Economic development
Economic base theory and multipliers, location quotients in practice, clusters, retail analysis, economic impact analysis, incentives, and place-based tax programs.
Lesson 33 of 40 · about 29 minutes
Learning objectives
- Explain economic base theory and calculate and apply an economic base multiplier.
- Use location quotients to identify basic industries, and recognize their assumptions.
- Describe cluster-based strategies and the main economic development approaches: retention, attraction, entrepreneurship, and workforce development.
- Calculate and interpret retail capture and leakage.
- Distinguish direct, indirect, and induced effects in an economic impact analysis.
- Evaluate incentives and place-based programs, including TIF, Opportunity Zones, and business improvement districts.
Key concepts
Economic base theory
Economic base theory divides a local economy into two sectors:
- Basic (export) activity sells goods and services to customers outside the local economy: a factory shipping products nationally, a university enrolling students from elsewhere, a regional hospital, tourism. It brings new money in.
- Nonbasic (local-serving) activity sells to local residents and businesses: grocery stores, barbers, local restaurants, dentists. It recirculates money already in the economy.
The theory treats basic industries as the engine of a region's growth: when they expand, the outside money they earn supports more nonbasic jobs.
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