In economic base analysis, what does the ratio indicate when it is less than one?

• A. It indicates exporting
• B. It indicates balanced trade
• C. It indicates importing
• D. It indicates growth

Answer: (C)

In economic base analysis, you split the local economy into basic (export-oriented) activities and nonbasic (local-serving) activities. The ratio compares the size of the local-serving sector to the export sector. When this ratio is less than one, the basic (export) sector is larger than the nonbasic (local-serving) sector, which signals that the region relies on outside production to meet its local needs. In other words, local demand is largely satisfied by goods and services imported from elsewhere, so the area is characterized as importing. This is not describing growth or a balanced trade situation; it’s about the local structure: a smaller local-serving share relative to exports points to imports being a bigger component of the economy.