Further evidence of a short-run economic base multiplier

Abstract

Economic base theorists have long debated whether the economic base multiplier occurs rapidly in the short-run or requires a longer period to filter down. This paper provides further statistical evidence that the base multiplier is a short-run phenomenon. Spectral analysis and a cross-correlation function were used to compare two weighted activity indexes representing the basic industries and the nonbasic industries. The activity employment index representing the basic sector was found to lead the weighted payroll activity index for the nonbasic sector by one quarter. The employment index revealed a high cross-correlation when it lead a personal income index by two quarters. The results are important when considering the number of state and federal agencies which utilize an economic base analysis.