The non-basic sector, on the other hand, is composed of those firms that produce goods and services that are sold and consumed locally. Their sales to consumers in New Mexico are negligible compared to their total sales outside of New Mexico. For example, Intel’s facility in New Mexico sells to customers located all over the world. Economic base analysis assumes that the sales of a basic firm are dependent almost entirely on export markets. The basic sector is made up of those local businesses that produce goods and services sold to consumers outside the community/region. It can provide comparative information on the economic status of a locality across time periods and other localities with respect to employment conditions and trends.Įconomic base analysis assumes that the local economy can be divided into two main sectors: basic and non-basic. It is a simple yet valuable tool that can be used to gain an understanding of the economic structure of communities. Economic Base AnalysisĮconomic base analysis is the preferred method among economic development specialists for understanding a local economy. This circular discusses two widely used tools: economic base analysis and shift-share analysis. There are numerous tools that have been developed by economic development scholars to analyze local economies and help economic and community development practitioners understand important economic trends in the local economy. This understanding can come from a detailed analysis of current and past performance of the local economy. Understanding the current state of the local economy, including its relative strengths and weaknesses, is necessary in order to formulate responses to existing and/or new economic challenges. What are new opportunities for job growth?.How is the local economy doing compared to its neighbors and other communities in the state?.What is the current employment situation in the local economy?.What are the growing and declining sectors of the economy?.Even in the absence of major changes, local development officials and policy makers may want to know answers to questions such as: These changes can affect all or most of the sectors in an economy even though the transactions of one sector are seemingly unrelated to other sectors. Entry of new businesses, expansion of existing businesses, new government policies, national economic trends, and global economic events can greatly affect the economic condition of a locality. There are numerous reasons for local economic changes. This circular discusses two important economic development analytical tools-base analysis and shift-share analysis-that can be used by county Extension agents, local officials, planners, and economic development specialists to understand economic changes taking place in their community. Michael Patrick and Don Blayney College of Agricultural, Consumer and Environmental Sciences, New Mexico State UniversityĪuthors:Respectively, Community Resource and Economic Development Specialist and College Professor, Department of Agricultural Economics and Agricultural Business, New Mexico State University. Tools for Understanding Economic Change in Communities: Economic Base Analysis and Shift-Share AnalysisĬircular 643 Revised by J.