Answer:
The effect of Tolkien's decision to set The Hobbit in the Middle-earth rather than a real place is that The setting allowed him to invent all different kinds of imaginary creatures, myths, and gods.
Step-by-step explanation:
One of the main objectives of J.R.R. Tolkien, while he was writing not only the hobbit but all the series of books and stories around these characters, was to create mythology that would eventually become part of British culture, having the character in Middle-earth gave him all the freedom that allowed the creation of many fantastic fictional characters as well as a language.