Edited by Charlie Karlsson, Martin Andersson and Therese Norman
Chapter 10: Local multiplier and economic base analysis
The economic base model and the associated local multiplier were developed during the twentieth century and may now be considered basic tools in urban and regional economics. The model is built on the observation that production is either sold locally or exported to other regions or countries. Economic activity can therefore be categorized as either belonging to the basic or the non-basic sector, where the former label is used for sectors primarily producing for the export market and the latter for sectors producing for the local market. Export draws new income and purchasing power into the local area, which gives rise to higher demand for non-traded goods and services in the region. Expanding the basic sector is therefore considered to be crucial for the region’s overall economic development. The economic base model gives a snapshot view of a region’s aggregated industrial structure, but is mainly used to explain and predict overall growth effects due to exogenous shocks to the local economy.
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