Definition
The Basic Industry Multiplier is a ratio used in economic base analysis to measure the impact of basic industry employment on the total population of a locality. Basic industries are those that bring income into the area from external sources. They are contrasted with non-basic or local-serving industries. This multiplier effect signifies how many total new people are brought into the area per job created in the basic industries.
Example
Maintown Example:
Imagine Maintown has a basic industry multiplier of 6. This means that each new job generated by Maintown’s basic industries is expected to increase the town’s entire population by 6. This increase comes not only from the direct employment but also from additional service jobs (e.g., telephone operators, nurses, waitresses) and their families moving into the area.
Frequently Asked Questions
What is a basic industry?
A basic industry is an industry that brings income into a local economy from external sources. Examples include manufacturing facilities, tourism businesses, and export-oriented service providers.
How is the Basic Industry Multiplier calculated?
It is calculated as the ratio of the total local population to the number of individuals employed in the basic industries.
Why is the Basic Industry Multiplier important?
This multiplier helps planners and investors understand the potential population growth associated with new industrial developments, thus aiding in infrastructure and services planning.
Can the Basic Industry Multiplier change over time?
Yes, changes in economic conditions, increases in productivity, and diversification of the local economy can all lead to changes in the multiplier.
How do basic industries influence local service jobs?
Basic industries generate income from outside and foster demand for local services to support both the direct employees and their families.
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Economic Base Analysis: A method evaluating the economic sectors that bring income to a local area and detailing how they impact the economy.
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Multiplier Effect: The amplification of initial spending within an economy, leading to a more significant increase in output and income.
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Non-Basic Industry: Local-serving industries that cater primarily to the local population, such as retail stores and local healthcare providers.
Online Resources
- Investopedia: Basic Industry
- Economic Base Analysis Fundamentals
- [Multimodal Economic Intersectoral Macroeconomic Analysis (MEIM)].(https://meim.research)
References
- Henderson, Joan C., “Economic Base Analysis,” Real Estate Economics, 1983.
- Schaller, Jacintine, “Local Economic Multipliers: A Next Step Forward,” Regional Science and Urban Economics, 2012.
Suggested Books
“Regional and Urban Economics” by Richard J. Arnott
In this book, Arnott explores the underlying principles of regional and urban economics, including economic base analysis and multiplier effects.
“Economies of Scale in Local Economic Development” by Julian Blumenthal
Blumenthal discusses the importance of economic base multiplexers and their implications for local economic development strategies.
Real Estate Basics: Basic Industry Multiplier Fundamentals Quiz
### What is a Basic Industry?
- [ ] An industry that serves the local population.
- [x] An industry attracting income from outside the local area.
- [ ] An industry characterized by small-scale operations.
- [ ] An industry involved in primary agricultural activities.
> **Explanation:** Basic industries attract income from outside the local area, contrasting with non-basic industries which primarily serve the local market.
### How is the Basic Industry Multiplier calculated?
- [x] Ratio of the total local population to basic industry employment
- [ ] Ratio of non-basic industry employment to total population
- [ ] Total local population divided by total employment
- [ ] Total employment in service industries to total population
> **Explanation:** The Basic Industry Multiplier is calculated by dividing the total local population by the number of individuals employed in basic industries.
### What impact does a new basic industry job likely have in a town with a multiplier of 5?
- [x] The town's population may increase by 5.
- [ ] No population impact since it’s a basic industry.
- [ ] The service jobs will decrease by 5.
- [ ] The population will remain the same.
> **Explanation:** With a multiplier of 5, each new basic industry job is expected to increase the town's population by about 5, indirectly due to the ripple effects of job creation.
### Which industry is considered non-basic?
- [x] Local grocery stores
- [ ] Manufacturing facilities
- [ ] Export-oriented service providers
- [ ] Tourism businesses
> **Explanation:** Non-basic industries serve the local population, such as local grocery stores, as opposed to basic industries which bring income from outside.
### Why is the Basic Industry Multiplier important in planning?
- [ ] Helps understand potential population decline
- [x] Aids in anticipating population growth and needs
- [ ] Determines tax rates exclusively
- [ ] Measures interest rates in basic industries
> **Explanation:** Understanding the Basic Industry Multiplier helps city planners and investors anticipate population growth and associated infrastructure needs.
### Which factor can cause a change in the Basic Industry Multiplier over time?
- [x] Changes in economic conditions
- [ ] Constant level of productivity
- [ ] Static population size
- [ ] Fixed tax rates
> **Explanation:** Variability in economic conditions, productivity, and economic diversification can lead to changes in the Basic Industry Multiplier.
### In the Basic Industry Multiplier context, what are service jobs?
- [x] Jobs created to meet the local demands resulting from basic industry growth.
- [ ] Only government jobs.
- [ ] Jobs that solely export goods.
- [ ] Jobs in agricultural activities only.
> **Explanation:** Service jobs are those that meet local demands arising from the growth of basic industries.
### What is the typical characteristic of a basic industry?
- [ ] It relies solely on local natural resources.
- [x] It generates revenue predominantly from outside the local community.
- [ ] It operates exclusively on non-renewable resources.
- [ ] It serves local retail markets primarily.
> **Explanation:** Basic industries generate revenue predominantly from outside the local community, distinguishing them from non-basic or local-serving industries.
### How does the Basic Industry Multiplier affect infrastructure planning?
- [ ] Encourages the reduction of existing facilities
- [x] Requires the expansion of infrastructure to support expected population growth
- [ ] It has no impact on infrastructure planning.
- [ ] Ensures lowering the costs of current infrastructure
> **Explanation:** A higher Basic Industry Multiplier implies a more significant population increase, requiring expansion in infrastructure such as housing, roads, and public services.
### Which of the following is a key benefit of the Basic Industry Multiplier?
- [ ] It limits unemployment to a minimum.
- [x] It predicts the overall economic impact of job creation in basic industries.
- [ ] It ensures an unchanged local economy.
- [ ] It stabilizes local tax rates.
> **Explanation:** One of the key benefits is that the Basic Industry Multiplier helps predict the broader economic impact of job creation in basic industries, guiding policy and planning decisions.
