First, let's begin with an important observation. A location quotient is a rather simple economic development tool with strengths and limitations. The major strength of location quotient analysis is that one can typically identify data sources, retrieve and analyze data, and identify basic and service industries for a modest capital outlay. It should be understood, however, that when location quotients are viewed alone they are useful. But they become even more useful when evaluated in concert with other statistical measures, as well as basic common-sense information about the economy under study.
Location quotients have limitations.
For example, it is often pointed out that it's difficult to define appropriate boundaries that accurately define a region. There are times when it is apparent that the jurisdictional boundaries of a community may not define an appropriate region. There are also times when one or more location quotients computed for a community under study simply do not make sense. They may be larger or smaller than expected. It's just that, from time to time, areas that you think might be useful to compare for analytical purposes may not be upon further analysis.