ECONOMIC IMPACT ANALYSIS:
AVOIDING SOME COMMON PROBLEMS
David Mulkey and Alan W. Hodges
Food and Resource Economics
University of Florida
INTRODUCTION
• Impact studies based on input-output models have
become more widespread.
• Requested (and sometimes required) by government
agencies and a range of private groups.
• Intent is to assess the total impact of a change in some
sector or to demonstrate the importance of a particular
industry.
• With current software studies are relatively easy and
inexpensive to complete, and easier to misuse and/or
abuse.
2
SOME FLORIDA EXAMPLES
•
•
•
•
•
•
Rural hospitals in five communities
Call centers in two rural counties
State, regional and local impacts of agriculture
Heritage tourism in St. Johns County
Removing land from citrus production in SW Florida
Closing poultry processing plants in NE and NW
Florida
• State and local fairs and gambling boats
• Commercial fishing on Florida east coast
3
A QUICK OVERVIEW
• Grounded in export base theory: Regional economy
drives off sales outside region (direct effects).
• Multiplier effects accumulate as dollars circulate
through local service industries (indirect effects), and
as new income is spent in local retail and service
industries(induced effects).
• Multipliers measure total effect of direct change in
sales of any given industry to final demand.
4
Figure 1. Economic Activities of a Community
Rest of the World
$
G&S
Good and Services
Export Firms
Labor
Services
$
$
G&S
Good and Services
Service Firms
(Input Suppliers)
$
Labor
Labor
Local Population
(Households)
$
$
Service Firms
(Local Population)
$
G&S
G&S
Imports
(Leakages)
$
G&S
$
5
Industry Transactions and Social Accounting Matrix
Purchasing Industries
Agriculture
Mining
Manufacturing
Trade
Services
Households
Govern
-ment
Exports
Total
12
2
10
6
0
1
1
7
39
Mining
5
2
20
0
0
0
2
11
40
Manufacturing
5
3
6
20
5
9
10
40
98
Trade
2
3
2
1
5
25
10
5
53
Services
7
10
30
2
10
18
10
0
87
Indirect
Business Taxes
1
2
4
4
7
Household
Earnings
5
14
20
12
40
Corporate
Profits
1
2
3
4
10
Imports
1
2
3
4
10
Total
39
40
98
53
87
53
33
63
617
Agriculture
Selling
Industries
Value
Added
Final Demand
6
The Implan System
• Input-output modeling software licensed by Minnesota
Implan Group, Inc. (www.implan.com).
• Regional data available for all US counties and states.
• 528 industry sectors, social accounts including 10
household income classes, 4 government sectors, capital
investment and inventory change
• Model building and customization features
• Impact analysis module, margins and deflators
• Reports
• http://www.implan.com
7
Industry Transactions and Social Accounting Matrix
Purchasing Industries
Agriculture
Mining
Manufacturing
Trade
Services
Households
Govern
-ment
Exports
Total
12
2
10
6
0
1
1
7
39
Mining
5
2
20
0
0
0
2
11
40
Manufacturing
5
3
6
20
5
9
10
40
98
Trade
2
3
2
1
5
25
10
5
53
Services
7
10
30
2
10
18
10
0
87
Indirect
Business Taxes
1
2
4
4
7
Household
Earnings
5
14
20
12
40
Corporate
Profits
1
2
3
4
10
Imports
1
2
3
4
10
Total
39
40
98
53
87
53
33
63
617
Agriculture
Selling
Industries
Value
Added
Final Demand
8
Case Study Facts
• New data processing firm that serves clients nationwide to locate in Lake City,
Florida
• Will employ 375 workers with average annual earnings of $18,000, drawn from 8county area
• Industry average output per employee: $45,000
• Employee training expenditures of $500,000 to local firm
• Construction expenditures of $1.5 million, 75% to firms within region
• Purchase of $750,00 in equipment and furniture from outside region
• Output and employment multipliers given in table below
Sector
Output ($/$ direct)
Employment (jobs/$MM output)
Indirect
Induced
Direct
Indirect
Induced
Data processing
0.219
0.183
21.9
3.8
3.4
Job training
0.194
0.223
29.5
3.1
4.1
Construction
0.203
0.138
10.5
3.6
2.6
Office equipment
0.200
0.250
15.0
4.0
4.09
Case Study Impact Analysis Results
Impact
Output ($1,000)
Employment (jobs)
Direct Indirect Induced
Total
Construction
1,125
220
155
1,500
12
Data
processing
16,875
3, 695
3,088
23,658
500
97
112
0
0
18,500
4,012
Training
Office
equipment
Total
Direct Indirect
Induced
Total
4
3
19
375
64
57
496
709
15
2
2
19
0
0
0
0
0
0
3,355
25,867
402
70
62
534
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SOME COMMON PROBLEMS
• Defining the region for analysis
• Estimating direct effects
• Failure to margin retail sectors
• Adjusting for differences in regional structure
• Interpretation of results
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DEFINING THE STUDY REGION
• Impact studies usually requested with respect to some
particular geographic location, usually a city, county or
state.
• Impacts are dependent on the definition of region, and
there are usually differences between political
jurisdictions and functional economic regions.
• Regional definition should consider location of labor
force and support industries.
• In most cases, functional regions are larger than
counties.
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WHERE IS GAINESVILLE?
POLK
MONROE
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BEA Economic Regions of Florida
Tallahassee
Jacksonville
Pensacola
Tampa,
St. Petersburg,
Clearwater
Sarasota,
Bradenton
Ft. Myers,
Coral Gables
Orlando
Miami,
Ft. Lauderdale
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ESTIMATING DIRECT EFFECTS
• Direct effects are not always easy to estimate and
require some analysis prior to doing an impact study.
• Impact studies are often requested in cases where no
new economic activity is created.
• Input-output models can only measure impacts where
some change in output or expenditure takes place.
15
RETAIL SECTOR MARGINS
• Impact studies are often requested for events where a
large part of the impact takes place through local retail
sectors.
• Only the margin can be appropriately allocated to the
retail sector. The value of goods sold must be allocated
to another producing sector.
• In most rural areas products are not produced locally
and must be treated as imports (leakages) from outside
the local economy.
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DIFFERENCES IN REGIONAL STRUCTURE
• Software packages like IMPLAN generate local inputoutput tables by relying on local data (output,
employment, and value added) and national inputoutput tables.
• Technology of production (embodied in the relationship
between sectors) is assumed to be the same in the local
economy.
• Adjustments are required where local structure differs
significantly from national relationships.
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INTERPRETATION OF RESULTS
• An impact analysis is not a benefit-cost analysis.
• An impact analysis is not a measure of net welfare
change.
• An impact analysis does not provide insight into longer
term structural change in response to external stimuli.
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