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In the past, this National column has mention and discuss the compounding effect t or impact of spending our dollars locally.  I feel it is important to go into a bit more detail on this critical element of being truly local.  The economic impact of local spending in rural communities extends FAR beyond the initial transaction, creating a multiplier effect that can significantly enhance local economic resilience and growth. This phenomenon, often called the "local multiplier effect," demonstrates how dollars circulate within a community before eventually leaving the local economy.

The Multiplier Effect is when consumers choose locally-owned businesses over non-local alternatives, more money remains in the community. Studies consistently show that locally-owned businesses recirculate a higher percentage of revenue locally compared to chain stores or online retailers.  According to the American Independent Business Alliance, locally-owned businesses recirculate 48% of their revenue back into the local economy, compared to just 14% for chain retailers. This 3.5x difference becomes particularly significant in rural settings where economic resources may be limited.  Civic Economics found that for every $100 spent at a local business, $68 remains local, compared to just $43 when spent at a chain store. In smaller rural communities, this 58% increase in local economic impact becomes even more crucial.

Local businesses typically create more jobs per unit of sales compared to larger corporations. The Institute for Local Self-Reliance found that independent retailers employ 57 people per $10 million in sales, while chain stores employ only 27 people per $10 million.  In rural communities, where job opportunities may be scarce, this job density differential of 111% represents not just statistics but real livelihoods and community stability. When rural residents spend locally, they directly support higher local employment rates.

Local shopping generates tax revenue that funds essential community services. A study by the Maine Center for Economic Policy found that shifting just 10% of consumer spending from national chains to locally-owned businesses would generate an additional $127 million in economic activity and create 874 new jobs.  For rural communities with limited tax bases, this incremental increase in local revenue can mean the difference between maintaining or cutting crucial public services like road maintenance, emergency services, and schools.

Rural economies often suffer from "economic leakage" - money flowing out of the community to external businesses. The Federal Reserve Bank found that rural counties lose an average of 40% of potential retail sales to larger commercial centers outside their boundaries.  When rural residents shop locally, they help plug these leaks. A study by Iowa State University showed that increasing local food purchases by just 15% could create 46 new jobs in a six-county rural region.

Local spending creates conditions favoring new business formation. Research by the Federal Reserve Bank demonstrates that communities with strong local business sectors show 250% higher levels of entrepreneurial activity compared to communities dominated by non-local businesses.  In rural settings, this entrepreneurial activity often addresses specific local needs that might be overlooked by larger companies, creating a virtuous cycle of localized economic development.

Rural communities with stronger local business ecosystems demonstrate greater economic resilience during downturns. A study published in the Journal of Rural Studies found that rural counties with higher percentages of locally-owned businesses experienced unemployment rates 2-3 percentage points lower during the 2008 recession compared to counties dominated by non-local businesses.

Beyond purely economic metrics, local spending generates social capital that provides long-term benefits. Local business owners donate 350% more to local charities than non-local business owners according to the Portland Independent Business Alliance, directly enhancing community welfare.

Despite these benefits, rural communities face practical challenges in maintaining robust local business ecosystems. Limited population density, geographic isolation, and economies of scale often make it difficult for local businesses to compete with larger alternatives on price alone.  Research by the International Council of Shopping Centers found 70% of consumers are willing to pay a premium of up to 10% for goods from local businesses, suggesting that value propositions beyond price can effectively drive local spending.

The compounding effect of local spending in rural communities creates a virtuous economic cycle that enhances job creation, strengthens the tax base, reduces economic leakage, fosters entrepreneurship, and builds community resilience. While challenges exist, conscious consumer choices to shop locally represent powerful investments in the economic future of rural communities.

John Newby is a nationally recognized Columnist, Speaker, & Publisher. He consults with Chambers, Communities, Business & Media. This column appears in 60+ newspapers and media outlets. As founder of Truly-Local, he assists chambers, communities, media, and businesses in creating synergies that build vibrant communities. He can be reached at: John@Truly-Local.org.