Socio-Economic Dimensions In Planning
Lecture 7
MPIS 1st Semester
[Link].D
Assistant Professor
School of Planning and Architecture, Vijayawada.
Economic Geography
Economic geography is the subfield of human geography which
studies economic activity and factors affecting it. It can also be
considered a subfield or method in economics
Economic geography takes a variety of approaches to many
different topics, including the location of industries, economies
of agglomeration (linkages), transportation, international trade,
development, real estate, gentrification, the economics of
urban form, the relationship between the environment and the
economy and globalization.
Economic Geography - Approaches to study 6 approach to study economic gepgraphy :
• Theoretical economic geography: focuses on building theories about spatial arrangement and distribution of economic
activities.
• Regional economic geography: examines the economic conditions of particular regions or countries of the world. It
deals with economic regionalization as well as local economic development.
• Historical economic geography : examines the history and development of spatial economic structure. Using historical
data, it examines how centres of population and economic activity shift, what patterns of regional specialization and
localization evolve and what factors explain these changes.
• Evolutionary economic geography: adopts an evolutionary approach to economic geography. More specifically,
Evolutionary Economic Geography uses concepts and ideas from evolutionary economics to understand the evolution
of cities, regions, and other economic systems.
• Critical economic geography is an approach taken from the point of view of contemporary critical geography and its
philosophy.
• Behavioral economic geography examines the cognitive processes underlying spatial reasoning, locational decision-
making, and behaviour of firms and individuals.
Spatial/Locational Economic Theories
• Spatial economic theories are closely related to economic geography.
• They examine the spatial distribution of economic activities, how they interact with the physical
environment, and the effects of these interactions on regions and places.
• Spatial economic theories provide frameworks and models to understand and analyze the spatial
organization of economic activities within a geographic context.
Bid Rent Theory
• The Bid Rent Theory is a fundamental model in urban economics that explains how the price and demand
for land in a city vary with distance from the central business district (CBD).
• the theory provides insights into the spatial distribution of different land uses and the competition for
land in urban areas.
Assumptions
•A city will include a central business district (CBD), where
most commerce takes place
•A city will include an industrial district, where most
manufacturing takes place
•A city will include one or more outlying residential districts.
Note : The history of the Bid Rent Theory traces back to the mid-20th century when economists
sought to unravel the complexities of urban spatial organization. William Alonso is credited with
pioneering the theory in his groundbreaking work "Location and Land Use: Toward a General Theory
of Land Rent" in 1964.
Bid Rent Theory
The Bid Rent Theory revolves around the idea that different land users,
such as residential, commercial, and industrial, are willing to pay
different amounts for land depending on their proximity to the CBD.
Factors Influencing Bid Rent:
• Transportation Costs: As one moves away from the CBD, transportation costs increase. This influences the maximum
amount tenants are willing to pay for land, as they need to factor in commuting costs.
• Land Use Intensity: The intensity of land use is typically higher in the CBD, leading to higher demand and higher bid
rents.
• Accessibility: Proximity to the CBD provides better access to customers, suppliers, and other amenities, influencing bid
rent values.
Bid Rent Theory
• The amount they are willing to pay is called bid rent.
• This can generally be shown in a "bid rent curve", based on the reasoning that the most accessible land,
generally in the centre, is the most expensive land.
• Commerce is willing to pay the greatest rent to be located in the inner core.
The inner core is very valuable for these users because it is traditionally the
most accessible location for a large population. This large population is
essential for department stores, which require a considerable turnover. As
one travels farther from the inner core, the amount that commerce is willing
to pay declines rapidly.
• Industry, however, is willing to pay to be in the outer core. There is more land
available for factories, but it still has many of the benefits of the inner core,
such as a marketplace and good transportation linkages.
• Moving farther away from the core, the land becomes less attractive to
industry because of the reduced transportation linkages and a decreasing
marketplace. Because residential activity do not rely heavily on these factors
and can afford the reduced costs they can purchase land here.
• The farther from the inner core, the cheaper the land.
• This is why inner-city areas are very densely populated while suburbs and
rural areas are more sparsely populated.
Bid Rent Theory - Applications
• Land Use and Intensity Distribution.
• Transportation Planning and Route Optimization.
• Housing Markets
• Retail and Commercial Development:
• Land Use Policy
• Real estate Forecasting
Bid Rent Theory - Limitations
[Link] Preferences
[Link] Transportation Costs
[Link]-Dimensional Analysis
The theory focuses primarily on distance from the CBD as the sole determinant of bid rents. It doesn't consider other
factors like topography, land quality, or cultural preferences, limiting its ability to fully explain the complexity of land use
patterns.
[Link] Nature
Bid Rent Theory tends to be static, assuming that land use patterns and bid rents remain constant over time. In dynamic
urban environments with changing economic conditions and development patterns, this assumption may not hold true.
[Link] Land Use Intensity
[Link] Use Externalities
The theory does not explicitly account for externalities associated with different land uses. For example, it may not
consider the positive or negative effects of certain industries on neighbouring residential areas.
7.. Spatial Heterogeneity
Central Place Theory
Sates that, settlements simply functioned as 'central places' providing economic services to
surrounding areas , a large number of small settlements will be situated relatively close to one
another for efficiency, and because people don’t want to travel far for everyday needs. But people
would travel further for more expensive and infrequent purchases or specialized goods and
services which would be located in larger settlements that are farther apart.
• The primary purpose of a settlement or market town, according to central-
place theory, is the provision of goods and services for the surrounding market
area.
• Such towns are centrally located and may be called central places.
• Settlements that provide more goods and services than do other places are
called higher-order central places.
• Lower-order central places have small market areas and provide goods and
services that are purchased more frequent than higher-order goods and
services.
• Higher-order places are more widely distributed and fewer in number than
lower-order places,
Central Place Theory - Objectives
• CPT attempts to explain the rationale behind the distribution, pattern,
size and number of cities and towns around the world.
• It also attempts to provide a framework by which these areas can be
studied both for the locational patterns of areas today.
• It is concerned with the way the settlements evolve and are spaced out.
It seeks to discover an order in size & spacing of settlement and
functional relation between them .
• Settlements size & its position in hierarchy, functional relation with
other settlementv It seeks to find whether spacing of settlement is
arbitrarily located or there is any logic or justification between order in
size and spacing of settlements
Central Place Theory
• Hexagonal Pattern:
• Spatial Arrangement: Christaller envisioned a regular hexagonal pattern for the
distribution of central places on a flat, uniform plane.
• Equidistant Centers: Each central place is equidistant from its neighboring
central places.
• Three Levels of Central Places:
• Lowest Level (Small Settlements): These provide goods and services with a low
range and low threshold, catering to local populations.
• Intermediate Level (Intermediate-Sized Towns): Offer goods and services with a
moderate range and threshold, serving a larger area.
• Highest Level (Central City): Central cities provide goods and services with a
high range and high threshold, serving a large population.
• Range and Threshold:
• Range: The maximum distance people are willing to travel to obtain a good or
service.
• Threshold: The minimum population required to support a particular good or
service.
• Hexagonal Hierarchy:
• Optimal Arrangement: The hexagonal pattern minimizes the overlapping of
service areas and ensures an efficient and evenly distributed provision of goods
and services.
Central Place Theory - Assumptions
• an flat, homogeneous, limitless surface
• an evenly distributed population
• all settlements are equidistant and exist in a triangular lattice pattern
• evenly distributed resources
• perfect competition and all sellers are economic people maximizing their profits
• consumers are of the same income level and same shopping behaviour
• all consumers have a similar purchasing power and demand for goods and services.
• Consumers visit the nearest central places that provide the function which they demand. They minimize the
distance to be travelled
• there is only one type of transport and this would be equally easy in all directions
• transport cost is directly proportional to distance travelled
Central Place Theory - Principles
Principle of Centrality
Similar to all matter, all regions have a core and peripheral areas. For instance,
• The village has its core around a temple, mosque, church, chaupal, etc
• Small towns serve as a core for several villages and hamlets is not necessary that the core focal point has to be at the
geometric centre of the settlement.
Centrality is therefore, not a geometrical concept rather a concept concerning the relationship between a central and
peripheral settlement
Principle of Hierarchy
Hierarchy is manifested in terms of territorial divisions and places such as State, District, and Tehsil are complemented by
place hierarchy of State capital, District headquarter and Tehsil headquarters
Central Place Theory - Principles
Principle of the Complementary Area: It is the area for which central place is the focal point. This area would be larger
for bigger and more important central places and smaller for the less important ones.
Principle of Threshold population: It is the minimum number of people required to support any good or service outlet
established at central place
Principle of the Range of goods is the maximum distance that a consumer is willing to travel to obtain certain goods or
services
Agglomeration
Agglomeration theory is an economic concept that
explores the benefits and disadvantages associated with
the spatial concentration of economic activities, such as
industries and firms, in specific geographic areas.
The theory suggests that there are positive externalities
or advantages for businesses and individuals when they
cluster together, leading to increased productivity,
innovation, and efficiency
Agglomeration
Spatial Concentration:
• Agglomeration theory focuses on the phenomenon of economic activities concentrating in specific geographic
regions rather than being evenly distributed.
• Industrial clusters, technology hubs, financial districts, and research parks are examples of spatial concentrations
resulting from agglomeration.
Positive Externalities:
• Agglomeration theory posits that when businesses and industries cluster together, they experience positive
externalities, such as knowledge spillovers, shared infrastructure, and a more skilled labor pool.
• Proximity to similar businesses in a specific industry can lead to the exchange of ideas, collaboration, and a more
skilled workforce, fostering innovation.
Economies of Scale:
• Agglomeration often leads to economies of scale, where larger production and consumption volumes result in
lower average costs per unit.
• Concentration of manufacturing facilities in a particular region can lead to cost savings through shared logistics,
transportation, and specialized suppliers.
Agglomeration
Labor Market Benefits:
• Agglomeration provides access to a larger and more diverse labor market, offering businesses a better
chance to find skilled and specialized workers.
• Financial centers attract a concentration of financial professionals, making it easier for financial firms
to find qualified employees.
Location Choice:
• Firms often choose locations based on the potential benefits of agglomeration, aiming to leverage the
positive externalities associated with clustering.
• A tech company choosing to establish its headquarters in Silicon Valley to be part of the technology
cluster and benefit from the innovation ecosystem.
Disadvantages of Agglomeration:
• While agglomeration brings benefits, it can also have disadvantages such as congestion, increased
competition for resources, and higher costs of living.
• Traffic congestion in urban areas with high concentrations of businesses and population.
Location Quotient (LQ
The Location Quotient (LQ) is a statistical tool used in locational/urban economics to analyze the relative concentration
of a particular industry or sector in a specific geographic area compared to a larger reference region. It helps identify
the specialization or overrepresentation of an industry in a local economy. The Location Quotient is calculated by
comparing the share of employment or output of a specific industry in a local area to the share of that same industry
in a larger reference region.
Calculation of Location Quotient (LQ):
Share of Industry in Local Area
LQ = Share of Industry in Reference Region
The "Share of Industry" refers to the proportion of total employment, output, or any relevant measure
associated with a specific industry.
Interpretation of Location Quotient:
1. LQ = 1: The industry's presence in the local area is proportional to its presence in the reference region.
2. LQ > 1: The industry is overrepresented or specialized in the local area compared to the reference region. It
indicates a comparative advantage in that industry.
3. LQ < 1: The industry is underrepresented in the local area compared to the reference region.
Location Quotient (LQ)
•Employment in the IT industry in Hyderabad: 10,000 •Employment in the IT industry in India (nationwide): 200,000
•Employment in the Bio industry in Hyderabad: 8,000 •Employment in the Bio industry in India (nationwide): 150,000
•Total employment in Hyderabad across all industries: 100,000 •Total employment in India across all industries: 1,000,000
10,000
•Local proportion of employment in IT in Hyderabad: = 100,000
= 0.1 or 10%
8,000
•Local proportion of employment in Bio in Hyderabad: = 100,000
= 0.08 or 8%
200,000
•National proportion of employment in IT in India = = 0.2 or 20%
1,000,000
150,000
•National proportion of employment in Bio in India = = 0.15 or 15%
1,000,000
Location Quotient Result Interpretation
0.1 •LQIT <1: Hyderabad is less specialized in the IT industry compared to the entire
LQIT = 0.2
= 0.5 country.
0.08
LQBio = 0.015
~ = 0.53 • LQBio <1: Hyderabad is less specialized in the Bio industry compared to the entire
country.
Shift Share
Shift-share analysis is an urban economics technique used to dissect the factors contributing to changes in a
particular economic indicator (like employment, output, or population) at different geographic levels, typically
comparing regional growth to national growth. This method helps identify the contributions of various factors
to the overall change and understand how much of that change is due to regional circumstances, national
trends, or specific industry factor.
Regional Employment Growth = National Growth + Industrial Mix Effect + Regional Competitiveness Effect
Shift Share
Components of Shift-Share Analysis
• Overall Change: The total change in the economic indicator being analyzed (e.g., total employment change in a region).
• National Growth Effect: The portion of the change that can be attributed to the overall national growth trend.
• Regional Growth Effect: The part of the change due to the region's specific growth rate compared to the national average.
• Industry Mix Effect: The contribution arising from the regional industry structure being different from the national
average.
Shift Share
Components of Shift-Share Analysis
• Overall Change: The total change in the economic indicator being analyzed (e.g., total employment change in a region).
• National Growth Effect: The portion of the change that can be attributed to the overall national growth trend.
• Regional Growth Effect: The part of the change due to the region's specific growth rate compared to the national average.
• Industry Mix Effect: The contribution arising from the regional industry structure being different from the national
average.
Applications
• Economic Development Planning: to understand which factors are driving economic changes in a region. This helps in
formulating targeted strategies for economic development.
• Identifying Competitive Advantages: It assists in identifying industries in a region that are growing faster or slower
compared to the national average, providing insights into competitive advantages or disadvantages.
• Strategic Decision-Making: strategic decisions about location, expansion, and industry focus based on the understanding
of regional and industry-specific growth patterns.