Formulation and application of a multi-variable location quotient index in the Mpumalanga Province, South Africa

Abstract

Leading regions drive economic growth and development, and it is important to determine which sectors are driving growth. Leading sectors need to be supported while lagging sectors need to be guided towards growth. The location quotient method has been used as a regional economic development measurement tool using a single variable, mostly employment data. This paper aims to formulate and apply a multi-variable location quotient index (MVLQI), which includes four variables, allowing for a more comprehensive and consistent model. A new formula was developed as part of the methodology, and a classification matrix and index coefficient values were categorised. The new model was tested and applied in the Mpumalanga Province, South Africa, between 2012 and 2017. A normal index was calculated for both years and a dynamic index based on the four variables included in the model. The study’s contribution is that the outcomes from the MVLQI provide analysts with more comprehensive and consistent results for economic strategy development. The new MVLQI could be used with success in regional economic analysis in identifying sectors with high levels of concentration, comparative advantage and calculation of multipliers.