YOU DECIDE: Should you buy local?

Date posted: November 25, 2011

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

There’s a movement afoot to change how we buy. It’s not about how much we buy or even the kinds of products we buy. Instead, it’s directed at the origins of what we buy and where we buy. Broadly speaking, it’s called the buy local campaign.

There are two elements to this campaign. The first has to do with the origins of the products we purchase, specifically, the country in which they are made. The argument is that the more products we buy from companies located in the U.S., rather than foreign countries, the more money stays in the country and the more jobs are created here.

There is compelling evidence for this viewpoint. The U.S. annually imports $2.3 trillion worth of products and services. Using an average rate of job creation per dollar of domestic production, purchasing all these imported goods and services from domestic companies would create more than 20 million jobs.

Of course, there are some things we import that we just don’t have domestically, at least in the short run. Oil is a good example. If we kept importing oil but reduced all other imports to zero, then we would still add 17 million slots to our employment base.

However, there are three twists to this conclusion. One is our exports. The U.S. could replace its non-oil imports with domestic production and buying, but what if other countries do the same and our exports also go to zero?

This would have a big impact on job creation from buying local because our exports are also huge, totaling $1.8 trillion annually. If both our non-oil imports and all of our exports went to zero, we would net 1.8 million jobs in the country, a 1.4 percent increase from current employment levels.

The second twist is foreign investment. Foreign countries that sell more to the U.S. accumulate U.S. dollars, and eventually those dollars find their way back to our country in the form of foreign investments. These foreign investments can take many forms, including the purchase of U.S. government securities, stocks from U.S. companies or the building of factories and other facilities in the U.S. Foreign-owned auto factories are a good example of the latter kind of foreign investment.

It’s estimated these types of foreign investments support almost 6 million domestic jobs. Without international trade, some of these jobs might disappear, or at the least, they wouldn’t expand very fast.

Last, sometimes the specific product or service a person wants just isn’t available in our country (like oil), or if it is, the price is higher than a foreign-made substitute. So here the buyer is faced with a dilemma. Does the person purchase the domestic-made version and pay more but create jobs here, or do they buy the foreign-made alternative and save some money?

Now let me move closer to home and look at the second piece to the buy local movement, where you buy. Here the idea is to shop at retailers and sellers in your city or county rather than at merchants outside your immediate area. By doing so — the theory is — money will go to local businesses, be re-spent locally and create local jobs.

There’s no question this can work. On average, every $1 million spent locally will support between 15 and 30 community jobs. The reason the job creation number isn’t higher is because most local companies purchase a significant fraction of their merchandise from outside the local area. So all local spending doesn’t remain in the local area.

And again, that’s just the rub of trying to buy only from local sellers. Even more than at the national level, many products and services simply aren’t available in all localities. Small communities especially tend to specialize in what they do and what they have to sell. Bigger cities — because they have more people and consequently a wider diversity of talent and skills — will usually have more of what buyers want. So buying local campaigns will have a greater chance of success in more populous areas.

I think the conclusion is clear. As with most economic decisions, there are both benefits and costs to buying local, regardless of whether “local” is the entire country or your immediate county or neighborhood. Individually and collectively, we’ll have to decide which side — the benefits or the costs — wins!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/

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1 Comment to YOU DECIDE: Should you buy local?

  1. by Dee Shore

    On December 9, 2011 at 8:18 pm

    Will do.

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