Economic base analyses

Question 1

Economic base analyses

Answer 1

divide regional industries into Basic (export) and Non-basic (local) sectors and assumes that the basic sector drives the economy. Economic base analyses are easy and straightforward in calculating and interpreting. They can be used for both determining the impact of a change in the economy and for predicting future growth.

Question 2

basic sector is the driving force in the economy is based on two observations

Answer 2

1) exports from a region give the region a competitive economic edge, and 2) exports produce a multiplier effect that is beneficial to the local economy.

Question 3

a number of limitations to economic base analysis

Answer 3

• The classification into basic and non-basic sectors leans heavily on assumptions discussed above as well as additional assumptions directly related to which industries are placed in which sector.
• It does not account for demographics. People are what economy is really based on (if there were no people, there would be no economy). Ignoring demographics – especially migration trends – produces skewed results.
• Economic base analyses have no spatial orientations. Therefore, as the size of the study area grows, the economic base declines. This is because the comparison is usually to the national economy. As the area grows, there is less area outside the study area, and as a result more industries go from basic to non-basic.
• Most were developed before the “information age” and have difficulty overcoming the changes of the past thirty years (i.e. e-commerce, telecommuting, etc.)
• They are almost exclusively demand-side economic models.

Question 4

Empirical Approach

Answer 4

assigns industries into basic and non-basic sectors through assumptions on each industry as well as good knowledge of the economy. For instance, most agriculture and manufacturing jobs were traditionally assumed to be basic, because the goods were sent away once produced.

Question 5

Minimum Requirements Approach

Answer 5

utilizes an outside study area for reference and calibration. It assumes that a regional economy will completely meet its own local demand before any exports are made. Any employment

utilized above the meeting of local needs is considered to be in the basic sector. All others are non-basic by default.
* A third indirect method of defining economic base is the “Location Quotient” method, which is currently the most popular. It will be discussed separately, below.

Question 6

“Economic Base Multiplier”

Answer 6

can be applied to measure local economic growth. The economic base multiplier can be based on employment, output, or income. It is calculated as follows:

EBM = TOTAL ECONOMIC ACTIVITY/BASIC SECTOR ACTIVITY.

A result of 3, for example, would mean that for every basic job, three non-basic jobs are needed/created in the economy (you can substitute “dollar” or “unit of output” for “job” here).

Question 7

Location Quotients

Answer 7

most commonly used indirect method of defining the base sector of a study area.

Question 8

Location quotients are calculated for each individual industry

Answer 8

LQi = PERCENTLOCALEMPLOYMENTi / PERCENTNATIONALEMPLOYMENTi

Question 9

Shift-Share Analysis

Answer 9

a descriptive technique for analyzing sources of change in the regional economy by looking at national share, industry mix, and regional shift

Not universally accepted

Question 10

Shift share equattions

Answer 10

3. National Share (NS) estimates the total employment in a given industry in the region if said industry in the region grows at the same rate as the nation. In a nutshell, it simply shows the extent to which the national economy grows or declines. The

formula for national share (NS) is: NS 

t1
t0 * n

i,r

Ei,r t0
n

4. Industry Mix (IM) estimates relative change in employment in a given industry based on the difference in growth rates between said industry nationally and the entire national economy. The industry mix, when aggregated across all industries, shows

whether the mix of industries in your region are growing or declining relative to the

national economy. The formula for industry mix (IM) is:

IMi,r 

t0
i,r

t1 t1
i,n n

t0 t0
i,n n

5. Regional Shift (RS) estimates change in employment in a given industry in the region based on the difference in growth rates between said industry in the region and the same industry nationally. Regional shift shows if your region is strong or lagging in the given industry relative to the nation. The formula for regional shift

(RS) is:

RSi,r

 Et0 *(

t1 i,r t0 i,r

t1 i,n t0 i,n

6. To calculate shift-share, for a given data type (we’ll use employment here), simply add the three variables together: Ei,r = NSi,r + IMi,r + RSi,r
7. To calculate change (i.e. in employment), simply add the change factor in the appropriate variable in the formula.

Question 11

Input-output analysis

Answer 11

focuses on intermediate sales between an economy’s sectors, or the circular flow of the economy. It is based on more of an accounting methodology than a theory (unlike economic base analysis).