Measures such as Gross Regional Product (GRP), location quotient, shift share, and social accounting economic base provide information to compare economic performance. They also highlight areas of regional strength.
The location quotient (LQ) helps identify exporting and importing industries based on national averages. An exporting industry is one where the industry not only meets the local demand for its products, but also produces enough so it can sell outside of the region. An importing industry is one where local production levels are insufficient to meet local demand. When interpreting the data, a location quotient greater than 1.0 indicates that the economy is self-sufficient, and may even be exporting the good or service of that particular industry. (As a rule of thumb, a location quotient greater than 1.25 almost certainly identifies exporting industries.) The presence of an exporting industry often indicates a local competitive advantage On the other hand, a location quotient less than 1.0 suggests that the region tends to import the good or service. (The applicable rule of thumb is that a location quotient less than 0.75 indicates an importing industry.) The image below can assist with evaluating the location quotient bubble chart.
Questions to ask of the data…
What is the major exporting industry in your community?
Compared to other regions, does the community seem highly dependent on any particular industry? How might this dependence be problematic? Or, is this dependence a strength?
Are there any obvious relationships between industries with high location quotients and other sectors of the local economy? For example, an exporting industry might be highly dependent on other local businesses for important inputs.
Does this information support popular perceptions? Or, does the analysis uncover surprising areas of economic strength?
Does the analysis reveal any potential opportunities to substitute local production for imports?