Spatial trends of manufacturing a Von Thünen Mills approach

We use a location model due to VON THUNEN (1826)and MILLS (1970; 1972, chapter 5) to determine the patterns of the spatial distribution of manufacturing. In a homogeneous space organized around an activity center (a “Town”), a set of competitive firms produce two complementary commodities: product 1 is a consumer good and product 2, an intermediate good.Firms in both vertically related stages use land and downstream producers of commodity 1 use also product 2 as an input. The productive activity takes place under fixed proportions and the economy is competitive.We further introduce increasing returns, which are external to the firmand derive from a fixed input (a “machine”)that is shared by all manufacturers. We presuppose that such a “machine”is supplied by the set of landowners if the fixed cost is covered by the increase in total land rent (or capitalized value of land) related with its installation. This model can be interpreted in two different ways. Either the intermediate good is viewed as a raw material that is produced by farmers and successively “refined” by a manufacturer,who uses a “mill” or “distillery” for that purpose, or it can stand for “labor” supplied by households with residential land. The economic results are the same in both cases.The model shows that the decentralization of manufacturing and its spatial integration with primary production orworkers’ residences takes place more likely in industries that are labor-intensive (or show high “refining rates” of raw materials) and relatively small fixed costs requirements. The factories that relocate away from the activity center will likely stay in areas at an intermediate distance rather than in remote territories since they would then face too high transport costs in exporting back their output.