The Importance of Integrating Supply-Side Factors in Economic Base Models

Economic base (or export-base) theory (EBT) is often presented as a Keynesian-inspired theory that only accounts for demand-side factors. However, the recent integration of supply-side factors into economic base models (EBMs) can contribute to renewing applications of this type of model in regional economics. This paper proposes a literature review focused on new EBMs that explicitly take into account supply effects and includes both North American and European studies. It first explains why integrating supply-side factors is relevant for EBMs. Second, the paper shows how to integrate these supply-side factors into the various types of models, focusing on two production factors: land and its amenities and labor. Third, the paper discusses the conditions for integrating such supply-side factors into EBMs.