Location Quotients

Location quotients are a simple, widely used technique, primarily in economic geography, to measure how specialized the structure of the economy of a given study region is in comparison with a reference region (typically the country). They compare regional structural composition with that of the reference region by assessing an industry's share of a total regional economy relative to its share nationally. Usually, location quotients use employment data, although they can be used with any other kind of relevant information, such as output. Thus, in its simplest terms, a location quotient (LQ) can be defined as

In mathematical terms,

where

eir = employment in industry i in region r,

etr = total employment in region r,

eib = employment in industry i in reference region b, and

etb = total employment in reference region b.

For example, to compare how specialized the economy of New York City is in banking in relation to that of the United States (base region), say that we are given the following hypothetical data:

eb,ny = Employment in banking in New York City = 350,000.

et,ny = Total employment in New York City = 3,000,000.

eb,us = Employment in banking in the United States = 12,000,000.

et,us = Total employment in the United States = 120,000,000.

Thus, New York's location quotient in banking would be

And the location quotient in banking for the United States would be

Thus, New York City's location quotient in banking indicates that it is more specialized (by 16%) in this industry than is the country as a whole.

A location quotient greater than unity indicates that the region is more specialized in a particular industry than is the country and is likely exporting the output of the industry; that is, it reflects a comparative advantage or economic base. Employment in excess of that necessary to yield a location quotient of 1.0 is assumed to be driven by regional exports; high location quotients are thus associated with economic multiplier effects. A quotient equal to 1.0 indicates that the region and the country are equally specialized; that is, the region is neither importing nor exporting output in that sector. A quotient less than 1.0 indicates a region that is less specialized than is the country; that is, its degree of specialization is unlikely to meet local demand, and it is likely importing output in the industry. Obviously, if regions are more specialized in some sectors (LQ > 1.0), they will be less specialized in others (LQ < 1.0). The choice of reference region (e.g., a county vs. state or country) is important, for it can affect the outcome significantly. Such an approach assumes that local productivity equals that of the country as a whole; if the region enjoys a comparative advantage in the industry under question, it may be more productive than the country as a whole.

Location quotients can be mapped at a variety of spatial scales and over time to yield a simple portrait of how regional diversity and complexity change geographically and temporally. Maps of comparative advantage, for example, use location quotients. Obviously, such a measure is relatively crude, and more sophisticated measures of regional specialization exist. Nonetheless, location quotients are widely used in many urban planning and economic analysis circles because they yield a convenient and readily understandable portrait of regional specialization.

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