location quotion

7/29/2019 Location Quotion

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Location-QuotientAnalysis and

Porters ClusterIdentification Chart

EconomicBasedTheory

UrbanPlanning


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Introduction:

Location-Quotient (LQ) is a method toanalyse a regions economic condition.

The main functions are:

i. to identify the main

(specialized/core/basic) economic

sectors of a region,ii. to evaluate condition of each

economic sector (Strong &

Growing, Weak & Growing, Strong

but Declining, or Weak and

Declining)

iii. to evaluate the impact of new

investment or development.

Location-Quotients Formula

Definition:

LQ is the ratio of an industry share of local

economy, compared to a largerregion

(referenced region) economy.

Ex. A state economy compared to its

nation/contry (referenced) economy.

WNSR


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Economic Based Theory & Interpretation of LQ

LQ Interpretation

Industries with:

LQs > 1 (Basic Industries, Exporter, Specialized)

LQs < 1 (Non-Basic Industries, Importer)

LQs = 1 (Non-Basic Industries, Self-Sufficient)

Economic Base Theory

LQ model is outlined based on the

principles accepted in Economic

Based Theory.

This theory assume that alleconomic activities can be

categorized either as basic or non-

basic sector.

Local economic strength and

growth very much depend on its

basic sectors. Basic sectors (exports)are the engine of a region

economic growth. Thus, any

development of basic sector will

also catalyst or have spill over effect

on non-basic sectors.


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Measurements and Assumptions of Location Quotient

Location-Quotient Data used for

measurement:

Employment Number (Frequently and

traditional)

Sectoral Revenue/ Income/Salary

Sectoral Investment

Sectoral Gross Domestic Product (GDP)

Sectoral output/product produced

Sectoral impact

Intangiblevalue

Total Economy = Basic + Non-Basic

Advantage & Disadvantage of LQUnlike Input-Output Model, LQ Model unable to

explain detail resources transaction between

industries, government and end users in a region.

However, LQ have advantages of not requiring

complex data but still able to briefly explain

economic structure of a region and easier

to be understand.


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LQ Analysis and Employment Data

Location-Quotients Formula

Given are number of employment based oneconomic sectors of District i and State j on

2000 and 2010. Based on these data:

i. Determine core (basic) andsupporting

(non-basic) economic sector for District i

in year2010.

ii. Analyze the condition of each economicsector, whethergrowing or declining in

year 2010, and discuss possible

mitigation actions for each sector.

iii. Calculate the basedmultiplierfor District

i in 2010, and what is the effectif there

are new investment that create 10000new employment in service sector?

iv. Why economic analysis is important for

planner in planning an urban area?

(10 carry marks)* Make your answer straight forward and discussions as

comprehensive as possible, Submit on the following week.

Economic Sector

Employment Number (000')

District i State j

2000 2010 2000 2010

Services 24 29 84 100

Manufacturing 30 47 102 125

Mining 9 7 52 52

Forestry 6 17 40 81

Total Employment 69 101 278 357


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Qi: STEP 1 : Apply the LQ formula

1. Add a new column named LQ 2010 into the data

table.

2. Apply the LQ formula as given just for 2010 data as

required in question.

i. Determine core (basic) and supporting (non-basic) economic sector for District i in

year 2010.


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Qi: STEP 2: Deter Basic and Non-Basic Sectors

1. Based on the LQ value calculated, categorized each

sectors into the below categorization:

LQs > 1 (Basic Industries, Exporter, Specialized)

LQs < 1 (Non-Basic Industries, Importer)

LQs = 1 (Non-Basic Industries, Self-Sufficient)

Answer Qi:

Services and Manufacturing with LQ

value more than 1.00 are the Basic or

Core Economic sectors for District i

with export based, while Mining and

Forestry are both Non-Basic.


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ii. Analyze the condition of each economic sector, whether growing or declining in year

2010.

Qii: STEP 1 : Calculate LQ of year tand t-1

1. Add a new column named LQ 2000 into the data table.

2. Apply the LQ formula to calculate LQ value of each

sector for year 2000.

3. Deter whether they are Basic or a non-basic sector.


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Qii: STEP 2 : Calculate Differences in LQ2000 and LQ2010

1. Calculate LQ for each sector for both year t and t-1 which respectively year 2010 and 2000.

2. Next, calculate the differences in value of LQ2000 and LQ2010 by using the following formula:

LQ2010-2000 = LQ2010 - LQ2000

3. Negative value shows negative growth, while positive value show positive growth for

respective sectors.


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Qii: STEP 3 : Porters Cluster Identification Chart

1. Based on calculation in Step 2, construct a Porters Cluster Identification Chart to identify

whether an industry is in state ofStong and Growing, Strong butDeclining, Weak butGrowing,

or Weak and Declining.

Source: S.Deller (2010)


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Qii: STEP 4 : Constructing Porters Cluster Identification Chart

1. To constuct Porters Chart in Microsoft Excel, select the Insert Tab > Others Chart > Bubble

Chart.


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1. For Series X Value, select columnLQ2010.

2. For Series Y Value, select column LQ2010-2000.

3. For Series Buble Size, select column No. of Employment of District ion 2010.


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1. Under Chart Tools > Layout > Axes > Primary Horizontal Axis > Option.

2. Under Vertical Axis Crosses > Axis Value = 1.0


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Answer Qii: Intrepertation of Porters Cluster Identification Chart

1. Based on the Porters Chart plotted for District i, Manufacturing is identified as a strong and

growing industry in the future, Services Industry is strong but Declining, Forestry is weak but

growing, while Mining Industry in District i is weak and continuing to decline from year 2000 to

2010 and expected to continue declining. ++ Discussions on mitigation actions for each sector

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-0.15

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-0.05

0.00

0.05

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0.00 0.50 1.00 1.50 2.00LQ

LQ Changes

Manufacturing

ServicesMining

Forestry


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Possible Actions to be Taken

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-0.15

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-0.05

0.00

0.05

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0.00 0.50 1.00 1.50 2.00LQ

LQ Changes

Manufacturing

ServicesMining

Forestry


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iii. Calculate the based multiplier for District i in 2010 and what is the effect if there are

new investments that create 10 (000) new employment in service sector in year 2010?

Qiii: Finding Impact of a new investment to regional economy.

1. Based on the above formula, multiplier for District i in year 2010 is 1.32. Which means, for every

1 new employment in Basic sector, will generate 0.32 (1.32-1.00) new employment in Non-Basic

Sectors.


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Answer Qiii: Impact of 10,000 new employments in Service (Basic) sector.

In year 2010, 10,000 new employment in the Service (Basic) sectors, have trigger another 3,246

new employments in total in other non-basic sectors due to multiplier and economic spill over

effect. Resulting in total of 13,246 new employments created in District idue to the new investment

in year 2010.

Thus,

TotalNewEmployment2010 = New Basic + New Non-Basic= 10,000 + 3246

= 13246


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Book

Wang, X. & Hofe, R.V. ,(2007) Research Methods in Urban and Regional Planning. Springer Berlin Heidelberg,

New York. ISBN 978-3-540-49657-1.

Article

S.Deller. (2010) Location-Quotients and TRED. University of Wisconsin. Obtain from

http://nercrd/psu.edu/TRED/index.htmlon April 2012.

Excel

Maria Langer (1999) Excel 2000 for Windows; Visual Quick Start Guide, Peachpit Press (HF 5548.4 M523 L36

1999 c.1) 15

Palani Murugappan (2002) EXCEL; Functions for the daily serve, Venton publishing (HF 5548.4. M523 P36

2002 c.1)

THANK YOU
http://nercrd/psu.edu/TRED/index.htmlhttp://nercrd/psu.edu/TRED/index.html


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When LQ = 1 (Self-Sufficiency) the local economy is the same as the share of that industry inthe national economy

--In this situation, a given industrys share of.

--Local production is assumed to bejust sufficient to meet local demand, so all of theemployment in this industry is considered Non-Basic.

When LQ < 1 (Net Imports)

--In this situation, a given industrys share of the local economy is less than the share of thatindustry in the national economy.

--Local production is assumed to be insufficient to meet local demand, so all of thisemployment is considered Non-Basic.

When LQ > 1 (Net Exports)

--In this situation, a given industrys share of the local economy is greater than the share of

that industry in the national economy.--Local employment is concentrated in these industries (relative to the nation) and istherefore assumed to exceed local demandand any excess production is exported.

--With an LQ > 1, that proportion of the industry that accounts for this excess production isconsidered Basic Employment.

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