AnM.8: Micro-model "Region"

AnM.8: Micro-model "Region"

These two micro-models suggested in FenRIAM are simple indicators, which enable to identify economic sector specificities at the regional level, namely the Location Quotient indicator and the Herfindahl Index. They are useful since they generate comparable information to describe the structure of the economy and the labour market.

The Herfindahl index is an indicator for the competition in a market. It is calculated with the following formula

where n is the number of firms in the market and si the market share of firm i. Therefore this indicator can give information about the nature of the market in each relevant sector of a given region. Second, the Location Quotients compare the employment in a local economy to the employment of a reference economy to identify specialisations patterns. The indicator depicts the ratio between the local employment (as a percentage of the total local employment) in an industrial sector and the employment of the reference area (e.g. nation; as a percentage of the total employment in the reference area) in the same industrial sector. The formula is the following:

where e is the regional employment in the industry i, e is the total regional employment, Ei is the reference area (e.g. national) employment in the industry i, and E is the total reference area employment. Thus the location quotient calculates an excess or lack of employment (or wages) of the local area in a particular industry with respect to the reference area.


  • Gather the necessary regional data on firms and employment
  • Compare and develop a typology of the different regional sectors
  • Gather internal data about the RI budget and the experiment time
  • Estimate and compare the costs per hour using the three indicators

Data sources:

  • Bureau Van Dijk database, on
  • Document analysis (scientific publications)
  • Expert interviews with economists specialised in the regional economy (e.g. from scientific institutes or regional administrations)


Tirole J., "Industrial Organization", MIT press, p. 221-223, 1988 (Herfindal Index).
Miller E. R. and P. D. Blair, "Input-Output Analysis: Foundations and Extensions", Cambridge Univerisity Press, second edition, p. 349-350, 2009 (Location Quotient)