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Regional Location Factors Analysis – The Russian point of view I. Arzhenovskiy

Introduction

Regional Economics studies the economy and space interaction (spatial aspects of economic state and development). This involves, firstly, the spatial aspects of microeconomics (the theory of location, spatial pricing, the role of transport costs and agglomeration effects), and secondly, the macroeconomic interactions of separate regions with each other and with the whole national economy in terms of economic growth, regional income, conjuncture, etc.

Territorial organization and territorial structures include social division of labour, territorial division of labour and forms of the territorial organization (Figure 1).

Figure 1. Territorial organization and territorial structures

Forms of the territorial organization are economic zone (European part of Russia), territorial production complex (Timano-Pechersky), region (Samara region), cluster (IT cluster in Nizhny Novgorod), industrial districts (Emilia-Romagna, Italy), industrial node (Novocherkassk, Rostov region), agglomeration (Saint Petersburg), techno parks (Ankudinovka, Nizhny Novgorod).

Definition of a region. A region is a socio-geographic area with a common centre or several complementary centres on the basis of economic (sales areas of various goods, migration, homogeneity, complementarities etc.), administrative, historical, natural and geographical criteria.

The characteristics of the region must characterize it unambiguously and at the same time it should be possible to distinguish it from the neighboring areas.

The main characteristics of a region are specialization (for example machinery), specificity of the reproduction process (structure of regional GDP), complexity and integrity of economy (communal services), presence of government bodies (regional administration).

In Figure 2 we can see the territorial binding of location factors (mobility and localization).

Figure 2. Spatial differentiation of location factors

Source: Maier, G, Tödtling, F. (2006)

Example of location choice - 1: Russian automotive clusters

In our opinion, an indicative example of the effect of accommodation factors is the automotive industry in Russia (Figure 3 and Figure 4). Let us consider in more details the example of Nizhny Novgorod (Gorky Automobile Plant).

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Gorky Automobile Plant (GAZ) history. GAZ is the leading manufacturer of commercial and medium-duty vehicles in Russia. The plant was founded in 1932 in Nizhny Novgorod. Why?

At that time GAZ’s competitors were Moscow, Leningrad, Yaroslawl etc. But the main advantages were concentrated only in Nizhny Novgorod:

-sufficiently developed metal processing industry, metallurgy, instrumental and hardware industry,

-qualified labor force,

-timber and water resources,

-proper logistics (railway, waterways, Figure 5),

It is also impossible to forget the technical assistance, wich was provided by the construction of the plant “Ford Motor Company” and “Austin Company”.

Figure 5. Logistic scheme of the Nizhny Novgorod region

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Example of location choice - 2: District Bor, Region Nizhny Novgorod

District Bor is situated in the centre of the Nizhny Novgorod region. Brief description of the district:

-Population 124 thousand people,

-20 km. from Nizhny Novgorod,

-Diversified agro-industrial economy,

-Highest level of the foreign direct investment (FDI per capita) in Russia,

-Export quota 80%,

-Key sectors: machinery and metalwork, metallurgy, building, chemical, wood and food industry.

Successfully implemented investment projects with the following foreign partners: AGC (Japan), Tudor, Gallina Blanca (Spain), Bericap, Boimer &Boimer, Jovat, Trosifol, Schott Flat Glass (Germany), Pasabahce (Turkey), Mantrac Caterpillar (France/USA), Vesuvius (Belgium) etc.

The reasons for success are business promotion and support on the district level, agglomeration effect, district administration friendship, information availability, transparency of projects, tax incentives and tax deferral (property tax, land tax, profit tax), development of infrastructure, “green” and “brown” fields, accompanying of investment projects. The main reason is growing market and solvent customers.

Location theories

Locations theories are distinguished in the macroeconomic and microeconomic aspects. Microeconomic theories are Weber’s industrial location, behavioristic concept of location, Predöhl’s substitution concept. Macroeconomic theories are von Thünen’s land use theory, Christaller’s central place theory, Lösch’s market networks theory, Böventer’s unified spatial economics theory.

References

Maier, G, Tödtling, F. (2006). Regionalund Stadtökonomik 1. Standorttheorie und Raumstruktur. Regional und Stadtökonomik 2. Regionalentwicklung und Regionalpolitik. Wien, New York: Springer.

GAZ Automobile Plant (2017). http://www.oao-gaz.ru [04.04.2017]. Administration of the Bor district of the Nizhny Novgorod region (2017).

https://www.borcity.ru [12.12.2017].

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Location of Industry – The Role of Location Conditions

R. Hamm

Regional Disparities and Structural Aspects

How – in general, not in the special case – can regional disparities be explained? We have one Example (Figure 1).

Figure 1. Employment – Development during the last 5 years (changes in %)

Source: Bundesagentur für Arbeit, ZEFIR

Table 1. Structural Aspects

Consequences: Though both branches of industry grow at the same rate in the region and in the total economy, total regional employment increases only half as much as employment in the whole economy. Reason: Structural Differences.

Definitions

What is a location factor? Location Factor is an advantage for a certain economic activity if this takes place at a certain location (A. Weber).

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What does “location conditions” mean? Location conditions are characteristics of locations that favor or make difficult economic activities at certain locations. They are used as critetia for location decisions. They can be devided into economic, social, political and natural framework conditions. They are responsible determinants for firms’ success or failure. They are location dependent (C. Staudacher).

Theoretical considerations

Economic, social, political and natural framework conditions determine entrepreneurial success. Many of these conditions depend on the location. Following Maier/Tödtling (2006) location conditions are factors which meet the following two requirements: 1) Factor is relevant for the firm’s costs or revenues, including nonmonetary costs (e.g. expenditure of time) and long run effects (e.g. on innovateveness). 2) Factor must show spatial differences concerning availability, quality and/or price.

Using the definition of Maier/Tödtling (2006) location factors can be systemized e.g. following Berlemann/Tilgner (2006). They differentiate between …

•… determinants of production conditions (input),

•… determinants of market conditions (output) and

•… political and legal framework conditions.

Determinants of production conditions: regional factor endowments – i.e. workforce, real estate, private and public capital. In each case quantitative, qualitative and price aspects must be taken into consideration. Using workforce as an example: availability of labor, qualification of labor force, wage rates. Similar considerations apply to real estate.

The example “Real capital”: availability and prices depend on the availability of financial capital; financial capital is mobile; regional differences can hardly be expected; factor does not fulfill the requirements for a regional location condition.

The example “Public capital”: all kind of infrastructure. Production oriented infrastructure is directly used by private firms (e.g. traffic connections, information and communication infrastructure, energy infrastructure, facilities for education, research institutions). Household oriented infrastructure only has indirect influences via living standards, thus making a location more attractive to qualified workforce (e.g. hospitals, homes for elder people, Kindergartens, cultural, recreational and leisure facilities).

Determinants of market conditions: magnitude, distance and accessibility of markets internal and external to the region. Distances to providers and clients.

Success in attracting external demand depends on the region’s structures by industry and on the entrepreneurial competitiveness.

Political, legal and social framework conditions are the framework conditions differing from region to region are e.g. the business climate, the duration of permit procedures and the special local fees and taxes.

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Research Question

On the one hand: conditions of a location influence the firms’ economic situation. On the other hand: the firms’ economic situation determines the regional economic performance, the regional tax receipts and by this the regions’ possibilities for influencing the location conditions. Interdependency explains the interest of firms and politicians in analyzing the regional location conditions.

Entrepreneurial location decisions are determined by a broad variety of aspects

–location factors.

1.The relevance of these location factors will be different. One aim of research on this subject is to work out these differences by use of empirical methods.

2.The relevance of these factors will differ by industry. Another aim of research is to analyze special requirements (e.g. of energy-intensive industries, of logistics, of retailers, of SME …).

3.The quality of these factors will differ from region to region.

a)For doing a good job a regional development agency should know its regions strengths and weaknesses.

b)For improving the location conditions regional policy makers should know where to start.

Research Method

Simple methodological approach: firm surveys. NIERS has analyzed the firms’ regional location conditions in Middle Lower Rhine Area (MLRA) for several times (2002, 2008, 2012). MLRA is a German region located in the western part of Northrhine-Westphalia between the river Rhine and the Dutch-German Border

(Mönchengladbach, Krefeld, Viersen and Neuss).

Normally the results are based on the answers of more than 1000 firms (with 6000 asked) participated in the survey. Firms in Middle Lower Rhine Area have been asked to judge the specific quality in MLRA and the importance for about 60 different location factors (Table 2).

The firms had to judge each single location factor on a scale reaching from 1 to 4 – with 1 = very important, 2 = important, 3 = less important, 4 = unimportant. The average possible mark therefore was 2,5.

Firms’ participation in the survey has been high enough to differentiate the analysis by industry – e.g. energy-intensive industries.

Figure 2. Location factors

Results

First step: General Results, Ranking by average marks (Table 3). Most important factors are:

• Cost aspects (energy costs, costs of waste removal, water and waste water

fees).

• Local fiscal burden (public fees, local taxes on entrepreneurial capital and on

land).

•Some “traditional” factors (highways, availability and qualification of workforce).

Factors of minor importance:

•Railway connections have the lowest relevance.

•Availability of real estate and the supply of commercial property.

•Airport connections.

•Availability of technological consulting and the regional university as partner for research and development.