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Location factorLocation factor
Institutional factor
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What is institutional factor?What is institutional factor?
• External forces to influence the location of industries
• Government intervention in terms of incentives or penalties
• Both central and local governments can exert influence
• Both free and planned economy
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Why does the government intervene?Why does the government intervene?
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Strategic reasonsStrategic reasons
• To avoid attack of industries during wartime, e.g USA and China
• To encourage the development of military industries, e.g. munitions and aircrafts manufacturing
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Political reasonsPolitical reasons
• To maintain economic growth and political stability
• To minimize social unrest and riots
• To reduce regional economic inequalities or imbalance
• To integrate minority races, e.g. China
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Economic reasonsEconomic reasons
• To ensure overall economic well-being of the country
• To provide job opportunities• To stimulate economic growth• To achieve modernisation (e.g. in many LDCs)• To promote the growth of some particular industr
ies• To diversify economy• To fully utilize resources/factors of production• To raise productivity and increase the wealth of t
he country
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Social reasonsSocial reasons
• To minimize social unrest
• To achieve regional economic balance
• To lessen social problems, e.g. massive internal migration, crimes, family problems, suicides, violence brought by unemployment and poverty
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Environmental concernEnvironmental concern
• To reduce environment problems/pollution
• To disperse industries
• To discourage industrial concentration in urban areas
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Government measuresGovernment measures
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Infrastructure, transport & utilitiesInfrastructure, transport & utilities
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Providing cheap and extensive landProviding cheap and extensive land
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Jurong Industrial Estate, SingaporeJurong Industrial Estate, Singapore
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Cambridge Science Park, UKCambridge Science Park, UK
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Silicon Valley, South
California, USA
Silicon Valley, South
California, USA
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M4 Corridor, UK
M4 Corridor, UK
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Hsinchu Science-based Industrial ParkHsinchu Science-based Industrial Park
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Policy makingPolicy making
• Slows down redundancy
• Reduce unemployment rates
• Encourage employers to take on unemployed workers
• Example: various employment programmes in HK
• Employment Services (Elementary Jobs)
• Employment Services (Skilled Jobs)
• Employment Programme for the Middle-aged
• Count On Talent Not Age in Employment
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Establish new industriesEstablish new industries
• To provide regional development funding
• To save depressed areas
• To develop industries in new areas
• To raise production
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Example 1: ChinaExample 1: China
• Planned economies
• The Chinese Government set up a large petroleum refinery and petrochemical works in Urumqi in 1950s – 1970s
• To achieve regional economic balance and industrial dispersion
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Example 2: UK, FranceExample 2: UK, France
• Mixed economies
• To establish nationalized plants in depressed regions and rural areas
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To attract foreign investmentTo attract foreign investment
• To offer favourable terms of trade
• To grant tax concessions (tax holidays, low rates on profit taxes)
• To grant industrial land at low prices
• To provide loans & subsidies
• To provide cheap land, factory buildings and workers
• To provide freight concessions
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To protect home industriesTo protect home industries
• To impose tariffs and quotas on imported finished products
• Example: USA imposed tariffs on imported Japanese cars to protect the automobile industry
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To adopt zoning policyTo adopt zoning policy
• Specify the siting of industries
• Examples: HK – the setting up of industrial estates
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To set up training institutesTo set up training institutes
• To retrain workers
• To modernize firms/production
• To update technological advances
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To impose controlTo impose control
• To reduce pollution and other environmental problems
• Air, water, noise pollution
• Traffic congestion
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To adopt town planning measuresTo adopt town planning measures
• To limit the location of repulsive industries, e.g. leather tanning
• And environmentally dangerous industries, e.g. chemical works
• To encourage the development of cleaner industries
• To force the manufacturers to treat their sewage and waste products before disposal
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To adopt strong central planningTo adopt strong central planning
• Common in socialist countries, e.g. China, Russia, Yugoslavia
• Direct government intervention
• Depends on top-level decisions
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Demerits of too much interventionDemerits of too much intervention
• Excess subsides Low incentives to increase productivity
• Which may slow down industrial restructuring• Too much protection reduce imports higher
prices inflation• Penalties cost of production ↑• Sub-optimal location unprofitable/close down
of industries/wastage of resources• Complex bureaucratic barrier inefficient
management/low incentive to produce