When the mill shuts down: A test of the economic base hypothesis in the small forest communities of Southeast Alaska

The impact of changing timber-related economic activity in a local community on other local activity and the general economic health of the community at large has been a persistent and often contentious issue in debates surrounding forest policy decisions. The economic base hypothesis, in which changes in local export-related economic activity are assumed to be causally prior and positively linked to changes in economic activity serving local demand, constitutes a common conceptual framework for understanding impacts resulting from forest policy decisions. This hypothesis, as codified in static models of local impact processes, likewise forms the basis for many of the models commonly used to provide quantified estimates of expected local impacts under different policy options.; This study uses community specific, time series employment data to test the economic base hypothesis in the small, semi-isolated communities of Southeast Alaska. Estimates of the relationship between basic and nonbasic employment were derived for each of fourteen communities using time-series regression techniques. Study results indicate the failure to reject the null hypothesis of no relationship on average for the communities in the sample. In other words, export-related activity was not found to cause changes in economic activity serving local demand for the average community. However, the results also indicated statistically significant heterogeneity in the response of individual communities to shocks in export-related activity. The implications of these results for policy, and for the theory and practice of modeling economic impacts at small spatial scales, are explored in the final sections of this study. Specifically, the presence of secondary economic impacts cannot be taken as foregone conclusion in policy analysis, and the fundamental assumptions of static impact modeling approaches deserve greater scrutiny.