Economics
In the metro area of Boston-Cambridge-Quincy, Information industry (1.33) and education and health services have (1.32) the largest location quotient while Natural Resources and Mining industry has the smallest location quotient of 0.12.
In the San Angelo metro area, Natural resources and mining has the largest location quotient of 2.97 while Manufacturing has the smallest location quotient of 0.86. In Texas, Natural resources and Mining has the largest location quotient of 2.00 while education and health services have the smallest location quotient of 0.87.
Q2. Compare the location quotients across the 3 metro areas. How do the location quotients compare
In the Boston-Cambridge-Quincy metro area, industries which require higher education have a larger location quotient. These industries include Information, Financial Activities, Professional and Business Services and Education and Health Services. On the other hand, this metro area has a very small location quotient in Natural Resources. This is in direct contrast to Texas, which has a very large location quotient in Natural Resources and Mining but a very small location quotient in education industry and industries requiring higher education. In case of San Angelo, industry data on Financial, Information and Professional services is not available suggesting that the number of people employed in these industries in San Angelo is to small to be reported.
Q3. According to the discussion in this chapter, how are these numbers related to the concept of export base
According to the export base theory, every metropolitan area has comparative advantage in some industry which it exports to other areas. The income generated from these exports is used to fund the metro areas local service sector (Bluestone, Stevenson and Williams, p. 183). However, the theory assumes that all the people are either employed in the export sector or in the local services sector. But in reality, this is not necessarily true. A worker employed in the export base industry may also produce goods which are consumed by the locals. Similarly, a local service may also cater to tourists and hence export its services. Location Quotient helps overcome this limitation of the export base theory. Location Quotient is the proportion of the areas workers employed in the given industry, divided by the proportion of US workforce employed in that industry. (p. 185). It helps us find out the degree to which each industry is part of the areas export base.
Part 2
Q1. Read about the location incentives that San Angelo and Tom Green County are offering to companies within certain industrial categories. What do these categories have in common
According to San Angelo citys website, www.sanangelo.org, the city of San Angelo and Tom Green County provides location incentives in the form of personal property and real estate tax abatements to certain industries. The businesses which qualify for these tax abatements include manufacturing, warehousingdistribution centers, homeregional administrative offices, data processing centers and telecommunication services ( HYPERLINK httpwww.sanangelo.org www.sanangelo.org). A common feature of all these industries is that they are all labor intensive.
Q2. Using the information learned in his section of the course, explain why San Angelo and Tom Green County are motivated to offer these incentives.
The obvious and the immediate reason for offering these location incentives is that it will help create more jobs in the region. However, in the long run, metro areas may lose the demand for their main export. When this happens, metro areas which have an export base in several industries are more likely to see sustained periods of prosperity. The main comparative Advantage of San Angelo is its natural resources. However, its location quotient in manufacturing industry is very low (0.86). Hence, by offering location incentive in this industry, it can help build an export base in manufacturing, which will help the metro sustain prosperity in the long run.
Q3. Why observers like Porter, Florida, and Noll Zimbalist might be critical of this approach
Observers like Porter, Florida and Noll Zimbalist may be critical of this approach because they feel that an area must first strengthen the areas in which it has comparative advantage because this strength is unique to that area and hence difficult for other areas to imitate.
Q4. Write CLEAR EXPLANATION OF EXPORT BASE THEORY and description of the way in which the theory can be quantified.
Every metropolitan area has comparative advantage in certain industry but needs to export other items since no area is completely self sufficient. The area exports the products in which it has comparative advantage and uses the income from it to fund local services. Thus this export income forms the basis for employment in other local services. The industry which gets the area the export income is called the base industry and all the industries which this income helps to fund are called non-base industries. The prosperity of a metro area depends on the demand for the product it exports. If this demand is increasing, the areas prosperity will increase. On the other hand, if the demand for the areas export decreases, it will also lead to a decrease in the demand for local services, and the overall prosperity of the area will decrease.
A simple way to quantify this theory is to the basicnon basic approach, which categorizes all jobs in an area either as part of export base, that is, basic or part of the local service sector, that is, non-base. The basic jobs have a multiplier effect since they bring in the income which helps fund the local services job. The non-basic jobs do not have this multiplier effect. The ratio of the basic jobs to the total jobs or the ratio of the basic jobs to non-basic jobs thus helps quantify the export base theory.
Q5. Write a discussion of the merits of the theory in the short term vs. the long term
The export base theory works for a metro area in the short term since it is based on the demand for the products produced by certain industries in that area. As long as the product continues to have demand outside the area, it will have a large export base which can help fund its local services. However, this comparative advantage is sustainable only in the short term. In the long term, a number of other factors come into play which may erode the metropolitan areas comparative advantage. For example in the long run, the demand for the product may go down, its value may fall or other areas may also develop comparative advantage in that industry. When this happens, the income of the metro area from export goes down and as a result the employment in non-base industries also goes down. Hence, in the long run, the export base theory works only if an area has an export base in several industries and continues to reinvent itself with time.