Regional Economic Integration and Economic Locations: A NoteBin ZhouDepartment of GeographySouthern Illinois University EdwardsvilleEdwardsv川e, IL 62026Regional economic integration in the form of a custom union and/or a monetary union has received increasing attention in recent years in economic geography study. However, theoretical study regarding the impacts of regional economic integration on locations of economic activities has been scarce, though hypotheses or speculations are plentiful (Scott 1998). This note discusses how regional integration, such as the formation of a monetary union, affects changes in economic locations, using an opportunity cost location model. Such an approach helps integrate the study of location theory and trade theory, while at the same time integrates the study of the domestic economy with that of the international economy.1. The opportunity cost location modelThe comparative advantage principle states that countries specialize in producing commodities in which they have the minimum opportunity cost. For example, according to the Hcckschcr-Ohlin factor endowment theory, a country with rich endowment in low cost labor has a comparative advantage in making labor intensive commodities (Krugman and Obstfeld 1997). Given this, shifting resources to capital intensive commodities implies the loss of many labor intensive goods and thus a high opportunity cost in tenns of labor intensive goods. Using resources in labor intensive goods means sacrificing the production of fewer capital intensive goods, and thus the low opportunity cost measured in capital intensive goods. Therefore the country is said to have a comparative advantage in, and export, labor intensive goods. Alternatively, the country is said to have a comparative disadvantage in, and import, capital intensive goods.The opportunity cost can be expressed through the relative price of commodities, indicating the cost of one good measured in tenns of the amount of another. For example, the relative price pab=Pa/Pb expresses that one unit of good a is worth pab units of good b. The same amount of resources are worth either one unit of good a or pab units of good b. That is, the opportunity cost of good a is pab units of good b. Countries with the lowest pab have a comparative advantage in making good a. If the world price ratio Pab is higher than pab, trade is possible. At equilibrium, the price ratio is Pc；,b- Trade study focuses on the exchange pattern of at least two commodities and thus necessitates the expression of cost using relative prices.In location study, the focus is not exchange, but the partial analysis of the location where the monetary costs of production and shipping for a certain commodity is a minimum. In a standard industrial location setting, given the production function Q=Rmi, m2, L) where Q is the amount of output, ml and m2 arc localized inputs, and L non-localizcd input such as labor, labor is regarded as a non-localized input here since it is not the factory owners responsibility to ship workers to the firm location. The cost function is TC=(miPini+miditmi)+Qdqtq +Lw, where Pmi are the prices of input mi； t,ni arc the shipping rates of inputs m. tq the shipping rate of output; d1 the distance from input i to the finn, dq the distance from the firm to market according to a certain coordinate system, and w the wage rate. When i=2, this is a typical Weberian location triangle problem. In Webers least cost principle, the optimal location occurs where TC is minimized. Since only distances are variable, the problem becomesMin(miPmi+mid|tmi)+Qdqtq+Lw.At equilibrium, there existsMin TC= E(miPmi+midCitini)+Qdeqtq+Lw= +L1+L is a short-hand expression of the equilibrium minimum total cost at the equilibrium location reflected in d% and deq. The unit cost is c= E+Lf/Q.Model 1 contains no explicit tenn that indicates an exchange relation with other places. Divide the unit cost by Pb and we obtainPqb= Z+L/QPb=c/Pb2Equation 2 indicates the relative price of Q measured in the units of good b. This is also the opportunity cost of Q. That is, one unit of Q is exchangeable with pqb units of good b. This turns a location analysis into a trade analysis. If good b is used by the town where the firm is located, the opportunity cost of making one unit of Q is pqb units of good b. As long as pqb is lower than that at the market fbr Q, location (d% and deq) should specialize in Q. This may not always be the case.In 2, taking the derivative with respect to d, which is the distance from location (d and deq)33dpqb = de cdPb dd 一 Phdd ddWhen dpqb/dd0, (d and deq) still has the minimum opportunity cost. This happens whendp。, dedP._ dedPh. . . .=c - 0 or c -. That is, the geographical distribution of theddPhdddd Pbddddopportunity cost pqb varies depending on the distribution of both c and Pb. Location (d and deq) would still be optimal if Pb is