ECONOMIC IMPACT
ANALYSIS
Presented by
Mike D. Woods & Suzette Barta
Oklahoma Cooperative Extension Service
Oklahoma State University
ECONOMIC IMPACT ANALYSIS
can help community
leaders predict changes in
local output, employment
and income resulting from
a change in economic
activity.
ECONOMIC IMPACT MODELS
Input/Output Models
Econometric Models
Fiscal Impact Models
Simulation Models
1. INPUT-OUTPUT MODELS
An input/output table quantifies the
transactions between sectors in an
economy.
It’s a “snap-shot” of the economy for a
one-year period.
By understanding these linkages, we are
able to predict how a change in one
sector will affect the other sectors.
Multipliers can be estimated.
Input-Output Table
Sector
Primary
FoodProd Textiles
WoodPap PetroChemManufact Services FinalDmnd TotalOutput
Primary
67
214
12
13
54
43
21
277
702
FoodProd
29
81
5
2
6
1
4
580
706
Textiles
3
4
60
2
2
3
11
207
293
WoodPap
2
7
3
39
11
36
36
72
206
PetroChem
28
15
29
8
71
94
81
159
485
Manufact
10
11
3
4
82
250
60
956
1302
Services
41
79
37
27
67
181
376
2360
3169
Labor
124
62
47
30
72
299
841
134
4998
Total Inputs
703
707
293
206
485
1302
3169
4998
11863
Rows Represent Sales
Columns Represent Purchases
IMPLAN Software
A talented person could probably figure out
these connections for an 8 sector economy.
An economy with more than 500 sectors is
another story.
IMPLAN software does the work for us
and calculates “multipliers”.
Examples of Applications
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?
Drawbacks of I-O Models:
Does not directly assess the
impact of government costs.
It is a static model and does not
count for the inherent changes
over time in a dynamic economy.
2. ECONOMETRIC MODELS
A statistical method called multiple
regression analysis is used on either timeseries or cross-sectional data to estimate
the relationship between various
economic variables.
The relationships estimated by this
method are used to predict future impacts.
Numerous software applications,
including MS Excel, can run regression
equations.
Examples of Applications
 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.
 Dr. Dan Rickman at OSU predicts state gross
domestic product, employment, etc, using a
complex type of econometric model.
Drawbacks of Econometric
Models:
Large data requirements may be
restrictive.
Knowledge of statistical methods is
necessary.
3. 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
LOCI Software:
Directly assesses the impact a project has
on government costs.
Calculates net present value of a project.
Calculates impact at either the county or
city level.
Is not as good at producing multipliers for
income, output and employment.
Examples of Applications
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?
Drawbacks to Fiscal Analysis:
Does not always consider secondary
or indirect effects.
Is concerned only with public costs
and revenues and does not always
consider private costs or benefits.
Not as good at estimating income,
output, and employment multipliers.
4. SIMULATION MODELS
A complex system that includes both an
Input-Output model and other economic,
demographic, and fiscal variables.
I-O models are static—a one time
snapshot, but simulations are dynamic.
The addition of the forecasting element
allows economic impacts to be measured
over time.
REMI Software:
Combines the I-O model with complicated
equations that describe the relationship
between many economic variables.
These equations forecast changes over time
as a result of the project in question.
Without these equations, REMI acts just
like an I-O model with results similar to
IMPLAN.
Drawbacks to simulation models:
Does not always assess the impact on
government costs.
Due to huge data requirements, countylevel models are not always available in
REMI. Available at the state and regional
levels.
Comparing Models
Software Strengths
Drawbacks
I-O
IMPLAN
County level,
understandable
multipliers
Static, ignores gov’t
costs
Fiscal
LOCI
Measures gov’t
costs, city level
Not good at estim.
multipliers
Econometric Many
Dynamic
Large data needs,
complex
Simulation
Dynamic, good
multipliers
Huge data needs,
complex
REMI
Bottom line…
No single model can
answer all the questions.
Important Considerations for
Private Sector Impact Measurement
1.
2.
3.
4.
5.
How many workers will be hired, and what is
the expected payroll and expected value of
production?
What is the multiplier effect?
When will the items listed in #1 go into effect?
Is the new economic activity associated with the
operation of the business or the construction?
Will the new economic activity stimulate
construction in related businesses, housing, and
other sectors of the economy?
Important Considerations for
Private Sector Impact Measurement
6. Do the changes in employment, income
and sales represent net or gross additions
to the community’s economic base?
7. How does the new economic activity
compliment the local economic situation?
8. Which people and businesses will benefit;
which will bear the costs?
Source: John Gordon in How Extension Can Help Communities Conduct
Economic Impact Analysis, 1982.
Important Considerations for Gov’t
Sector Impact Measurement
1.
2.
3.
4.
5.
Within what governmental jurisdictions will
new families live?
How many in-migrant families are expected &
what is their expected income level?
How many school age children are expected?
How well will the public services and schools
be able to handle the expansions?
Are there migration fees to cover additional
public service costs?
Important Considerations for Gov’t
Sector Impact Measurement
Will state and federal aid increase if population
grows?
7. When will project be completed?
8. Does the expenditure estimation procedure
include only the additional costs associated
with the new growth?
9. How will new revenues be divided between
city, county, and school district?
10. When will public expenditures for the project
begin and when will the community begin
seeing project-generated revenues?
6.
Important Considerations for Gov’t
Sector Impact Measurement
11. Will changes in demand for services change tax
rates or levels of service?
12. Who benefits and who loses from project?
13. Will tax abatements (or other inducements) be
used to encourage this growth?
14. Is the project capital or labor intensive?
15. What is the probability that the firm will remain
in the area for an extended time?
Important Considerations for Gov’t
Sector Impact Measurement
16. What are the income and multiplier
effects of the new industry?
17. How will this development affect state
aid to education and local property tax
revenues in your state?
Source: George More & George McDowell in How Extension Can Help
Communities Conduct Impact Analysis, 1982.
Important Considerations Related
to Non-market Impacts
1.
Distribution – who will be affected?
i.
ii.
iii.
iv.
2.
Will effects vary geographically?
How will different income groups be affected?
Which economic sectors will be affected?
Will the impacts vary over time?
Employment Related Impacts
i. Will the jobs be satisfying?
ii. Will commuting time and distance be affected?
iii. Will the jobs be permanent or will they be sensitive
to economic trends?
iv. Will the workers perceive the new jobs as an
improvement?
Important Considerations Related
to Non-market Impacts
3.
Population-Related Impacts
A. Demographic
i.
ii.
How much in-migration will occur?
Will the newcomers be very different from the “typical”
families in the community?
iii. What value changes might occur?
iv. Can the newcomers be easily assimilated into the
community?
B. Housing
i.
ii.
iii.
iv.
Will housing value change?
Will housing quality change?
What changes in housing ownership will occur?
Will new housing be needed?
Important Considerations Related
to Non-market Impacts
4. Community Ecology
i. Will communications networks be affected?
ii. Will religious organizations be affected?
iii. Will participation in community affairs be
affected?
iv. Will different internal-external links appear?
v. Will satisfaction with the community change?
Important Considerations Related
to Non-market Impacts
5.
Political and Local Government
i.
ii.
iii.
iv.
v.
Will leadership changes occur?
Will voter participation change?
Will public recreation facilities and use change?
Will physical safety of workers and residents
change?
What short and long term health effects could
occur?
Source: Ron Shaffer in How Extension Can Help Communities Conduct
Impact Analysis, 1982
Economic Impact Analysis
What is the question you are asking?
What data are available?
How much time do you have to
respond?
Resources – Funding?
How will you deliver the results?
For more info:
www.economicanalysis.com
(IMPLAN home page)
www.remi.com
(REMI home page)
http://www.ceds.gatech.edu/loci/loci_overv
iew.html
(a LOCI overview page from the Georgia
Institute of Technology)
For more info:
www.rupri.org/cpan/ (Rural Policy
Research Institute – Community Toolbox)
www.rd.okstate.edu/health/ok/okindex.html
(Rural Health Works - economic impact
studies of the health care sector for
Oklahoma counties.)
QUESTIONS?