: Analysis of Local Economic Potential and Competitiveness Economic Sector in Improving Local Economic Development. Batu as the youngest autonomy region in East Java, is one of the city that formed in 2001 as a breakaway from Malang Regency. Since 2006-2010 Batuis a city which has faster economic growth compared to East Java and its PDRB per capita is lower than the average of PDRB per capita of East Java. Moreover, from this point of view, the researcher aims to analyze the best sector (superior potential) and competitive potency of Batu which able to support its economic development.The purpose of this study is to analyze and describe the superior potential and competitiveness sector in 2007-2010 period and the contribution of superior sector to PAD Batu City. This study uses qualitative and quantitative approach. After using quantitative approach, the researcher will continue the analysis using qualitative approach as a supporting method for the previous one. For quantitative analysis, the researcher uses analytical tools such as Location Quotient (LQ) and Shift Share (SS) method. For qualitative analysis, the researcher use descriptive qualitative approach. The results of this study areBatu has three superior sector during 2007-2010, there are services sector; trade, hotel and restaurant sector; and agriculture sector. The competitiveness sector are trade, hotel and restaurant sector; services sector and construction sector. The superior sector that contributed to PAD are services, hotel and restaurant sector. Agriculture sector since 2007-2011 not became competitiveness sector and indirectly has contribution to PAD. The suggestions to develop agriculture sector which begins to drop its production and empowerthe people who work in each sectors especially in agriculture.