April 1995 // Volume 33 // Number 2 // Ideas at Work // 2IAW2
Measuring Local Economic Development with Pull Factors
Pull factors can provide Extension professionals with an easily calculated tool to assist communitites in gauging their economic health. Using a simple ratio formula and data readily available from the census or state agencies, pull factors provide a snapshot of a community's economic condition. Data obtained by the analysis can assist communities to develop action plans to improve local conditions.
How do we determine the health of a local economy? Local, state, and national economists constantly analyze the overall economy and create a variety of statistical measures such as unemployment and inflation rates. Another measure, pull factors may provide a useful tool for Extension professionals and community leaders and can be calculated by Extension agents with readily available data.
Pull factors are ratios used to estimate the proportion of local sales that is captured by the community as compared to the state or nation. A pull factor greater than one indicates that the local capture of expenditures exceeds the state or national average, while a pull factor less than one indicates that a lower percentage of local dollars are captured.
Calculation of pull factors is very simple and can easily be computerized using any spreadsheet program. Data needed include total sales or sales taxes for the state and for the sub-state regions being calculated (county, parish, township, etc) and population figures for the state and the same smaller areas described above. The formula for calculating pull factors is:
Local sales or sales tax ------------------------ Local population Pull Factor = _____________________________ State sales or sales tax ------------------------ State population
Data for calculating the pull factor can be obtained from state or local tax authorities, census data repositories, planning agencies, or libraries. It is important to remember that any pull factor represents only a snapshot view of the economy. The pull factor for any specific time period may be influenced by temporary distortions of the local economy such as relocations of or strikes by a major employer. For these reasons, it may be more advisable to collect data for several years, calculate the factors for each year and look for long-term trends.
Pull factors increasing over time would indicate that the local area is becoming more efficient at competing for local retail sales. Decreasing pull factors would indicate that the local business community is losing sales to outside areas.
The basic pull factor can be modified by the addition of variables such as per capita income. Addition of per capita income, based on Ohio data, tends to lower the factors of communities well above one and to raise the factors of communities with very low pull factors.
Several Ohio communities have used pull factors in the "Take Charge: Empowering Local Communities for Economic Development in the 1990"s" program. "Take Charge" is designed to enable leaders, decision makers, and residents in local communities to face the future. The pull factor data are provided as a part of a detailed demographic profile for the area used to help communities understand current economic conditions for the region.
By reviewing and understanding current conditions, community leaders are better able to develop short- and long-term development strategies and gain a vision of their future. Knowing how well communities capture the routine expenditures of their citizens helps the community analyze its strengths and weaknesses and choose the most appropriate development strategy. For example, a community with a low pull factor could analyze reasons for the low purchases of its citizens and make a conscious effort to attract additional retailers to its area. Extension community development agents may find pull factors an easily calculated, readily understood, and useful tool in exploring the health of the local economy with local leaders.