Ranking Local Economies: How Do Primary Employers Shape America’s Economic Landscape

Earlier this week, I stumbled upon an article titled Australia has become lazy. We rested on our laurels which led me to explore the Country & Product Complexity Rankings from the Harvard Growth Lab. These rankings offer a fascinating insight into the current state of a country’s productive knowledge, as measured by the Economic Complexity Index (ECI).

The ECI assesses how diversified and complex a country’s exports are. Essentially, it measures the sophistication of what a country is capable of producing and exporting. Countries that score higher on the ECI typically have economies that are capable of producing a wide range of complex products, indicating a deep and broad base of productive knowledge. Improving a country’s ECI means expanding the diversity and complexity of its exports, moving from simpler products to more sophisticated ones.

It got me thinking about the role of exporting in the United States. While exporting might not be a dominant component of the overall U.S. economy, contributing only a small fraction to the total GDP, it is crucial to many local economies. This importance is often seen through the lens of primary employers—businesses that generate goods or services primarily for markets outside their local area. These companies effectively bring in external income, which then circulates within the local economy.

The influence of primary employers is significant. The revenue they generate from exports sustains not just their own operations but also supports a wide array of secondary businesses—ranging from local suppliers to retail stores and services—thereby bolstering the broader local economy.

But this raises an intriguing question: Could we build a model to rank every city, town, county, and state based on the influence of these primary employers and their impact on the local economy through exports?

Let’s think about it. Such a model would need to consider various factors:

1. Export Volume and Diversity: The starting point would be to measure the volume and diversity of exports produced by primary employers in each area. This would involve analyzing the types of goods and services exported, the number of different industries represented, and the overall value of these exports.
2. Local Economic Multipliers: Next, the model would need to account for the multiplier effect of these exports on the local economy. This includes assessing how much each dollar of export revenue contributes to local secondary businesses, employment, and income levels. The greater the local economic impact, the higher the ranking.
3. Economic Complexity: We could incorporate the Economic Complexity Index (ECI) or a similar metric at the regional level, considering how sophisticated and diversified the local economy is. Regions that produce more complex and higher-value exports would rank higher, reflecting a more robust and resilient economy.
4. Employment Data: Analyzing employment data would help us understand the proportion of jobs supported by primary employers and the overall stability of the local workforce. Regions with a high dependency on exports for employment would be particularly interesting to study.
5. Local Economic Health Indicators: These could include metrics like income growth, poverty rates, and business formation rates. By comparing these indicators with the presence and strength of primary employers, the model could highlight regions where exports are driving positive economic outcomes.
6. Geographic and Demographic Factors: Finally, it would be essential to consider geographic and demographic factors, such as population density, urbanization, and infrastructure quality. These factors can influence how effectively export-driven growth translates into local economic prosperity.

Is it feasible?

The answer is potentially yes, but it would require substantial data gathering and analysis. We’d need access to detailed export data at a granular level, as well as economic, employment, and demographic statistics for every region in the country. Additionally, developing a methodology to accurately measure and compare the local economic impact of exports across such diverse regions would be challenging but not impossible.

The potential impact of such a model could be transformative. By identifying the regions where exports are most effectively driving economic growth, policymakers, businesses, and economic developers could better target investments and strategies to boost local economies.

It might even reveal unexpected “hidden gems”—small towns or counties where primary employers are punching above their weight, contributing more to the local and national economy than previously recognized.

Republished from the Econ Dev Show.