Question

Businesses cannot always be easily associated with either basic (export industries that bring external money in) or nonbasic (goods and services for the local population that recirculate money). Address this complexity in 5-7 sentences as you describe how a policymaker might use the export base framework as they consider providing business incentives to a start-up craft brewery in the economy.

Answer 1

Export base theory suggests how an economy exports goods to other economies and brings money in to the local economy. It takes in to account how the economy chooses its target products for export and its target economy. This theory assumes

• Currency exchange rates may help in development of export of a region
• Additional tax revenue from all the sources: Property, income and sales will cover the additional cost of providing service to the larger populations.
  This is because the export taxes are levied on the goods.
• Assumes that the housing market will accommodate new residents without displacing existing residents who may have fixed incomes.
  This is because; the local economy chooses such target economy for its exports in which there is a huge demand for their product and can hence gain profits.

Craft beer is one of the growing markets in US. After the introduction of craft beer, the sales of other beers have shown a steep decline. This is the reason why many are entering in to craft brewery market. So, entering in to a start-up of craft brewery by export base framework is quite beneficial in both short and long runs.