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What Is a Basic Industry?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 18 September 2016
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A basic industry is an industry that focuses on the production of products and services for export, rather than for domestic sales and circulation. Such industries play a key role in their regional economies and sometimes occupy an outsized portion of the market share. This can create problems in the event of a failure of an export industry, or when political situations change and limit the market for exported goods. Most nations maintain statistics on their import and export activities, and keep a close eye on their basic industries.

Activity in the basic industry sector actively encourages the inflow of foreign monies. When companies export, they receive money from new sources in return and can invest this in job creation and development. Domestic circulation of products and services tends to have a limited market, and while money may shift within the market, large injections of capital from outside sources are not available. In basic industries, outside wealth flows into a nation, and may be accompanied by expertise, positive relations, and so forth.

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Basic industries can produce a wide variety of goods. One example is grain in the Midwest of the United States. Much of the corn, soy, and wheat grown in the United States is a basic industry produced specifically for export, not for domestic use. These goods are sold overseas to nations with inadequate production of their own. Some of these nations in turn produce goods that wind up in the United States, like finished tofu made from soy beans.

Economically, basic industries can be an important part of the national economy. The demand for goods and services from overseas also impacts the global economy. At every step of the way from basic industry to end consumer, middlemen profit from activities like shipping goods from one location to another, storing them, and repackaging loads for sale in new locations. This can create a lively economic chain that may falter in the event of a problem at one end of the distribution.

Companies can determine the best mix of export and domestic sales for their needs. Some try to split the two roughly evenly, while others may focus on one or the other. Domestic demand may be inherently limited, while basic industries can take advantage of demand from a wide variety of locations to create a steady market for their products. This flexibility can also become a threat when a local economy becomes reliant on a basic industry, as people may suffer disproportionately if the industry starts to struggle.

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