Definition
The Basic Industry Multiplier (BIM) is a significant concept in economic base analysis, utilized to measure the effect of basic industry employment on the overall local economy. Basic industries refer to sectors that attract income from outside the local area, creating jobs that add value directly through export of goods or services. The BIM is calculated as the ratio of the total population in a local area to the employment in these basic industries.
An increase in employment within basic industries not only brings additional income and economic activities into the local area but also stimulates the creation of local service jobs, such as telephone operators, nurses, and supermarket clerks. Moreover, if the workers in basic industries have families, additional new people may be brought to the area, further magnifying population growth and economic development.
Examples
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Manufacturing Plant: A town with a large automobile manufacturing plant (basic industry) attracts workers from other regions. For every job within the plant, additional service jobs (e.g., retail workers, healthcare providers) are created, increasing the local population and economic activity.
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Tourism: In a coastal town, tourism serves as a basic industry by drawing visitors from outside the area. The influx of tourists supports local hospitality businesses such as restaurants and hotels, leading to more local service job creation and overall population growth.
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Tech Hub: In a city recognized for its technological industry, employment in tech firms attracts skilled labor from across the globe. The expanding tech workforce necessitates more local services like schools, public transportation, and housing, thus boosting the local economy and increasing the total population.
Frequently Asked Questions (FAQs)
What is the purpose of the Basic Industry Multiplier?
The BIM is used to understand the impact of basic industry employment on the overall local economy and to guide economic development efforts by identifying key industries that attract external income.
How is the Basic Industry Multiplier calculated?
The BIM is calculated as the ratio of the total population in an area to the number of people employed in basic industries.
What are basic industries?
Basic industries are sectors that attract income from outside the local area. Examples include manufacturing, tourism, and technology sectors.
How does employment in basic industries affect local service jobs?
Employment in basic industries stimulates the demand for local service jobs, such as healthcare, education, and retail services, due to the increased local population and economic activity.
Can the Basic Industry Multiplier vary between different locations?
Yes, the BIM can vary significantly between locations depending on the extent of basic industry presence and local economic conditions.
- Economic Base Analysis: A method of assessing the economic structure and growth potential of an area by distinguishing between basic (exporting) and non-basic (local-serving) industries.
- Population Multiplier: A metric that quantifies the impact of new jobs in basic industries on the local population growth.
- Multiplier Effect: The phenomenon where an initial economic input leads to a greater than proportional increase in economic activities and outcomes.
- Employment Multiplier: A measure of the total number of jobs created in the local economy as a result of adding one job in a basic industry.
Online Resources
- Investopedia on Economic Base Analysis
- Economic Development Reference Guide
Suggested Books for Further Studies
- “Regional Economics” by Roberta Capello
- “Economic Development Finance” by Karl F. Seidman
- “Principles of Economic Development” by Edward J. Blakely and Nancey Green Leigh
- “Location and Space-Economy” by Walter Isard
Fundamentals of Basic Industry Multiplier: Economics Basics Quiz
### What does the Basic Industry Multiplier measure?
- [x] The ratio of the total population in a local area to employment in basic industries.
- [ ] The ratio of total income to the number of businesses in an area.
- [ ] The number of service jobs created by new small businesses.
- [ ] The growth rate of basic industries in the local economy.
> **Explanation:** The Basic Industry Multiplier measures the ratio of the total population in a local area to employment in basic industries, illustrating the broader economic impact of basic industry jobs.
### Which of the following describes a basic industry?
- [ ] Industries that provide services within the local community.
- [x] Industries that attract income from outside the local area.
- [ ] Government-funded sectors.
- [ ] Local retail businesses.
> **Explanation:** Basic industries are those that attract income from outside the local area, typically involving the export of goods or services.
### How does an increase in basic industry employment affect local services?
- [x] It stimulates the creation of additional service jobs.
- [ ] It decreases the need for local services.
- [ ] It has no impact on local services.
- [ ] It only benefits the basic industry workers.
> **Explanation:** An increase in basic industry employment stimulates the creation of additional service jobs due to greater demand from the increased local population and economic activity.
### Which of the following is an example of a basic industry?
- [x] An automobile manufacturing plant.
- [ ] A local grocery store.
- [ ] A community library.
- [ ] A neighborhood cafe.
> **Explanation:** An automobile manufacturing plant is an example of a basic industry as it exports goods and attracts income from outside the local area.
### What is the effect of a high Basic Industry Multiplier in a region?
- [x] It indicates a significant economic impact of basic industries on the local economy.
- [ ] It shows a decrease in local employment.
- [ ] It reflects a shrinking local population.
- [ ] It demonstrates low economic development.
> **Explanation:** A high Basic Industry Multiplier indicates a significant economic impact of basic industries on the local economy, leading to increased local employment and population growth.
### How does family migration affect the Basic Industry Multiplier?
- [x] Family migration can elevate the Basic Industry Multiplier by increasing the local population relative to employment in basic industries.
- [ ] Family migration reduces the Basic Industry Multiplier.
- [ ] Family migration has no effect on the Basic Industry Multiplier.
- [ ] Family migration destabilizes the local economy.
> **Explanation:** Family migration can elevate the Basic Industry Multiplier by increasing the local population, which in turn can boost demand for service jobs and further economic development.
### What might a low Basic Industry Multiplier suggest about a local economy?
- [x] Lower dependence on external income and fewer basic industry jobs.
- [ ] High economic development.
- [ ] Rapid population growth.
- [ ] Abundant basic industry jobs.
> **Explanation:** A low Basic Industry Multiplier might suggest that the local economy has a lower dependence on external income and fewer jobs in basic industries, implying a greater emphasis on local-serving sectors.
### Which type of multiplier effect is related to the Basic Industry Multiplier?
- [ ] Government spending multiplier.
- [ ] Consumption multiplier.
- [x] Employment multiplier.
- [ ] Monetary supply multiplier.
> **Explanation:** The Basic Industry Multiplier is related to the employment multiplier, which measures the total number of jobs created in the local economy as a result of an addition of one job in a basic industry.
### What is the significance of basic industries in economic base analysis?
- [x] They attract external income, stimulating broader local economic activities.
- [ ] They cater only to local consumer needs.
- [ ] They stabilize government budgets.
- [ ] They reduce local service job requirements.
> **Explanation:** In economic base analysis, basic industries are significant because they attract external income, which stimulates broader local economic activities, leading to job creation and economic growth.
### Which online resource is most relevant for further understanding of economic base analysis and multipliers?
- [ ] National Geographic.
- [ ] Wikipedia.
- [x] Investopedia.
- [ ] Pinterest.
> **Explanation:** Investopedia provides comprehensive information on economic base analysis and related concepts like multipliers, making it a relevant and valuable resource for further understanding these topics.
Thank you for exploring the fundamental concepts and applications of the Basic Industry Multiplier through our insightful quiz and comprehensive guide. Keep advancing your economic knowledge!
