Financial and Transfer Income as Components of the Regional Economic Base

Authors:

Robert Manduca, University of Michigan, Ann Arbor

Abstract:

Economists and geographers have long divided industries into “basic” and “nonbasic” sectors depending on whether they bring money into a region from outside or serve local demand. Traditionally, the regional economic base has been defined as traded industries that export to other regions and countries. However, traded industries are only one way in which money enters a regional economy. Here I show that two other sources, government transfers and financial income, form a major component of the basic sector in the United States. In 2022, transfers accounted for more than 40% of the economic base of US regions, while financial income contributed another 26%—each more than traded industry earnings, which contributed just 24%. In some parts of the United States, especially retirement destinations, transfers and financial income make up more than 90% of the basic sector. The role of transfers grew over the period 2001-2022, while that of traded industry earnings declined.