By Randal C. Coon, Research Specialist

NDSU Agribusiness and Applied Economics Department

North Dakota has a strong and growing economy. Almost any economic variables used to measure the state’s economy, including economic base, employment, personal income, taxable sales and purchases, show growth. Economic base analysis provides a unique opportunity to measure economic growth by industrial category at state and substate levels.

Data on North Dakota’s economic base are updated annually and track the influx of dollars into North Dakota from the sales of goods and services exported from the state. The categories, or sectors, tracked by this database include agriculture, manufacturing, oil exploration and extraction, crude oil refining, coal mining and conversion, tourism and federal government payments. Sales of outputs from these industries to other economic sectors in the state are not included.

Agriculture’s economic base primarily tracks the value of crop and livestock exports and government farm program payments but does not include Conservation Reserve Program payments or agricultural processing activities. Manufacturing exports represent durable goods, such as skid-steer loaders, and nondurable goods, such as wheat flour.

Oil exploration and extraction and crude oil refining include oil and refined products exported from the state but exclude expenditures brought into the state for well drilling and development, investment dollars associated with infrastructure development, and natural gas processing. Coal mining and conversion is limited to the sale of coal, electricity and synthetic natural gas to out-of-state users.

Tourism represents the spending by out-of-state visitors in North Dakota. Federal government payments primarily represent federal payrolls, federal construction projects, military base operations and various payments to individuals from social programs.

Economic base dollar values will be presented in terms of constant or “real dollars,” which means the effects of inflation have been removed.

North Dakota’s total economic base has grown from $13 billion in 1990 to $18.7 billion in 2000 and $30.5 billion in 2010. During these two decades, the state’s economic base grew by $17.5 billion, a 135 percent increase.

From 2010 to 2011, the one-year growth was $2.7 billion, a 9 percent increase. Measured by the change in the state’s export base, the North Dakota economy has been growing rapidly since 2005. Between 2005 and 2011, the state’s economic base grew from $23.1 billion to $33.2 billion, a 44 percent increase.

This rapid expansion of North Dakota’s economy happened during a worldwide recession and a period when the U.S. economy (measured by gross domestic product) experienced negative growth. North Dakota’s economy has been largely insulated from the primary factors affecting national and world economies.

All of North Dakota’s industrial categories have grown during the past two decades. The state’s economy at one time was thought to be too dependent on agriculture because it was subject to external factors such as weather and price fluctuations. Attempts to diversify the economy have produced many agricultural processing enterprises in the state and established a sizeable export services industry, such as telemarketing, and reservation and service centers.

In 1990, agriculture and federal government expenditures were 71.9 percent of the state’s economic base. Their shares of the economic base were reduced to 54 percent by 2000. Between 2005 and 2011, the economic base for agriculture had grown from $5.4 billion to $7.8 billion, which represents a 44.4 percent increase. In 2011, agriculture accounted for 23.5 percent of the state’s economic base.

Growth in the oil industry had an unprecedented 200 percent increase during the 2005 to 2011 period, growing from $2.4 billion to $7.2 billion in basic economic activity. Oil and coal industries were 26.7 percent of the state’s economic base in 2011, which is a slightly larger share than agriculture.

Development of the state’s shale resources has resulted in the oil and coal industries having a much larger share of the economic base than in 1990. At that time, the oil and coal industries accounted for 15.5 percent of the state’s economic base.

North Dakota’s economy has diversified and grown rapidly in recent years, with much of the impetus for the increases coming from natural resource-based industries, such as agriculture and energy.

While there are limitations to examining an economy based solely on its export base, considering the vast majority of industrial output in the state is sold to out-of-state markets, economic base provides a consistent metric by which to gauge the change in the state’s largest industries.

Economic base is another important and valuable means to evaluating change in North Dakota’s economy.

NDSU Agriculture Communication - April 3, 2013