How to Build a Local Economy: 30 Things You Can Do

In 2002, an Austin consultancy compared two independent bookstores with a proposed Borders outlet. Of every $100 spent, it estimated, about $45 of local economic activity would follow at the independents and about $13 at the chain. That comparison has been quoted in “shop local” campaigns ever since.

This guide sorts the evidence and the practical options into a framework of three rings: households, independent firms, and the anchor institutions that buy, hire and lend on a large scale. A 30-point checklist closes it.

What a local economy is

A local economy is all the buying, selling, working and lending that people do inside a defined area. In practice that means a neighborhood, a town, or a region you can drive across in an hour or two. Money comes into the local economy when firms and workers sell to people outside the area. It then circulates, shop to employee to landlord to plumber, until it leaks out to distant suppliers and online retailers.

There are two levers in local economic development:

• Bring more money in by growing businesses that sell beyond the area, such as manufacturers, software firms, tourism or a university.
• Plug the leaks so each dollar changes hands locally more often before it leaves.

Most community action works on the second lever. The New Economics Foundation in London named its 2002 handbook *Plugging the Leaks*.

The local multiplier effect: what the studies show

The local multiplier effect is the extra activity a community gains when money is re-spent locally rather than leaving after the first purchase. Three bodies of research measure it in local economies, each differently.

The first two measure where a business’s money goes. The third measures what happens to a town’s employment when its export base grows, so the numbers are not comparable.

What critics say

• Most Indie Impact studies are sponsored by local business alliances, with partial matching funds from the American Booksellers Association, and rely on businesses that volunteer to take part. Skeptics argue this produces favorable samples.
• The studies measure the local share of revenue, not the net gain. A dollar spent at an independent store is a dollar not spent somewhere else in town. If a chain charges less, the shopper keeps savings that may also be spent nearby.
• Moretti’s estimates have been challenged. A replication by Oxford economist Jasper van Dijk found a considerably smaller effect, and a study of Italian regions by Guido de Blasio and Carlo Menon found little or none.

Local spending still has effects, but their size depends on the place, the industry and the method, and a single headline figure travels further than it should.

Ring 1: Households

Households control most consumer spending. Each time you spend your money in your community, the choice of seller matters, and this is the most direct lever that you control. Restaurants, repair shops and other labor-heavy services tend to keep more money in your local economy than retailers selling goods made elsewhere, because more of each bill becomes wages for people who live nearby.

Where you keep your savings matters too, because financial institutions lend out what they hold. According to the FDIC’s 2020 Community Banking Study, community banks held about 15% of the industry’s loans at the end of 2019 but 36% of its small business loans and 70% of its farm loans. Credit unions, which are member-owned community financial institutions, play a similar role in many towns.

Ring 2: Local businesses

Independent firms decide where their own revenue goes next, whether to the accountant or the printer. They can put money back into the local economy with every invoice. Nearby sourcing, payroll and profits kept by owners who live in town produce most of the multiplier.

Ownership is the other lever. When founders retire, a sale to employees or a conversion into a cooperative keeps the business and its decisions in the community. Our explainer on co-ops and other post-corporate business models covers the main structures.

Ring 3: Anchor institutions and community wealth building

Hospitals, universities, school districts and local government bodies are “anchor institutions”: they rarely move away, and they spend large budgets every year. Community wealth building is the strategy of steering part of that spending, over time, toward nearby and often employee-owned suppliers.

Two examples are cited most often:

1. Cleveland, Ohio: in 2008 a working group of Cleveland institutions launched the Evergreen Cooperatives, worker-owned businesses designed to sell to local hospitals and universities. The first, a commercial laundry, opened in 2009. As of October 2026, the network grows mainly through a Fund for Employee Ownership that buys established firms from retiring owners and keeps them at least 80% employee owned.
2. Preston, England: from 2013, Preston City Council and other local public bodies set out to buy more from local suppliers. According to figures reported by Co-operative News in 2019, procurement spending retained in Preston rose from about £38 million in 2012/13 to £112.3 million in 2016/17, and spending retained in wider Lancashire grew by about £200 million.

Supporters credit these models with keeping wages and ownership in struggling places. Critics question what share of the change the programs caused, as opposed to wider trends, note that most of the reported figures come from the organizations involved, and warn that favoring local suppliers can raise costs or run into procurement rules. Independent long-term evaluations remain scarce.

Some towns add their own money. A complementary currency only works where shops accept it, and our guide to local currencies explains the setup and why many fade.

The 30-point local economy checklist

Households

1. Move three regular purchases to independent sellers.
2. Shop at a farmers’ market or join a community-supported farm.
3. Repair before you replace, at a local shop.
4. Move your checking or savings account to a community bank or credit union.
5. Hire local tradespeople, accountants and tutors.
6. Review the shops and services that you use.
7. Buy gift cards at independent shops.
8. Eat at locally owned restaurants.
9. Ask shops which goods come from the region.
10. Buy co-op shares or community investment notes where legal.

Independent businesses

1. Check which of your top 20 suppliers could be local.
2. Bank with a community lender.
3. Pay a wage that lets staff live in the area.
4. Join or start an independent business alliance.
5. Run joint promotions with neighbors.
6. Stock and label goods by regional producers.
7. Plan succession early, including sale to employees.
8. Mentor a new local entrepreneur.
9. Measure your local spending with LM3.
10. Accept a local currency if your town has one.

Anchor institutions and towns

1. Map the share of procurement going to local firms.
2. Split large contracts into lots smaller firms can bid on.
3. Publish upcoming contracts early.
4. Make local and social value part of contract scoring where government rules allow.
5. Pay small suppliers quickly.
6. Offer staff payroll savings with a credit union.
7. Help with co-op conversions and new worker co-ops.
8. Put public land and empty buildings to community use.
9. Track results every year and publish the data.
10. Commission an independent evaluation.

Frequently asked questions

Is buying local better for the economy?

It usually keeps more money in the local economy, especially with restaurants and services that are labor intensive. The net gain is disputed, because most studies do not measure what shoppers would otherwise have done with their money.

What is the Preston model?

It is a community wealth building strategy begun in Preston, England, in 2013. Public institutions shifted purchasing to local suppliers and backed cooperatives and a credit union.

How can a town strengthen its local economy?

Most combine both levers: grow firms that sell beyond the area, and help anchors, households and companies spend more of their money in the community. For the democratic side of local decisions, see our guide to civic participation.