Presentation on theme: "Impact Analysis Assessing the change in local economic activity as a result of some change in the community Some potential issues What if we build a new."— Presentation transcript:
1 Impact AnalysisAssessing the change in local economic activity as a result of some change in the communitySome potential issuesWhat if we build a new prison?What is the contribution of agriculture to the local economy?What might be the effects of a new residential development?Impact analysis can help with decision making and planning
2 Today’s Goals Introduce the basic aspects of economic impact analysis Review one use of economic impact analysis
3 Components of an Impact CommunityDemographicImpactsFiscalImpactsImpactingProjectSocial andEnvironmentalImpactsEconomicImpactsOther major developments
4 Impact Analysis Requires We Understand Local Economic Structure Relationships between:HouseholdsBusinessesInstitutionsThere are different aspects of impactsLocal versus non-localMonetary versus non-monetaryPrimary versus secondaryPrivate versus public
5 An Economy is Less Complicated than We Often Think It Is Goods and ServicesBusinessesHouseholdsandGovernmentCapital and Labor
6 A Number of MarketsWhat are useful frameworks of economic theory in such instances?General EquilibriumKeynesian Income Accounting
7 Some Applications of Economic Impact Analysis Impacts of new or expanding businessesImpacts of closing or contracting businessesEconomic contributions of an industry sectorRecreation/tourism developmentImpacts of a new residential development
8 How Do We Measure Impacts? Changes in industry outputChanges in local employmentChanges in local incomeLocal population changeEffects on local government and school districtsOthers
9 Impact Analysis is Founded in Two Aspects Economic Theory National Economic StructureKeynesian Income IdentityY = C + I + G + (X – M)Models of MarketsGE modelsNeoclassical Growth Models coupled with household modelsY = a(k,L)U = u(X)
10 What Is a Multiplier?A multiplier quantifies how a change in one sector of the economy impacts the entire economyFrom an education perspective, it is an intuitive approach to understanding economic linkages
11 Several ways to calculate a multiplier Economic base multiplierInput-output models (Leontief)Both systems are demand driven (assume an exogenous change)
12 Economic base Divides economy into two sectors Exporting (basic)Non-exporting (non-basic)Takes the ratio of the change in total to the change in basicMultiplies it by the change in basic activityIn practice, it is hard to divide the economy into two sectors
13 Input-Output Models Descriptive model of a local economy Industry purchase patternsIndustries buy from and sell to other industriesInstitutional purchase patternsHouseholdsGovernments
14 I-O approach: Three Components of a Multiplier Direct effects are changes in the industry directly affectedIndirect effects measure changes in inter-industry purchases in response to direct effectsInduced effects measure the effects of changes in spending as the number and income of households changes due to changes in production
15 Simple Multiplier Formula Direct+Indirect+InducedMultiplier =DirectExample: 100 mining jobs (direct)50 canary and shovel jobs (indirect)20 restaurant jobs (induced)multiplier = ????Q: What affects the size of the multiplier?
16 Applied Analysis Multipliers are often used in a policy framework What are some of the reasons for using multipliers in recreation studies?
17 Local Employment and Income from Outdoor Recreation at Selected BLM Sites Kriesel et al (1996)Documents the economic impacts of expenditures by visitors to 3 representative BLM sitesUses a variety of assumptionsDifferent geographical rangeTotal and “growth only” effects
18 Recreation Demand What are the Direct Impacts? visitor spending (IMPORTANT DISTINCTION: FROM OUTSIDE THE REGION)hotels, restaurants, food, gas, supplieshere, recreation is an EXPORT activity, bringing outside money into the economyWhat are the indirect impacts?Some of these goods will be bought locally and some will be imported (“leakages”).
19 Recreation DemandLocal firms supplying recreation and inputs will see an increase in demand, and they will need to buy inputs and labor, too.Induced. Of course, with all these new jobs there is new money (and new people) in the economy, generating additional jobs in retail, services, etc.
20 Methods Estimate total recreation visits Estimate expenditures per visitDefine the market areaSeparate resident and non-resident expendituresEstimate impacts from:Non-resident expenditures (growth effects)Combined resident and nonresident expenditures ( interdependence effect)
21 Discussion How and why would these multipliers be used? Who would use which multipliers in a policy framework?
22 Strengths--What Multipliers Provide A low-cost, intuitive understanding of some basic economic impactsChanges in industry outputChanges in the number of jobsChanges in local income
23 Weaknesses Misuse Improperly calculated/interpreted Only give a partial picture