ABSTRACT
The use of targeted regional economic development (TRED) is based on theoretical understandings of how regional economies are structured and how firms make location and expansion decisions. Firms make these decisions so as to maximize profits through minimizing the costs of operations while maximizing the demand for their goods and services (Shaffer et al. 2004). All of this takes place within a spatial setting. Targeted development policies as well as the analytical tools that are employed to identify potential industries to target for attention have generally focused on the two special cases of the general profit maximization problem. In classical location theory associated with Weber, Lösch, Hirschman, and Vernon, these include cost minimization and demand maximization. This is the underlying theoretical framework for the work of Leatherman and Kastens (Chapter 7), Cader et al. (Chapter 8), and Davis and Harris (Chapter 9). Firms can be grouped into these two special cases depending on the nature of the structure of demand. For some types of firms, the location of the firm itself does not influence the demand for its products. These types of firms make location and expansion decisions based solely on costs of production. As Deller and Goetz (Chapter 2) outline, the first “wave” of economic development policies focused on these types of firms, primarily basic-type industries from export-base theory such as manufacturing, by trying to market themselves as low-cost locales and by offering tax and other cost-related incentives. The policy of “smokestack chasing” is strongly rooted in the theory of firm location through cost minimization.
