Economic Base Analysis

Economic Base Analysis

by: Arch. Merant B. De Vera, uap

Same with the input-output analysis, economic base analysis is also used to ensure low and stable prices to support consumer spending and to enhance competitiveness in preparation for the global economic rebound. The key grounds for export are comparative advantage. Through these methods, the level of economic activity in the area and the interaction between the manufacturing and commercial industries would be analyzed and calculated.

Economic Base Analysis needs data about the different industries’ historical basic and non-basic annual employment growth and the existing basic and non-basic employment in the present year to be able to project the employment after a given number of years. Through this, the government will be able to forecast the demand in employment and will be able to prepare jobs and training for the people to meet these new demands

Economic Base Analysis postulates that export industries are the reason that regions and cities exist. It stipulates that the more an area specializes the more it limits its self sufficiency and the growth of a region or city depends on their ability to export goods and services to pay for imported goods.

Economic Base Analysis uses common method for analyzing local economy, it divides the local economy into two sectors the basic or the export sector and the non basic sector or the service sector. With these it can be concluded that the basic sectors is identified as the non local while the non basic sector as the local sector. The Basic sector is consist of activities that brings money into the economy, activities that meets the external demand, activities that is dependent on factors external to the local economy. The Non basic sector consists of activities that use money already in the economy and activities that meet local demand. The Economic Base Analysis assumes that Basic sector is the prime cause of local economic growth, and therefore making the non basic sector to develop around Basic sector activity and strictly implying that it can never develop without its opposing sector. Another assumption of the Economic base analysis is that the growth of the basic sector is directly proportionate to the growth of the non basic sector and as the area grows the less it becomes basic.

Strengths: Growth of the basic and non basic industries can be forecasted separately. It is an easy approach using the equivalent growth model to find the historical annual employment growth.

Weaknesses: It is just based on the number of employed people and ignores their wage levels. Another weakness of Economic Base Analysis is that in distinguishing whether an industry is basic or non-basic the result may be confusing. Because of unexpected circumstances, the base multiplier or the percentage of historical annual growth of employment may not be stable. Economic Base Analysis underestimates the non-basic sectors significance in the stimulation of the economic activity as well as negligence if the supply sides limitations.

In the selection of the study area it is ideal that the study area should represent a small self contained economic area making the more appropriate units to be the central city and those surrounding the suburbs. In Economic base analysis studies are usually done at provincial level even though provinces seldom have an economic coherence.