Location Quotient

The location quotient formula allows economists to calculate whether a region is employing enough workers in each sector as put up against a national economy.

When the Location quotient = 1 that means the employment is equal in the sector for the national and regional economy. Therefore the sector is non-basic and supply is just equal to demand.

If LQ < 1, The output is not sufficient to meet the local demand and imports are needed. It is also non-basic.

If LQ > 1 the output is more than sufficient to meet the local demand and exporting the surplus is an option. It is basic.

The formula is as follows, and an example is in the excel file:LQ tutorial

How to Calculate a Location Quotient

 

LQi = (ei/e) / (Ei/E)
where,
LQi =  location quotient for sector in the regional economy
ei =  employment in sector i in the regional economy
e =  total employment in the local region
Ei =  employment in industry i in the national economy
E =  total employment in the national economy