Economic base analysis
Channel: Viki English
Date: 26/10/2017

Economic base analysis was developed by Robert Murray Haig in his work on the Regional Plan of New York in 1928. Briefly, it posits that activities in an area divide into two categories: basic and nonbasic. Basic industries are those exporting from the region and bringing wealth from outside, while nonbasic (or service) industries support basic industries. Because of data problems[clarify], it is not practical to study industry output and trade flows to and from a region. As an alternative, the concepts of basic and nonbasic are operationalized using employment data.

The basic industries of a region are identified by comparing employment in the region to national norms. If the national norm for employment in, for example, Egyptian woodwind manufacturing is 5 percent and the region's employment is 8 percent, then 3 percent of the region's woodwind employment is basic. Once basic employment is identified, the outlook for basic employment is investigated sector by sector and projections made sector by sector. In turn, this permits the projection of total employment in the region. Typically the basic/nonbasic employment ratio is about 1:1. Extending by manipulation of data and comparisons, conjectures may be made about population and income. This is a rough, serviceable procedure, and it remains in use today. It has the advantage of being readily ope rationalized, fiddled with, and understandable.
The formula for computing location quotients can be written as:

{\displaystyle LQ={\frac {e_{i}/e}{E_{i}/E))}

Where:

{\displaystyle e_{i}=} Local employment in industry i

e = Total local employment

{\displaystyle E_{i}=} Reference area employment in industry i

E= Total reference area employment

It is assumed that the base year is identical in all of the above variables.


The figure showing location quotients uses data from Compare Minnesota: Profiles of Minnesota’s Economy and Population, 2002–2003. It uses the term location quotient, a number derived by comparing the percentage of employment in a place (Minnesota) with the percentage of employment nationwide. Minnesota has about the same percentage of high-technology employment as does the nation. It has more medical devices employment than the national average (due to companies such as Medtronic).