Nevada disaggregated export-base multipliers were derived to determine if and to what extent non-basic sector income growth was impacted by income growth of selected basic sectors. Results indicate that growth in the Hotel and Gaming Sector is statistically significant and substantially higher than growth in the Other Basic Industries Sector.Community/Rural/Urban Development,

Harris, Thomas R.

Narayanan, Rangesan

English

Research Papers in Economics

  1 
 
 
RELATIONSHIP OF NON-BASIC SECTOR INCOME GROWTH 
 
AND THE GAMING SECTOR 
 
 
Thomas R. Harris 
Rangesan Narayanan 
 
 
 
 
Thomas R. Harris is a Professor in the Department of Applied Economics and Statistics 
and Director of the University Center for Economic Development at University of 
Nevada, Reno.  
 
Rangesan Narayanan is Chair and Professor in the Department of Applied Economics and 
Statistics at University of Nevada, Reno.  
 
Paper presented at the 1999 Western Agricultural Economics Association meeting in 
Fargo, North Dakota, July 11-13, 1999.   2 
 
 
RELATIONSHIP OF NON-BASIC SECTOR INCOME GROWTH 
 
AND THE GAMING SECTOR 
 
ABSTRACT 
 
Nevada disaggregated export-base multipliers were derived to determine if and to what 
extent non-basic sector income growth was impacted by income growth of selected basic 
sectors.  Results indicate that growth in the Hotel and Gaming Sector is statistically 
significant and substantially higher than growth in the Other Basic Industries Sector.  
   3 
RELATIONSHIP OF NON-BASIC SECTOR INCOME GROWTH 
AND THE GAMING SECTOR 
 
Introduction 
 
Gaming related tourism has grown in popularity over the last several years.  Many 
states, small rural communities and Native American Reservations have legalized gaming 
as a means to increase jobs and tax base.  The goal is to increase the number of visitors to 
their community with gaming as the attraction.  
  Increased national interest in legalized gaming may be related to the growth in the 
gaming industry and the growing number of visitors in Nevada over the past ten years.  
The visual perception that Nevada gaming operations have portrayed during this growth 
period, is the ability to generate large pools of employment, income and tax revenue.  
  Table 1 summarizes the legalized gaming activity in the U.S. and territories for 
1996 (International Gaming and Wagering Business).  With the exception of Hawaii and 
Utah, every U.S. state and territory has some form of legalized gaming operating today.  
Bingo, lotteries, pari-mutuels and off-track gaming are the most popular types of gaming.  
Casino gaming, including Native American, riverboat and dockside casinos are currently 
operating or have been authorized to operate in 22 U.S. states and territories.  Twenty 
years ago, only the state of Nevada had legalized casinos.  
  The availability of multiple forms of legalized gaming has grown in popularity 
among state and communities.  Most legalized gaming expansion has occurred in rural 
America during the past decade.  This may be due to the increased pressures to raise 
revenues and sustain the local economy.  However, over the last couple of years, there   4 
has been a surge of opposition that has led to the creation of a National Gambling Impact 
Commission.  This commission is responsible for studying the economic and social 
impacts of legalized gaming.   
  Because of gaming, the economy of Nevada is often depicted as recession proof 
but other researchers have cautioned against this recession proof assumption from the 
1970’s (Cargill).  However with the national recession of 1980-1982 and 1990-1992, 
along with the opening of legalized gambling in Atlantic City and other areas within the 
nation, the state of Nevada has now realized that it is not immune to national business 
cycles.  
  In order to address the changing national gaming industry, the state of Nevada has 
championed economic diversification.  In 1983, the Nevada legislature created the 
Nevada Commission on Economic Development whose primary charge is to steer 
Nevada economic development away from singular industry development, such as 
gaming, to economic development strategies to diversity the state’s economy.  
  However, diversifying a state economy may affect both the stability and the 
economic growth potential.  Prior to the creation of the Nevada Commission on 
Economic Development, no study was conducted to determine the degree to which the 
gaming sector versus other sectors contributed to growth in the state’s economy.  It is 
alleged that significant economic diversification can be achieved by attracting non-
gaming export-base industries to the state and resources are expended for this purpose.  
Since diversification can be achieved both by growth in non-gaming export base industry   5 
or by growth in the non-basic industries, there is no clear economic evidence whether 
such strategy is efficient in achieving the diversification goal.   
 
OVERVIEW OF EXPORT BASE MODELS 
 
In export base theory, it is argued that an economy is divided into two sectors; 
export or basic sector and the non-export sector or non-basic economic sector.  The 
export or basic sector is that portion of the local economy that trades with firms outside 
the local region.  This export trade brings income to the area which according to export-
base theory generates future growth in the local economy.  The non-export or non-basic 
industries sell their products within the local economy and exists to support export or 
basic sector activity.  Therefore, expansion in export or basic economic sector activity 
will likewise increase economic activity in the non-export or non-basic economic sectors.  
  Given a time series of data, the export-base multiplier can be expressed as: 
 (1)  B NB E E β + α =  
where ENB is total non-basic sector income and EB is total basic sector income.  The 
intercept is symbolized by α .  The estimated coefficient β  indicates the change in non-
basic sector income from a change in basic sector income.  By adding one to the 
estimated coefficient or (1 + β ) yields the export-base multiplier; that states the total 
change in income from a change in basic sector income. 
  Differential export multipliers can be derived by disaggregating total export or 
basic sector employment into its industrial components (Braschler).  Also non-export or   6 
non-basic economic sectors can be derived to derive the differential response of different 
non-basic sector to basic sector employment differential changes.  Therefore, the 
differential multiplier can be rewritten as: 
 (2)  e E E i i
n
1 i
NBi + β + α = β
= ∑  
Equation 2 is used to estimate differential income multiplier where 
i NB E  represents non-
basic sector income for sector i; β i represents the impacts of income for non-basic sector i 
by basic sector i; and 
i Eβ  represents basic sector income for sector i.  In order to obtain 
total income multiplier for each basic sector i, one must be added to the coefficient β i in 
equation 2.   
  Using equations 1 and 2, export-base multipliers are based on levels of income 
and therefore average export-base multipliers are derived.  To estimate changes in non-
basic sector income from changes in basic sector income, marginal export-base 
multipliers are derived.  Therefore the marginal differential income multiplier can be 
rewritten as:  
 (3)  e E E
i i i
n
1 i
NB + ∆ β + α = ∆ β
= ∑  
where 
i NB E ∆  represents the change in non-basic sector income for sector i; β i  represents 
the change in income for non-basic sector i and 
i B E ∆  represents change in income in 
basic sector i.  In order to obtain the total marginal employment multiplier for each basic 
sector i, one must be added to the coefficient β i  in equation 3.     7 
  For this analysis, the contributions of the gaming sector to non-basic sector 
growth will require further development of the export-base models as shown in equations 
1, 2 and 3.  Basic and non-basic sector income growth was derived as: 
 (4) 
1 t , i 1 t , i t , i t , i B B B B E / ) E E ( GE
− − − =  
 (5) 
1 t , i 1 t , i t , i t , i NB NB NB NB E / ) E E ( GE
− − − =  
where 
t , i B GE  represents income growth for basic sector i in time period t; 
t , i B E  represents 
income for basic sector in time period t; 
1 t , i B E
−  represents income for basic sector i in time 
period t-1; 
t , i NB GE  represents income growth for non-basic sector i in time period t; 
t , i NB E 
represents income for non-basic sector i in time period t; and 
1 t , i NB E
−  represents income 
for non-basic sector i in time period t-1. 
  For this analysis, the differential growth impacts of income growth in the Hotel 
and Gaming Sector, the Other Basic Sector and Unearned Income Sector on income 
growth in non-basic sector are derived below: 
 (6)  GUI GOB GHG GNB 3 2 1 i β + β + β + α =  
where  i GNB  represents income growth for non-basic sector i, GHG represents income 
growth for the hotel and gaming sector, GOB represents income growth for all other 
basic sectors, GUI represents income growth for unearned income,  1 β  represents the 
response in income growth of the non-basic sector i from income growth in the hotel and 
gaming sector,  2 β  represents the response in income growth of non-basic sector i from 
income growth in other basic sectors and  3 β  represents the response in income growth of   8 
non-basic sector i from income growth in unearned income.  After calculation of these 
response coefficients, statistical test will be performed to determine if responses differ 
between  1 β  and  2 β .  Results will indicate which of the basic sectors influence non-basic 
sector growth the most.  
 
DATA AND CALCULATION OF BASIC SECTOR INCOME 
  For this analysis, annual income data for the state of Nevada was used.  Usually 
employment data is used for export-base analysis, but when available, income data is 
superior.  Employment alone fails to adjust for differences in wages between industries 
and appropriately place an equal weight upon part-time and full-time employment.  Also 
employment cannot provide any measure of the importance that unearned income, such 
as dividends, rents, interest and transfer payments, have upon a county’s economy 
(Blumenfeld).  
  Unearned income, unlike income from wages and salaries, does not require 
physical movement between home and work.  Transfer payments and dividends, interest 
and rents which are sometimes called “unearned income” can be generated in one place 
and received at another (Beyers). 
  Annual sectoral income was calculated from the Regional Economic Information 
System from 1969 to 1995 (U.S. Department of Commerce).  One digit SIC data was 
used except for the Service Sector.  The Service Sector was disaggregated between the 
Hotel and Gaming Sector and the Other Services Sector.  
  For this analysis, sectoral employment had to be bifurcated between basic and   9 
non-basic sectors.  All income for the Hotel and Gaming Sector and the Unearned 
Income Sector was assumed to be basic income while other sectors were bifurcated using 
the dynamic location quotient procedures.  Also because of the uniqueness of transfer 
payments, dividends, interests and rents, a separate basic sector was developed for 
Unearned Income Sector.   
  Location quotient procedures do not assume that the entire income of a given 
sector is either basic or non-basic.  Rather, location quotient procedures employ 
secondary information sources such as national income to bifurcate total sector income.  
Location quotient procedures employed in this paper follow a time-series version 
developed by LeSage and Reed or stated as:   
 (7) 
nt int
rt irt
irt E / E
E / E
LQ =  
where Eirt is income in sector i in region r at time period t; Ert is total income in region r 
at time period t; Eint is national income in sector i in time period t; Ent is total income at 
time period t; and LQirt is location quotient for sector i in region r and time period t.   
  After calculating location quotient values, if LQirt is greater than one, the region is 
said to be producing more than the expected amount of output in that sector.  Hence the 
excess is classified for region r in sector i or 
irt B E .  Therefore, the basic income for region 
r in sector i or 
irt B E  can be given by:  
 (8)    irt
irt
irt
B E
LQ
1 LQ
E
irt
−
=   if LQirt > 1.     10 
The sum of these 
irt B E ’s across all sectors except the Hotel and Gaming Sector and the 
Unearned Income Sector derives Other Basic Sector income.  Non-basic income for 
equation 6 will be derived for the Transportation and Public Utilities Sector; the 
Wholesale Trade Sector; the Retail Trade; the Finance, Insurance and Real Estate Sector; 
and the Other Services Sector.  
RESULTS 
  Table 2 shows results of the analysis.  For the state of Nevada and for the 
industrial sectors, income growth in the Hotel and Gaming Sector has a statistically 
significant impact on income growth on the Non-Basic Sectors and the estimated impacts 
are substantially higher than growth of the Other Basic Sector.  The Unearned Income 
Sector is contributing to Non-Basic Sector growth and should be considered for economic 
development.  However, when comparing industrial sectors non-basic Retail Sector 
income growth is impacted ten times greater by income growth in the Hotel and Gaming 
Sector than income growth of the Other Basic Sector.  For income growth for the Other 
Services Sector, the impact of the Hotel and Gaming Sector is not as large.  However, 
even for this sector, the estimate of the Hotel and Gaming Sector response coefficient is 
significantly larger than the Other Basic Sector.  
  From Table 2, an important result is shown.  The emphasis of the state of Nevada 
to diversify away from the gaming sector should be questioned.  Table 2 shows that the 
Hotel and Gaming Sector is by far the largest contributor to growth in employment in the 
non-basic sectors of the state.  The other basic sectors do contribute, but at a somewhat 
lower rate in terms or percentage and absolute numbers.  The state policy makers may   11 
want to reconsider emphasis away from gaming and focus on additional efforts for the 
state to retain its lead in the industry.  This does not mean the state should entirely move 
away from economic diversification nor does it mean that the state should continue 
economic development activities while ignoring economic linkages and expansion 
opportunities in the gaming sector.  This analysis shows that the effectiveness of public 
expenditures for promoting growth in gaming as opposed to other basic sectors should be 
evaluated in light of the economic linkage indicated by this model’s results to develop an 
appropriate and cost-effective strategy for diversification.    12 
Table 1.  Types of Legalized Gaming in the United States, 1996.  
 
State Bingo  Casinos 
* 
Video 
Lottery 
Lottery 
** 
Pari-
Mutuels 
*** 
Off-Track 
**** 
           
Alabama  X      X  X 
Alaska  X         
Arizona  X  X  X  X  X 
Arkansas        X  X 
California  X     X X X 
Colorado  X  X  X  X  X 
Connecticut  X  X  X  X  X 
Delaware X    I  X     
D.C. X      X     
Florida  X     X X X 
Georgia X      X     
Hawaii           
Idaho  X     X X X 
Illinois  X  X  X  X  X 
Indiana  X I    X X X 
Iowa  X  X  X  X  X 
Kansas  X     X X X 
Kentucky  X     X X X 
Louisiana  X  X  X  X  X 
Maine  X     X X X 
Maryland  X     X X X 
Massachusetts        X X X 
Michigan  X  X  X  X  X 
Minnesota  X  X  X    A 
Mississippi X  X      
Missouri  X  X  X  P  A 
Montana  X  X  X  X  X 
Nebraska  X     X X X 
Nevada  X  X  X  X  X 
New  Hampshire  X     X X X 
New  Jersey X  X  X  X  X 
New Mexico  X  X    I  X  X 
New  York  X  X  X  X  X 
North  Carolina  X         
North Dakota  X  X      X  X 
 
   13 
Table 1.  Types of Legalized Gaming in the United States, 1996.  (continued) 
 
State Bingo  Casinos 
* 
Video 
Lottery 
Lottery 
** 
Pari-
Mutuels 
*** 
Off-Track 
**** 
Ohio  X     X X X 
Oklahoma X      X  X 
Oregon  X  X X X  X  X 
Pennsylvania X     X X X 
Rhode  Island X   X  X X X 
South  Carolina  X         
South  Dakota  X  X X X  X  X 
Tennessee        A  A 
Texas  X     X X X 
Utah        N  
Vermont  X     X X A 
Virginia  X     X A A 
Washington  X  X  X  X  X 
West  Virginia  X   X  X X X 
Wisconsin  X  X  X  X  X 
Wyoming  X      X  X 
Puerto  Rico   X  X  X X X 
Virgin  Islands        X X X 
 
Source:  International Gaming and Wagering Business, September 1996.   
 
X = Legal and Operative 
P = Permitted by law and previously operative 
I = Implemented since June 1995 
A = Authorized, but not yet implemented  
N = Operative, but no pari-mutuel wagering 
 
*   Casinos includes Native American Reservations 
**   Includes Keno, instant pull-tabs, lotto, numbers and passives 
***   Includes greyhounds, jai-alai, harness racing, quarterhorse and thoroughbred racing 
****   Includes interstate intertrack, intrastate intertrack, off track betting, race/sportsbook and telephone betting.    14 
Table 2.  Differential Sector Impacts of Non-Basic Income Growth from the Hotel and 
Gaming Sector, Other Basic Sector and the Unearned Income Sector. 
 
Sector Intercept  Hotel  and 
Gaming 
Sector 
Other Basic 
Sector 
Unearned 
Income 
Sector 
R
2 
        
Transportation 
and Public 
Utilities 
0.00075 
(0.01532) 
0.51227 
(0.1309) 
 
0.03571 
(0.03623) 
0.25698 
(0.1750) 
58.05 
        
Wholesale Trade  0.00531 
(0.01930) 
0.49460 
(0.1469) 
0.09917 
(0.04564) 
0.40429 
(0.2205) 
59.65 
        
Retail Trade  0.10241 
(0.9073) 
0.56610 
(0.9644) 
 
0.05435 
(0.2669) 
-0.95736 
(1.290) 
31.20 
        
Finance, 
Insurance and 
Real Estate 
0.09054 
(0.04597) 
0.92357 
(0.3927) 
0.12075 
(0.1087) 
-0.96757 
(0.5252) 
36.26 
        
Other Services  0.04844 
(0.01231) 
0.26001 
(0.1052) 
0.06533 
(0.02912) 
0.10449 
(0.1407) 
50.81 
 
Standard error in parenthesis.   15 
REFERENCES 
 
Beyers, W.  “Contemporary Trends in the Regional Economic Development of the 
United States.”  Professional Geographic 31(1979):34-44. 
 
Blumenfeld, H.  “The Economic Base of the Metropolis.”  Journal of the American 
Institute of Planners 21(1955):114-132. 
 
Braschler, C.  “A Comparison of Least-Square Estimates of Regional Employment 
Multipliers with Other Methods.”  Journal of Regional Science 12(1972):57-68. 
 
Cargill, T.  “Is the Nevada Economy Recession Proof?”  Nevada Review of Business 
Economics 3(1979):9-15.  
 
International Gaming and Wagering Business.  “Types of Legalized Gaming in the 
United States.”  September 1996.  
 
LeSage, J and J. Reed.  “The Dynamic Relationship Between Export, Local, and Total 
Area Employment.”  Regional Science and Urban Economics 19(1989):615-636.  
 
Nevada Department of Employment, Training and Rehabilitation.  Various Issues of 
Employment Data, Carson City, Nevada.  
 
United States Department of Commerce.  “Regional Economic Information System.”  
Bureau of Economic Analysis: Washington, D.C.  1997.  
 

A Comparison of Least-Square Estimates of Regional Employment Multipliers with Other Methods.”

Contemporary Trends

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Is the Nevada Economy Recession Proof?”

The Dynamic Relationship Between Export, Local, and Total Area Employment.” Regional Science and Urban Economics 19(1989):615-636. Nevada Department of Employment, Training and Rehabilitation. Various Issues of Employment Data,

The Economic Base of the Metropolis.”

RELATIONSHIP OF NON-BASIC SECTOR INCOME GROWTH AND THE GAMING SECTOR

RELATIONSHIP OF NON-BASIC SECTOR INCOME GROWTH AND THE GAMING SECTOR

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