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commodities that were competitively priced for markets outside the region).
Accordingly, he divided the regional economy into two sectors: the export (basic)
sector and the residentiary (nonbasic) sector. While the export sector produced
goods and services for the rest of the world, the residentiary sector served the
regional market. But the fate of the residentiary sector depended on the success of
the export sector. He presumed that capital and labor were mobile.
Tiebout did not dispute North's fundamental line of reasoning, but he thought
that the theory was incomplete. Tiebout argued that there was more to regional
economic growth than exports. He said that understanding regional economies, like
understanding the national economy, required a broad theory of income determi-
nation. He further believed that there were autonomous aspects to the regional
growth process, for example the construction of a federal military installation.
Tiebout also contended that the size of the region was a factor in its growth. As
the regional economy expanded, economies of scale permitted import substitution,
which he viewed as a second path to growth. He maintained that the residentiary
sector did not play a purely passive role in the growth process. For example, the
efficiency of the nonbasic sector, including local government, was critical to the
region's economic competitiveness in national and world markets. Finally, Tiebout
believed that there was no “ideal region,” a geographical area in which business,
households, and government operated as a “unified economy.”
While North and Tiebout did not resolve all of their differences, they did agree
on the fundamental principles of the economic base theory:
1. A regional economy can be divided into two sectors, one producing exports
(basic sector) and the other producing goods and services for the local market
(nonbasic sector).
2. Export growth, bringing money into the region, causes an expansion of the
nonbasic sector through a multiplier (respending) process.
3. A stable relationship exists between the basic and nonbasic sectors.
4. Labor and capital are mobile.
Expressed mathematically, the output variant of the economic base model is
given by
X
total
¼
X
nonbasic
þ
X
basic
X
nonbasic
¼
rX
total
Þ
1
X
basic
or
X
total
¼
ð
1
r
Þ
1
X
total
¼
ð
1
r
X
basic
Δ
Δ
r)
1
is the output multiplier. The solution equation (the third equation) of
the economic base model is similar to the solution equation of a multi-sector input-
output model.
where (1
