What is economic base? Definition and examples

The term ‘economic base‘ refers to companies and other employers that generate lots of jobs in a local or regional area. We also call them basic industries. They also bring in income from outside the local area. These employers are usually companies but may also include the government and civil service departments. In the capitals of Canada and Australia, i.e., Ottawa, and Canberra, the economic base consists of public sector jobs.

When politicians and policymakers want to build a solid economic base in an area, they try to entice businesses. They entice businesses to come into the community and also encourage existing ones to grow.

BusinessDictionary.com has the following definition of the term:

“Businesses that generate employment in a community or a geographical area.”


Economic Base
Seattle’s largest employers are Boeing, Microsoft, Joint Base Lewis-McChord, and Amazon. They also bring in income from outside. They form part of the city’s economic base.

Economic base analysis

Economic base analysis is a method for identifying which industries are key to a regional or local economy.

Economists and policymakers use economic base analyses to help when deciding on workforce targeting and economic development. Economic development, apart from GDP growth, also includes improvements in life expectancy, health, literacy, and access to good housing.

Robert Murray Haig (1887-1953) developed economic base analysis in 1928 in his work on the Regional Plan of New York. He was an American economist who was also famous as an expert on taxation and public finance.

Economic base analysis posits that we can divide activities in an area into two categories: 1. Basic industries. 2. Non-basic industries.

Basic industries

Basic industries are those that sell to customers outside the local area. They bring in wealth from outside. We also refer to them as the ‘economic base.’

Basic industries provide services to companies and people outside the local area. They bring money into the local area.

For example, Canada’s federal government in Ottawa provides services for Canadians across the country.

Non-basic industries

Non-basic industries support the basic ones. They do not provide services to businesses and people outside the community or local area.

Non-basic industries do not bring in money from outside.


Examples

Basic industry or economic base

John Doe Commercial Fruit Orchard grows huge amounts of fruit inside the local area.

Locals buy and consume some of those fruit. However, people in other parts of the country and even abroad buy most of it.

John Doe ships to outside communities, which subsequently provides growth in the local economy.

John Doe Commercial Fruit Orchard forms part of the economic base, i.e., it is a basic industry.

Non-basic industry

ACME Glistening Windows is a company that cleans people windows. One hundred percent of all ACME’s income comes from local residents.

It is a non-basic industry. It does not bring in wealth from outside. Neither does it provide a service or goods to outside people or companies. The word goods,’ in this context, means ‘products.’