Embodied Inputs and the Classification of Basic and Nonbasic Activity: Implications for Economic Base and Regional Growth Analysis

Abstract

Studies of the economic base of regional economies and their growth, which use techniques that rely only on labor force or final demand data, will overstate the amount of nonbasic activity supported by exports, produce upwardly biased multipliers, and misclassify activities into basic and nonbasic categories. Input-output analysis is used to introduce a technique that avoids these errors. The contribution of a basic activity to a regional economy is identified as the value added directly and indirectly throughout the economy as a result of export sales. The proper classification of basic and nonbasic activities and, consequently, the development of accurate multipliers depend upon the identification of embodied as well as direct exports. An application of the technique is provided in an analysis of the economic base of Canada's Prairie region and its growth during the 1970s.