbers of the factories and their profits in the industrial park are derived. Lastly, effects on factories’ profits of wage rate of workers is analyzed. It is shown in this analysis that reduction of the wage rate which is generated by an improvement of the transportation condition surrounding industrial park does not raise every factory’s profit because the production composition of the park is changed due to the reduction of the wage rate.
IERCU Discussion Paper, No.272