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Traditional Economic Impact: Universities as an Economic Base Industry

Universities economically impact their communities through their spending for goods and services, and by the expenditures of their employees, students and visitors. Based on a survey of the literature, most “impact” reports circulated by universities have concentrated on these traditional economic impacts.

To understand the growth and decline of regions, economists find it useful to divide a region’s economic activities into two groups. Basic activities satisfy demands from outside the region and generate export income that can be used to pay for the region’s imports. Nonbasic activities exist to supply goods and services to local residents. Basic activities are a region’s economic raison d’être, i.e., its economic base. Nonbasic activities are derived from that base and grow or shrink depending on the performance of basic industries.

Traditional basic activities include agriculture, mining, most manufacturing, and tourism. Some service industries are wholly or partially basic. In contrast, retail trade, construction and most services are largely nonbasic. From the perspective of an entire state, colleges and universities are partially basic, to the extent that they receive funding from nonlocal sources, such as out-of-state students and federal research grants.