EconBase

About EconBase

Understanding regional economies through data-driven analysis

Economic Base Theory

Economic Base Theory divides a regional economy into two sectors:

  • Basic (export-base) industries — sectors that produce goods and services primarily for sale outside the region. These bring money into the local economy.
  • Non-basic (local-serving) industries — sectors that serve the local population (retail, healthcare, education). These recirculate money within the economy.

The theory holds that growth in basic industries drives overall regional growth because export revenue creates demand for local services, generating a multiplier effect.

Location Quotient (LQ)

LQi =
ei / e
Ei / E

Where ei = local employment in industry i, e = total local employment

Ei = national employment in industry i, E = total national employment

LQ < 1.0

Industry is under-represented locally compared to the nation. The region may import these goods/services.

LQ ≈ 1.0

Industry employment is proportional to the national average. The region is self-sufficient in this sector.

LQ > 1.0

Industry is a regional specialization. Likely an export-base industry bringing outside revenue in.

Other Analytical Tools

Shift-Share AnalysisComing Soon

Decomposes employment change into three components: national growth effect, industry mix effect, and competitive share (local advantage). Helps understand why employment changed, not just how much.

Economic Base MultiplierComing Soon

Estimates how many total jobs are supported for each basic (export) job. A multiplier of 2.5 means each export-sector job supports 1.5 additional local jobs. Formula: Total Employment / Basic Employment.

Data Sources

County Business Patterns (CBP)

Annual data on employment, payroll, and establishments by industry for U.S. counties. Published by the U.S. Census Bureau.

census.gov/programs-surveys/cbp

American Community Survey (ACS)

Demographic, social, economic, and housing data. Provides population, income, education, and labor force statistics.

census.gov/programs-surveys/acs

References & Further Reading

  • Isserman, A. M. (1977). “The Location Quotient Approach to Estimating Regional Economic Impacts.” Journal of the American Institute of Planners, 43(1).
  • Stimson, R. J., Stough, R. R., & Roberts, B. H. (2006). Regional Economic Development: Analysis and Planning Strategy. Springer.
  • Hoyt, H. (1954). “Homer Hoyt on Development of Economic Base Concept.” Land Economics, 30(2).