Economic base theory

An Introduction to Economic base theory.

1. Economic Base Theory Presented to: Mam Sana Presented By: Hamza Paracha (8 th Semester)

2. Introduction Introduced by the economic geographer John Alexander in the mid-1950s The Economic base theory tells us that the rate of economic growth of a region is determined by the amount of the increase in exports from the region meaning that through exporting more goods or preventing fewer imports can help increase the economic growth of a region.

3. Introduction cont.. Economic base theory is the notion that a region’s economy is divided Into two sectors: the base and non-base sectors and all the economic activities are based on base and non-base activities. All those activities that brings money from outside of the region are called Base activities; whereas all other economic activities out the of base are called Non-Base activities.

4. Basic Sector Also known as Export Sector. Consists of firms and parts of firms whose economic activity is dependent upon factors external to the local economy i.e. export markets external to the country and region. Eg. Manufacturing, agriculture, forestry, fishing, mining, national govt, hotels/lodging etc.

5. Non-Basic Sector Also known as Local Sector. Consists of firms and parts of firms whose economic activity is dependent largely on local economic conditions Eg. retail trade, wholesale trade, local government, services, construction, transportation, utilities, communication.

6. Economic base theory Assumptions Economic base theory assumes that the export sector is the primary cause of local economic growth; that is, it is the economic base of the local economy. Economic base theory assumes that all local economic activities can be assigned to either the basic or non-basic sector i.e.. any economy activity is base or non-base (export or local ).

7. Economic base theory Economic base theory has several advantages as an explanation for how the economy works, and how a region can generate prosperity, and it is easy to explain in a nontechnical way . Regional prosperity is achieved by building up the base through exporting more goods from the base or preventing fewer imports.

8. The Base Multiplier It is method for estimating the impact of the basic sector upon the local economy. Formula: Base multiplier = Total employment Base employment

9. Determination of Base sector Direct Method Conducted through a survey directly to businesses where they market their products and where they buy raw materials. Indirect Method Establish a base and non-base activities based on the assumption that you define yourself .