Local Economies Definition: Everything You Need to Know

Local Economies

Definition of Local Economies

Local economies refer to economic and social systems that are part of a specific community. 

For example, a typical local economy may have residents who dine at a local independent restaurant. The restaurant employs residents from the community and buys goods and services from other local businesses. They purchase ingredients from local farms or suppliers, use a local law or insurance firm, and hire local musicians to play live music on the weekends.

A circular economy prevails, which benefits the community, the residents, and the environment.  

Local economies include different sectors and industries that work together to contribute to local wealth creation, opportunities, and prosperity.

Local Economies Graphic


In this article, we discuss the benefits of local economies. 

We also describe how you can invest in your local economy. Learn how to make a profit investing locally!

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The Benefits of Local Economies

1. Stronger Relationships and Better Customer Service

In a local economy, shops are often independently owned by an individual, family, or small group of people. A unique characteristic is that these people are also part of the community. They are the people in your neighborhood.

Local economies are more personal by nature. The interactions between owners and residents can create long-lasting, cherished relationships. 

Stronger relationships can lead to an increase in social capital.

They can also lead to better customer service. Local business owners can tailor their products and services to the residents, rather than being pressured to comply with a national marketing strategy implemented by a chain retailer.

2. Stronger Communities

Additionally, studies show that local businesses are more likely to donate to local charities that support the community. Local business owners are more invested in the community. Therefore, they are more willing to donate their time and money, as shown in the infographic below from Score.org

Small Business Charitable Giving infographic from Score.org

This type of grassroots support advances the local economy and creates additional opportunities for its residents. 

Equally important, local economies help preserve a community’s unique qualities and give it character. Big box stores and retailers are associated with uniformity and a lack of originality. In contrast, local businesses are often “one-of-a-kind” and contribute to a community’s positive self-image. Unique attributes create a sense of pride that can lead to increased tourism and economic activity.

3. Increased Employment and Efficiency

Local economies have a positive impact on employment. According to the Small Business Administration, small businesses employ 49.2% of the private-sector workforce.

Local business owners are more invested in their community and are likely to stay there for longer, which leads to increased employment. Increased employment and stability mean more opportunities for residents, which increases local wealth.

Additionally, local economies are often more efficient. For example, a local grocer is more likely to buy their produce from a nearby farm rather than a large multinational supermarket. Lower transportation costs reduce costs for the consumer. 

Increased efficiency not only benefits the customer but also benefits the environment. Less transportation means less fuel consumption, pollution and congestion creating a more sustainable and healthy community.

4. Wealth Stays Within the Community

Finally, wealth stays within the community because money recirculates amongst the local businesses and residents. 

Research shows that approximately 73% of money spent locally stays within the local community (as opposed to only 43% of money spent at chains). 

Local Economies - Wealth Graphic


Money spent with the local grocer or farmhouse is often re-spent locally on other goods services.

A circular economy builds the local tax base which funds public education, recreational opportunities, and other local services such as fire and police departments and quality healthcare. This benefits the local community and can lead to an increase in population and home values. 

How to Invest in Your Local Economy

Does this mean that we should only shop locally and never buy from chains? No. Here is are some steps you can take to help your local economy. 

1. Socially Responsible Investing - How to Invest Locally

Wall Street isn't your only option for investing. You can invest in Main Street and make a profit!  

We love bestselling author Michael Shuman’s work on the topic. He is an expert in socially responsible investing and gives step-by-step instructions on which accounts to use and how to invest in your neighborhood. 

Book about socially responsible investing by Michael H. Shuman

We also think real estate investing is a great way to build wealth locally. Here are some best selling guides.  

2. Local First, Not Only or Always

According to Joe Grafton, a leading authority on local economies, we should try to find a local business that can meet our needs. Then we can look regionally or nationally. 

He says shopping locally is not about putting up walls; it is about creating a relationship and using our money to improve our lives and the lives of the people around us. 

Michael Shuman, sums it up best in his book "Going Local"

Local Economies Quote - Michael H. Shuman "Going Local"

If we are to achieve truly sustainable communities we should balance the influence of globalization through investing in local economies that encourage community and social capital development.

3. Additional Resources

  1. "The Local Economy Solution" by Michael H. Shuman
  2. "Why Buy Local" Research Paper by Michigan State University
  3. "The Communeconomy" TED Talk by Joe Grafton 

4. More Articles

About the Author Charles El-Zeind

Charles El-Zeind is passionate about communicating environmental issues such as climate change and sustainability. Charles is currently involved in a grassroots community project with the Fiveways and Hollingdean Transition Network and writes regularly for the Sustainable Business Toolkit. He holds a bachelor degree from the University of Brighton in Environment and Media Studies.

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