The document describes various methods and techniques for regional analysis, focusing on short-term changes. It explains the economic base theory, which categorizes industries as basic or non-basic based on whether they export goods outside the region. The multiplier effect and location quotient technique are introduced to measure how growth in the basic sector impacts the overall economy. Finally, the minimum requirement technique compares a region to similar areas to identify industries that exceed local demand.

1. SSR3033:
Theories & Techniques of Regional
Planning
METHODS & TECHNIQUES OF REGIONAL
ANALYSIS
26th and 27th September 2016
1

2. Objective
• To describe the methods and techniques of
regional analysis
– (focusing on short-term changes in regional
development).
• To explain the Economic Base Theory in the
context of regional development
• To explain the concept of Multiplier Effects and
Location Quotient Technique and how they can
be used in short-term regional analysis

3. Methods & Techniques
• Economic Base Theory (1920s)
• Multiplier Effects
• Location Quotient Technique
• Minimum Requirement Technique

4. Economic Base Theory

5. Economic Base Theory
5
Basic
sector
Non-basic
sector
• focuses on
export, services
outside the
region
• services and
activities more
local in nature

6. • Non-basic industries
provide supports to
the basic industries
6
The key idea is that …
• Basic industries are
exporting goods from
the region, and
therefore bringing
wealth from outside

7. Basic Sectors
• Made up of local businesses (firms) that are entirely
dependent upon external factors.
• Examples:
– car manufacturing plant, oil and gas industry, large,
commercial oil palm plantations, logging and mining
industries
• These industries don’t sell the products to their
friends, family or neighbours – but elsewhere
• These industries depend almost entirely on non-local
firms
• Primarily for EXPORT

8. Non-Basic Sector
• Comprises of those firms that depend largely
upon local business conditions.
• For example, a local supermarket sells its
goods to local households, businesses, and
individuals. Its clientele is locally based and,
therefore, its products are consumed locally.
• Same goes to bars and restaurants,
laundromart, photocopying service, tailoring
businesses, informal traders ….

9. A simplistic categorisation
• Arbitrarily:
– All manufacturing industry = basic.
– All services industry = non-basic.

10. Note:
• Because of data problems, it is not practical to
study industry output and trade flows to and
from a region.
• As an alternative, the concepts of basic and
non-basic are operationalised using
employment data.
10

11. Economic Base Theory
• Definition of Development: A quantitative increase in
the rate of growth of output (products), income, or
employment
• assumes that the basic sector is the prime
cause of local economic growth, i.e. it is the
economic base of the local economy
• WHY?????

12. • Methodologically, economic base analysis views
the region as if it were a small nation and uses
notions of relative and comparative advantage
from international trade theory
http://www.abc.net.au/news/2014-04-14/study-
warns-carmakers'-exit-could-see-200,000-jobs-
lost/5389682
http://www.bbc.com/news/uk-scotland-scotland-
business-36491937
12

13. EBT & Development
• local economy is strongest when it develops those
economic sectors that are not closely tied to the
local economy.
• The rationale of the theory: Inflow of money will
bring income to the region. This will increase
demand for product and services – which lead to
increase need of non-basic product / local services.
• Essential Dynamic: External demand for a region’s
products drives the local economy; Economic base
multiplier effects

14. Multiplier Effect
Example:
The creation of another 2000 jobs in the basic industry will create in
total 3600 jobs (2000 x 1.8). Which means that the increase of
2000 jobs in the basic industry have actually created another 1600
additional jobs in the non-basic industry.
Therefore, the total number of jobs in the region is given
(45,000 + 3600) = 48,600 jobs.
14
Total employment in the basic & non-basic industry
Total employment in the basic industry
25,000 + 20,000 = 45,000 = 1.8 (multiplier)
25,000 25,000
Multiplier, k =
k =

15. Multiplier Effects
• Say, the multiplier effect, k = 1.8
• It meant that for every 1 basic sector job,
there is 0.8 non-basic sector job created.
• Or, for every 10 basic sector jobs, another 8
non-basic sector jobs are created

16. Example:
• UNIMAS as a basic industry and its serves beyond the
boundary of Samarahan & Kuching.
• Started with 118 students (in 1992), to over 10,000
students now studying in UNIMAS.
• The spending and demand of daily goods from the
shops in Samarahan - needs the shop owners and
workers to put more stocks on the shelves.
• As the demand grows, local businesses also increase.
• Businesses employ more workers – so growing number
of non-basic employment in Kota Samarahan

17. Strength of Economic Base Theory
• Very simple to apply;
• Data available to measure these changes;
• VERY popular theory ;
• Good for short-term prediction;
Identifies/Emphasizes the importance of most
critical local industries

18. Weaknesses of EBT
• Overemphasis on the basic sector;
• Only indirectly points to the need to develop
the non-basic sector;
• Arbitrary distinction between basic and non-
basic;
• Does not recognize that regional economies
are an “integrated whole of mutually
dependant activities”

19. Application of Economic Base Theory
• Industrial recruitment and promotion;
• Facilitate expansion of existing export
industries;
• Improve efficiency of the export economy
through infrastructure upgrades;
• Use of economic base analytical techniques
(LQ, Shift-share, Base Multipliers, etc.)

20. EBT: points to remember!
• Basic Industry – the activity of exporting products outside the
boundary of the regional economic of a community (“agent of
change” in multiplier effects on regional economy)
• Non-basic Industry – the activity of provide materials or
services to meet the need of the community inside the
economic boundary

21. Location Quotient Technique
(Hasil Bahagi Lokasi)

22. • a statistical measure of concentration, used to
calculate the specialty of an industry in a region.
• Using the ratio between an industry operating in
the region with the same industry in the country.
•LQ = a ratio that compares the concentration of a
resource or activity (e.g. employment) in a defined
area to that of a larger area or base. E.g. to compare
State employment by industry to that of a nation
Location Quotient Technique

23. The formula:
LQ = % regional workforce in Industry A
% nation workforce in Industry A
To interpret the value of LQ:
IF LQ >1 (Basic Industry): basic activities or export
& additional workers are more than what is needed
to achieve LQ=1; Basic industry providing service for
export
IF LQ <1 (Non-basic Industry):

24. Industry W/F in region
(%)
W/F State (%) LQ Basic W/F (%)
Agriculture 16 6
Food 12 20
Engineering 22 14
Textile 8 15
Services 42 45
Total 100 100
LQ = % regional workforce in Industry A
% nation workforce in Industry A
Identify the basic industry.
Explain your selection
Calculate the Location Quotient (LQ)

25. Industry W/F in region
(%)
W/F State (%) LQ Basic W/F (%)
Agriculture 16 6 2.67 10
Food 12 20 0.6 -
Engineering 22 14 1.57 8
Textile 8 15 0.53 -
Services 42 45 0.93 -
Total 100 100 - 18
Basic Workforce – the extra work force in the regional industry as
compared to the state workforce [Region W/F – State W/F]
Meaning: The amount of workforce used to produce enough
product for export outside the region.
The Solution…

26. (i) What can you conclude from the previous
example?
(ii) How can that information be used in making
planning decision?
Group exercise – 5 minutes

27. MINIMUM REQUIREMENT
TECHNIQUES

28. Minimum Requirements Technique
• compares local conditions with those of a sample of
similarly sized regions for each industry
• Assumes that the minimum share region has just
enough employment to satisfy local demand for that
industry’s goods & services
• It follows that all other regions will have some basic
sector employment because their share in the
industry is greater than that in the “minimum shares
regions”

29. Steps in Minimum Requirement
1. Identify several similarly sized region for
comparison
2. Identify a “minimum shares region” for each
industry to determine the necessary level of
non-basic employment for each industry for
these regions
3. Calculate basic sector employment from this
minimum shares region

30. Industry
% w/f at
study region
Regions Minimum
require-
ment
Basic work
force
A B Z
Agriculture 14 2 8 14
Food 12 16 21 23
Engineering 16 10 16 11
Textile 12 24 17 6
Services 46 48 38 46
Total a = 100 100 100 100
3. Minimum Requirement Technique

31. Industry
% w/f at
study region
Regions Minimum
require-
ment
Basic work
force
A B Z
Agriculture 14 2 8 14 2 12
Food 12 16 21 23 12 -
Engineering 16 10 16 11 10 6
Textile 12 24 17 6 6 6
Services 46 48 38 46 38 8
Total a = 100 100 100 100 68 b =32
3. Minimum Requirement Technique
Multiplier, k = a/b… Calculate!
Q: What is the regional income if export value increases by £2000?

32. Steps for solving the question
1. Find the k-value (i.e. multiplier value) = 3.125
2. Then use the k value to determine the
changes
– Increase by $2000, so the total increase = $6250
3. Conclusion is that:
– An increase of S2000 in export value (i.e. basic
sector) increases the income to $6250
– So, $2000 increase in basic sector is also
corresponding to an increase of $4250 in non-
basic sector income
32

33. Min Requirement: Important to remember
• Criteria for selection of region: comparison
areas will not be precisely match with the
selected region
• Criteria use – size (not only referring to
population)- what else?
• Identifying minimum share regions

34. Summary: Methods & Technique (S/Term
Changes)
• EBT – categorized the economy into basic and non-basic
sector
• Use multiplier effects in calculating the growth or
changes
• LQ – uses local conditions and national conditions to
determine the levels of employment in basic & non-
basic sector
• Min Requirements Technique – compares local
conditions with other regions (of similar size &
characteristics)