Spatial Modeling of Production Capacities

At a meeting of the Allied Social Sciences Associations a paper was presented which argued that new capacity output is the most appropriate variable to be used as the dependent variable in models that try to explain industry location. Most empirical models that try to explain industry location use either output or changes in output as the dependent variable and profit proxy variables as independent variables. Capacity output would be the desired level of output, given the capital stock, but the actual output in any one period may not be at the desired level because of unanticipated economic conditions. It was also argued that the profits associated with locating a marginal unit of output is the appropriate explanatory variable. The results of applying such a model to 59 manufacturing industries were also shown.