(De) industrialization in the Von Thünen’s economy

Abstract

In the Von Thtinen (1826)'s economy, manufacturing decentralization is viewed as the refining of an agricultural commodity near the cultivation site, which substitutes for its transport to an industrial mill located in the Town. As Friedrich List (1841) added, this substitution is economically feasible only if the savings in transport costs following from in site refining cover the increase in fixed costs associated with a second industrial plant. In market equilibrium terms, this happens when the decentralized machine is provided collectively by the landowners, who fund it through the proceeds of the rise in total land rent following from the industrial investment. This condition will be satisfied more likely in a large economy with high average transport costs and where manufacturing specializes in relatively weight losing activities. If industrial decentralization is feasible, then the new factories will prefer to locate outside the Town, in formerly rural areas endowed with an intermediate degree of centrality. Their distance to the Town will be directly related with the intensity of input refining that they are able to carry out. This model appears to account for main stylized trends of manufacturing relocation nowadays, which are jointly labeled as 11 (de)industrialization".