Location Quotient: Defined

April, 2015

by: Larry Burkhardt, CEcD
Executive Vice President
Fox Cities Regional Partnership

A location quotient (LQ) is a measure used by economic developers and others to assess the strength of a particular industry sector within a specific geographic area.  When understood appropriately, it can be used as an indicator, providing information that can be helpful in developing economic and community development strategies to either build on strengths or to address weaknesses.  As a snapshot in time, a location quotient provides a quick overview of how well matched an area appears to be for certain business activities.

Very simply, a location quotient serves as an index that measures the prevalence of a specific economic activity or sector when compared to a national average.  In all cases, that national average is quantified as 1.00.

If we examine the Fox Cities, we find that the location quotient for Manufacturing is 2.50.  This means that there is two and one-half times the amount of manufacturing activity occurring within the Fox Cities than the national average.  The immediate conclusion drawn is that the Fox Cities region is clearly a powerhouse for manufacturing–especially when compared to the rest of the country.

Conversely, the location quotient for the Professional, Scientific and Technical Services sector in the Fox Cities is 0.49–meaning that we have approximately half the amount of that activity occurring here when compared to the national average.  This information could serve as the impetus to learn why the Fox Cities lags behind the national average in that sector, and to structure a strategy to develop a more attractive business environment that could be used to sustain a greater presence of that business group.