ABSTRACT
At the industry level the supply curve is derived from the theory of costs, but the demand curve is taken as determined outside the system – by the theory of demand. The supply and demand system thereby derived can be used to answer certain questions, but it has no spatial dimension and consequently no locational implications. Smith adopted a controversial reaction to accepted fact that few testable hypotheses have been deduced from location theory. To stress this is important, and useful in the sense that it does raise the issue of what sort of questions location theory – especially one couched in neoclassical terms of profit-maximising paradigm. However, in practice location theory has made virtually no contribution toward an explanation of the level or composition of international production. The emphasis placed by location theory on complementary nature of the location and scale decisions also appears to be a potentially valuable base from which to explore the activities of such enterprises.
