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Land as production factor

Listed author(s):
  • Paul Metzemakers


  • Erik Louw


To justify industrial land development, municipal planning officials frequently use the argument that unrestricted availability of business sites will foster economic development and employment growth. However, to date convincing evidence to support this claim does not exist. So empirical research into this subject is warranted. Furthermore, this relationship implicitly assumes that the acreage of land, necessary for firms to be able to conduct their business, is a production factor like labour and capital. Unfortunately, research on land use from this perspective has since long disappeared from mainstream economic theory. Ample research is done on land use in relation to firm location, both empirically and theoretically. However, the amount of land as a production factor for firms is generally disregarded. This lack of theory may hinder research into the claim made by planning officials. Therefore, present paper seeks to reintroduce land as a production factor in economic theory. In this article we explore to what extent land can be regarded as a production factor. We aim to integrate this view into established economic models from urban land economics and real estate theory. We do so at the macro and at the micro economic level. At the macro level, the available amount of industrial land could be a factor in national economic growth, just like growth of the labour force. At the micro level we consider whether the theory of individual firmsÂ’ production function is able to incorporate the amount of land as production factor. We commence this paper with a historical overview of the treatment of land in economic theory, before we pursue a theoretical framework that incorporates land as a factor of production. The paper concludes with a comparison between land and the established production factors labour and capital.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa05p220.

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Date of creation: Aug 2005
Handle: RePEc:wiw:wiwrsa:ersa05p220
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  1. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
  2. Ciccone, Antonio, 2002. "Agglomeration effects in Europe," European Economic Review, Elsevier, vol. 46(2), pages 213-227, February.
  3. Fujita,Masahisa, 1991. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521396455, December.
  4. Paul Cheshire & Stephen Sheppard, 2004. "The Introduction of Price Signals into Land Use Planning," Urban/Regional 0410002, EconWPA.
  5. Cheshire, P. C. & Sheppard, Stephen Charles, 2005. "The introduction of price signals into land use planning decision-making : a proposal," LSE Research Online Documents on Economics 568, London School of Economics and Political Science, LSE Library.
  6. Grubbstrom, Robert W., 1995. "Modelling production opportunities -- an historical overview," International Journal of Production Economics, Elsevier, vol. 41(1-3), pages 1-14, October.
  7. M.T. Daly & M.J. Webber, 1973. "The Growth of the Firm within the City," Urban Studies, Urban Studies Journal Limited, vol. 10(3), pages 303-317, October.
  8. C. F. Sirmans & Arnold L. Redman, 1979. "apital-Land Substitution and the Price Elasticity of Demand for Urban Residential Land," Land Economics, University of Wisconsin Press, vol. 54(2), pages 167-176.
  9. Cheshire, Paul & Sheppard, Stephen, 2004. "Land markets and land market regulation: progress towards understanding," Regional Science and Urban Economics, Elsevier, vol. 34(6), pages 619-637, November.
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