ECONOMIC IMPACT ANALYSIS

ECONOMIC IMPACT ANALYSIS can help community leaders predict changes in local output, employment and income resulting from a change in economic activity.

Examples Tourists visit your town for a festival. How will their expenditures will impact the economy? A new manufacturing plant is opening in your town and will employ 200 people with a payroll of $5 million. What will the total impact be? Your local hospital is destroyed by a tornado. Sixty jobs are immediately lost, but how many more?

Examples Across the country, urban highways have increased property values. How much will property values increase in our city? Through the years, increased municipal spending on economic development projects has been associated with increases in sales tax collections.

FISCAL IMPACT ANALYSIS An effort to estimate the impact of a development or land use change on local government costs and revenues. There are 4 basic procedures: Determine population generated by growth Translate population into public service costs Project revenues induced by growth Compare development induced costs with revenues

Examples A new housing development will raise property tax collections for the school district, but there are operating costs associated with each new student in the school district . What is the net fiscal impact for the district? Should the Corps of Engineers build a dam? What are the costs and benefits of such a project?

Dimensions of the Economy Important Economic Indicators Gross National Income (GNI) GNI/capita Income Distribution Private consumption Unit labor costs Exchange rates Inflation rates Interest rates

International Economic Analysis Sources for Economic Information The Commercial officers in embassies The World Bank The United Nations The International Monetary Fund The Organization for Economic Cooperation and Development

Dimensions of the Economy Gross National Income (GNI) The measure of the income generated by a nation’s residents from international and domestic activity Preferred over GDP GNI/Capita Used to compare countries with respect to the well-being of their citizens and to assess market or investment potential

Purchasing Power Parity The number of units of a currency required to buy the same amount of goods and services in a domestic market that $1.00 would buy in the U.S. Helps to make comparisons possible across economies

Dimensions of the Economy Income Distribution A measure of how a nation’s income is apportioned among its people Reported as the percentage of income received by population quintiles Data gathered by World Bank Income more evenly distributed in richer nations

Dimensions of the Economy Private Consumption Disposable income after-tax personal income Discretionary income income left after paying taxes and making essential purchases

Dimensions of the Economy Unit labor costs Total direct labor costs divided by units produced Countries with slower-rising unit labor costs attract management’s attention

Dimensions of the Economy Reasons for relative changes in labor costs Compensation Productivity Exchange rates International firms must keep close watch on labor rates around the world

Dimensions of the Economy Large international debts of middle- and low-income nations affect multinational firms When foreign exchange must be used for loan repayment, import of components used in local production is reduced Local industries must manufacture these components or production must stop

Major International Debtors

Socioeconomic Dimensions Total Population Most general indicator of potential market size Population size, used alone, is not good indicator of economic strength and market potential

Socioeconomic Dimensions Age Distribution Developing countries have more youthful populations than do industrial countries Birthrates decreasing worldwide Population of developing countries accounts for over three-quarters of world’s population

Population Growth

Forces Reducing Birthrates Government supported family planning programs Improved levels of health, education along with enhanced status for women More even distribution of income Greater degree of urbanization

Concern: Birthrate Decline Concern in Developed Nations: Europe An increasing number of young Europeans not marrying Marriages are later, with fewer children By 2025, the present 9 percent unemployment rate in the EU will be replaced by a shortage of workers

Concern: Birthrate Decline Concern in Developed Nations: Japan By 2025, Japan’s population aged 65 and older will make up 26.8 percent of total population By 2025, Japan will have twice as many old people as children

Socioeconomic Dimensions Population Density A measure of the number of inhabitants per area unit product distribution and communications simpler and cheaper in densely populated countries

Socioeconomic Dimensions Population Distribution A measure of how the inhabitants are distributed over a nation’s area Changing population distribution: rural- to-urban shift

Socioeconomic Dimensions Increase in the number of working women May require marketers to alter promotional mix Results in larger family incomes Results in a greater market for convenience goods

Important Considerations for Private Sector Impact Measurement How many workers will be hired, and what is the expected payroll and expected value of production? Is the new economic activity associated with the operation of the business or the construction? Which people and businesses will benefit; which will bear the costs?

For more info: www.economicanalysis.com (IMPLAN home page) www.remi.com (REMI home page) http://www.ceds.gatech.edu/loci/loci_overview.html (a LOCI overview page from the Georgia Institute of Technology)

QUESTIONS?