Location theory deals with the main questions that get the information of the amount of commodities produced.

the site where they are produced and the people who produced and the why factor. The location theory speaks about the 1)The most selected location of production, 2)The rate of factors of the production 3)Transport cost to customers The primary interest of early location theoties given by Johann-Heinrich van Thunen (17831850) was selected locations of cities and farms evaluating both land cost and transportation cost. Most theories of economic location start with some acceptance.ie 1) uniformity in manufacturing of particular good irrespective of location 2)demand,supply and product of goods separated factors from manufacturing, 3) factors of manufacturing are inert or passive Theories based on above acceptance expect that certain location can focus on production of particular goods,and export to other location if manufacturing cost and transport cost is reduced. Location theory is often applied by researchers who want to understand factors that effect multinational firms, to select the site for their operations. Researchers very often study the features of different locations where data is lacking on production cost of individual MNC or data on an MNC's cost where firm does not work.These factors add up factors related to country's policy,political risks, factors of production and economy environment. Host country policies Policy conditions of a country has an important effect on its interest.Policies such as corporate tax rate effect the cost of MNC.Hence uneven amount of FDI relative to GDP occur in loe tax countries.such as Ireland and tax heavens Cayman island. On the other hand, some countries put limits on FDI such as not allowing wholly owned subsidiaries, requiring technology transfer, limiting the returns of profit and permitting certain portion of value added be produced in the local market.And countries with uncertain policies towards FDI, seem to be less attractive FDI location. Political Risks Various types of political risks have control on location of MNC location decision.MNC location decision is based upon likely future profits,risks that create insecurity with regard to future income.Higher risks minimize MNC inflow. Countries that are politically risky ie having weak government or legal institutions, regular endemic corruption,monopoly and autocratic government periodic coups or ethnic tensions receive negligible MNC inflow. Countries like India,Bangladesh can receive much more investments if they minimize the political risks mentioned above. Factors of production

The factors such as land,labour,capital,raw material etc are essential features with MNC's site preference.ie important factor of production. There is important effect on FDI location choice due to capital, human and natural resorces endowments eg labour in China and oil in Nigeria. Economic Environment When economy is both large in terms of national income and in terms of per capita, interest in large economies can be true.Market size can be viewed as an indirect calculation of transportation cost since the firm has to reach many customers at a low cost.Because of growing economies countries like China and India are attracting more investments more than ever before.The countries where economies don't look stable may be because of price rise or trade rate fluctuations may have difficulty to attract MNC.Also the countries which have raised taxes there economic crises are not attractive to MNC for making large investments. Technology And Agglomeration Agglomeration economies benefits to firms that grow in geographical intense areas. Such as Silicon Valley.These zones create skilled labour The zones which create skilled labour lower the training cost and supply ,also the firm's search due to cluster of activities.A firm can have more choices in make or buy decisions. So the state and firm make major investments in infrastructure, the communication, roads airports, buildings and education. The company can benefit from these features. However controversial Head et al (1996) pointed out that the cluster could exit for many reasons.Firms might grow because of local presence of factors of production or planned reason to check competitors closely. Local government might offer subsidies in particular area for developing backword areas,investments and quality jobs. Sooner or later clusters increase production.After rapid growth of Silicon Valley it became high cost area for land and labour and many firms were priced out of market. Conclusion The literature explores the fundamental motive of MNC's location decision.MNC flows are discussed in cummmulative way by economists and policy makers. The cummulative way signify the sum of many decisions made by individual MNC'S It is up to firm to select the site because of their own state variables. The above mentioned types of locations will not be equally attractive to different firms, eg Services Industries will not bother about natural resources as coal and mechanised modern industries will not bother about labour or natural resources and to decide where to locate R&D laboratory. Manufacturing plants should supply favourable conditions under which some location characterstics may be more or less important..