Constructing Economic Base Models or Developing Countries: Lessons from a Case Study in Panama

The location quotient is a popular indirect method for the estimation of regional export activity. The appeal of the technique has extended to developing countries, but very little effort has been made to test, on empirical grounds, whether the extension is warranted. This article uses a region in Panama to examine the problems and limitations of estimating basic employment. Results from a survey of industries indicate that corrections to the standard formulation of the quotient are necessary and that shortcuts in the construction of the economic base model should be avoided.