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Location factorLocation factor
Institutional factor
What is institutional factor?What is institutional factor?
• External forces to influence the location of industries
• Government intervention in terms of incentives or penalties
• Both central and local governments can exert influence
• Both free and planned economy
Why does the government intervene?Why does the government intervene?
Strategic reasonsStrategic reasons
• To avoid attack of industries during wartime, e.g USA and China
• To encourage the development of military industries, e.g. munitions and aircrafts manufacturing
Political reasonsPolitical reasons
• To maintain economic growth and political stability
• To minimize social unrest and riots
• To reduce regional economic inequalities or imbalance
• To integrate minority races, e.g. China
Economic reasonsEconomic reasons
• To ensure overall economic well-being of the country
• To provide job opportunities• To stimulate economic growth• To achieve modernisation (e.g. in many LDCs)• To promote the growth of some particular industr
ies• To diversify economy• To fully utilize resources/factors of production• To raise productivity and increase the wealth of t
he country
Social reasonsSocial reasons
• To minimize social unrest
• To achieve regional economic balance
• To lessen social problems, e.g. massive internal migration, crimes, family problems, suicides, violence brought by unemployment and poverty
Environmental concernEnvironmental concern
• To reduce environment problems/pollution
• To disperse industries
• To discourage industrial concentration in urban areas
Government measuresGovernment measures
Infrastructure, transport & utilitiesInfrastructure, transport & utilities
Providing cheap and extensive landProviding cheap and extensive land
Jurong Industrial Estate, SingaporeJurong Industrial Estate, Singapore
Cambridge Science Park, UKCambridge Science Park, UK
Silicon Valley, South
California, USA
Silicon Valley, South
California, USA
M4 Corridor, UK
M4 Corridor, UK
Hsinchu Science-based Industrial ParkHsinchu Science-based Industrial Park
Policy makingPolicy making
• Slows down redundancy
• Reduce unemployment rates
• Encourage employers to take on unemployed workers
• Example: various employment programmes in HK
• Employment Services (Elementary Jobs)
• Employment Services (Skilled Jobs)
• Employment Programme for the Middle-aged
• Count On Talent Not Age in Employment
Establish new industriesEstablish new industries
• To provide regional development funding
• To save depressed areas
• To develop industries in new areas
• To raise production
Example 1: ChinaExample 1: China
• Planned economies
• The Chinese Government set up a large petroleum refinery and petrochemical works in Urumqi in 1950s – 1970s
• To achieve regional economic balance and industrial dispersion
Example 2: UK, FranceExample 2: UK, France
• Mixed economies
• To establish nationalized plants in depressed regions and rural areas
To attract foreign investmentTo attract foreign investment
• To offer favourable terms of trade
• To grant tax concessions (tax holidays, low rates on profit taxes)
• To grant industrial land at low prices
• To provide loans & subsidies
• To provide cheap land, factory buildings and workers
• To provide freight concessions
To protect home industriesTo protect home industries
• To impose tariffs and quotas on imported finished products
• Example: USA imposed tariffs on imported Japanese cars to protect the automobile industry
To adopt zoning policyTo adopt zoning policy
• Specify the siting of industries
• Examples: HK – the setting up of industrial estates
To set up training institutesTo set up training institutes
• To retrain workers
• To modernize firms/production
• To update technological advances
To impose controlTo impose control
• To reduce pollution and other environmental problems
• Air, water, noise pollution
• Traffic congestion
To adopt town planning measuresTo adopt town planning measures
• To limit the location of repulsive industries, e.g. leather tanning
• And environmentally dangerous industries, e.g. chemical works
• To encourage the development of cleaner industries
• To force the manufacturers to treat their sewage and waste products before disposal
To adopt strong central planningTo adopt strong central planning
• Common in socialist countries, e.g. China, Russia, Yugoslavia
• Direct government intervention
• Depends on top-level decisions
Demerits of too much interventionDemerits of too much intervention
• Excess subsides Low incentives to increase productivity
• Which may slow down industrial restructuring• Too much protection reduce imports higher
prices inflation• Penalties cost of production ↑• Sub-optimal location unprofitable/close down
of industries/wastage of resources• Complex bureaucratic barrier inefficient
management/low incentive to produce