Economic base analysis

The export base theory is a macro-economic approach to the explanation of economic development of an area, ie a Regional growth and development theory of economic science. It assumes that the economy of a region is divided into an export-oriented sector basis ( basic) and a domestic demand satisfactory care (non -basic ). For the economic recovery and the increasing prosperity of the success of the export sector is crucial. The scoring in the basic range surplus is invested in the region. Domestic demand climb and grow regional wealth. There is thus a multiplier effect. First export base based models and studies were from 1950 by Richard B. Andrews, James Duesenberry and Douglass North Featured Sets.

Model of Duesenberry

Duesenberry examined in 1950 using the example of the United States of the 19th century, the impact of the export goods of a region to its growth process using a two-region model.

Initial situation:

• Region 1 is only recently populated, agrarian structured, and economically very little developed area, which produced agricultural products exported to Region 2 on their own needs also.

• Region 2 has been inhabited for some time, industrialized, and is on a generally higher level of development.

Follow:

• The export leads to an increase in income in region 1 and a decrease in income of farmers in Region 2

• Due to the increase in income in region 1 increases the demand for industrial products. This can not be satisfied locally, which leads to an increased import of these products from Region 2. The for Region 2 resulting income gains exceed the total economically due to the increased import from region 1 'incomes in the agricultural sector.

• Also in Region 1 arises due to the increases in income as a multiplier effect gradually at first only the local market satisfying the industrial sector. This, together with the strong income gains of agriculture also higher overall income.

Results:

• In both regions, ie the foreign trade increases the income. Positive impulses induced - This will additionally - supplying the local market sectors. This looks Duesenberry as one of the engines of economic development and modernization, especially in Germany and England at the beginning of the Industrial Revolution.

Model of North

Also in the North sees export the crucial determinant of regional economic growth. He describes - in contrast to Duesenberry for a single region - the tripped on the export sector growth mechanism quantitatively.

The expansion of exports of an initially limited number of raw materials of an original subsistence farming to more developed areas create the basis for a regional growth process. The resulting from the agricultural export earnings increase would lead to an accumulation of capital, which exceeded the absorption activities of the export economy. This makes it worthwhile and imperative to invest capital in building a first only the local market serving industry. Internal and external operating savings of the structures created to facilitate this process in addition, and lead to a diversification of the income base. North forecasting / promises as well as Duesenberry an overall upturn in the economy through the export share.

The local income to North a function of export earnings, which only by the marginal propensity to consume ( Qk ) and the marginal import ratio (Qi) is as follows dependent.

By setting both formulas obtained for the total income:

Here, the standing below the quarry expression is called the multiplier. Thus, the larger the marginal propensity to consume and the smaller the marginal import ratio, the greater the multiplier effect on the total income.

Criticism

In the regional science literature of the value of the export base theory for explaining regional economic growth is increasingly being called into question.

• The export base theory explain regional economic growth only in accordance with the classical trade theory. In contrast to neoclassical models, the treatment of the production potential of an area being neglected. It is demand-driven single-sided, concentrating exclusively on the demand side, export demand and neglecting the effect of intra-regional demand. So you own only for regions with under-utilized production capacity and low pulses by intra-regional demand.