The CNMI’s Econometric Model
Presented By:
The Marianas EB5 Regional Center
For The:
CNMI Department of Commerce
Paid By:
The US Department of Interior
Office of Insular Affairs
Model Background
Who, What, Why & How
•
Background
The CNMI’s Economic Modeling
•
Outdated and inconsistent with current economic realties
•
•
Doesn’t reflect impact of loss of manufacturing & tourism changes
Current Economic Measures
•
2007 & 2010 Gross Domestic Products
•
•
Produced by the US Bureau of Economic Analysis
Provides a true measure of economic health
•
•
Economic Indicators
•
•
•
Estimates are hindered by data gaps and the need to extrapolate data made available
State-level collection of economic markers which provide a sense of economic condition
Not consistently collected and reported
Consumer Price Index
•
•
State-level collection of prices in specific “market baskets” which gauge inflationary changes to general consumer
commodities
Historically only collected on Saipan, which didn’t reflect nature of inter-island price fluctuations for the specific time
collected
•
Recently developed Tinian & Rota CPI’s to account for actual changes in those specific economies
Need for a Model
• To forecast impacts of specific projects, proposals and/or policy decisions
•
Useful in understanding multiplier impacts of specific economic activity
•
•
Useful in forecasting impacts of policy implementation specific to the economic
condition
•
•
Example: How many jobs a specific development will create (Direct, Indirect & Induced)
Example: How will changes to tax laws or structure impact revenues
Useful in the application/evaluation of economic development programs
•
•
The CNMI’s Qualifying Certificate Program
Free Trade Zone Incentives
CNMI Steps
• CNMI Department of Commerce
•
•
•
•
Primary government entity for reporting economic condition through its Central
Statistics Division
Applied for a Technical Assistance Grant from the US Department of Interior, Office of
Insular Affairs
Placed RFP12-DOC-064
Contract awarded to the Marianas EB5 Regional Center
•
•
Economist: Dr. Michael K. Evans of Evans, Carroll & Associates
Contractor report to Governor Inos in June 2013
•
Identified data gaps and discussed impact to the economic model
CNMI’s Economic Model
• Model Summary
•
Model was developed without specific time series data points (2003-2010)
•
•
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Attempts to extrapolate data utilizing from the BEA, Economic Census & CNMI data, however
too many inconsistencies existed to make extrapolation useful
Availability of 2011 GDP estimates from BEA
•
•
•
Wages & employment: Impacts the wage/employment sections of the model
Anticipated release of 2011 GDP estimates will include revisions to 2009 & 2010 data
CNMI’s model will be recalculated once the revisions are made available
Tourist spending data
•
•
MVA data provide tourist arrivals, however spending patterns per market are not available
If data collection occurs specific to tourist spending, model can accommodate changes to include
these data points
Model Elements
Equations & elements of the CNMI Model
Model Framework
Categories Utilized In Model Framework
Consumption
Gross Domestic Product
Fixed Investments
Employment
Export of goods
Wages
Export of services
Consumer Price Index
Import of goods
Implicit GDP Deflator
Import of services
Domestic personal disposable income
Federal government consumption &
investment
Foreign measures of personal income
Territorial government consumption &
investment
Exogenous variables*
Foreign variables for Japan, China & Korea and includes values of
the currencies & real GDP for those countries.
Key variable: Number of Visitors
Impacts: Total Demand
Consumption Charts: Consumer Durables
160
150
140
12
130
8
120
110
4
100
0
-4
-8
2003
2004
2005
2006
Residual
2007
Actual
2008
Fitted
2009
2010
•
Excludes spending patterns of Japanese
visitors
•
Represents shopping patters in which
consumers purchase genuine products vs.
counterfeit products in their home country
Consumption Charts: Consumer Non-Durables
280
260
240
220
•
Consumption closely tied to current conditions
200
20
180
10
0
-10
-20
2002
2003
2004
2005
Residual
2006
2007
Actual
2008
Fitted
2009
2010
Consumption Charts: Consumer Services
480
440
400
360
8
320
4
280
0
-4
-8
-12
2003
2004
2005
2006
Residual
2007
Actual
2008
Fitted
2009
2010
•
When housing expenditures rise, purchases of
fuel & household non-durables (utilities, etc.)
rise
•
Increases in non-durables may serve as the
cause of housing expenditure increases.
Consumption Charts: Net Foreign Travel
480
440
400
•
Equation developed to maintain consistency
with BEA statistics
•
Similar to export of services
360
8
320
4
280
0
-4
-8
-12
2003
2004
2005
2006
Residual
2007
Actual
2008
Fitted
2009
2010
Fixed Investment Equation
• Includes housing & capital spending
• Population decline consistent with the need for housing
• Capital spending primarily for tourism based investments with the exit of
the garment manufacturing industry
• Visitor arrivals critical independent variable for this equation
Export Charts
320
280
240
200
0.8
160
•
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Goods export is minimal and statistically
insignificant
Export of services is closely tied to tourism and
visitor arrivals
•
0.4
0.0
-0.4
-0.8
-1.2
2002
2003
2004
2005
Residual
2006
2007
Actual
2008
Fitted
2009
2010
Data similar to Net Foreign Travel
(Consumption)
Export: Visitor Arrivals
Japan
•
China/Korea
Decline consistent with JAL pullout and
fluctuation with Japan’s Real GDP
13.0
280,000
12.8
240,000
12.6
200,000
12.4
.15
12.2
.10
12.0
.05
11.8
.00
20,000
160,000
10,000
120,000
0
-.05
-10,000
-.10
-20,000
-.15
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Residual
Actual
Fitted
02
03
04
05
06
Residual
07
08
Actual
09
10
Fitted
11
12
Imports
1,000
•
800
Total demand is difficult to measure due to
scarcity of data
•
•
Employee compensation is used to measure
aggregate demand
Exports of goods are more clearly linked to
imports due to the need to import raw
materials
600
40
400
20
200
0
-20
-40
-60
2002
2003
2004
2005
Residual
2006
2007
Actual
2008
Fitted
2009
2010
Government Consumption Territorial
•
•
Federal consumption is statistically
insignificant
Wages are used as a proxy for aggregate
demand
Manufacturing Compensation
•
•
Manufacturing wages are closely tied to export
of goods
Decline consistent with garment
manufacturing exit
Compensation for Government Workers,
Territorial
•
Boosts in visitors increases the need for local
services, which accounts for the rise in 20092010
Private Sector Wage
•
•
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Excludes manufacturing & government wages.
Usually separated into several sectors, but due
to data gaps, CNMI’s model is unable to
provide sector specific information
CNMI’s model utilizes the CPI as a correlation
value versus standard output measures
Implicit GDP Deflator
•
Constructed to close the gap between current
& constant dollar GDP
Consumer Price Index for CNMI
•
1% increase in minimum wage= 0.3% in CPI
Final Five Equations
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Not estimated stochastically
2010 Employment in manufacturing , trade,
hotels, and restaurants, all other private, and
government to relevant components of GDP.
•
•
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EM = XGX * 39/17
ETR = (CDX + CNX) * 3495/313
HER = XSX * 5779/180
EOTH = (CSX + IPX) * 12220/331
EG = GSLX * 5277/300
E= EM + ETR + HER + EOTH + EG
Utilizing the Model to Forecast
Simulation of a $10,000,000.00 injection into the CNMI economy
Forecast Simulation & Results
• Considered a forecast despite having known variables (visitor arrivals), due
to pending release of GDP account figures
•
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Current GDP for 2011 & 2012 to rise from 4.1% change from 2010 (last known results)
Constant GDP for 2011 & 2012 to rise from 0.9% in 2011 to 6.0% in 2012
•
Increase in GDP for 2011 & 2012 due to increase in visitor arrivals of 20,000
• Model Simulations
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Both test an impact of $10,000,000.00 into the CNMI economy
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First scenario arrives at the $10,000,000.00 via an increase in visitor arrivals of 20,000
Second scenario arrives at the $10,000,000.00 via an increase in capital spending
Economic Impact of an Increase 20,000 Visitors
• Assumptions of model
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Average visitor spends roughly $500.00 x 20,000 visitors= $10,000,000.00
• Simulation Purpose
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Simulation looks at the economic impact of an additional 20,000 visitors and its impact
to overall economic impact over a three year period
• Results of Simulation
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Increase of three year increase of $12 Million in first year, $17 Million in second year &
$20 Million in third year of a $10,000,000.00 “shock” into the CNMI economy
•
Multiplier for an increase of 20,000 visitors into the CNMI economy is 2.0 over three years
Economic Impact of an Increase in Capital
Spending of $10 Million
• Multiplier is 1.2 versus 2.0 (increase in visitor arrivals)
•
Capital spending multiplier is lower due to the need to import goods, whereas tourism
based increase is higher due to the amount of domestic spending.
•
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Money is remitted out of the local economy in import expenditures
The impact of tourism spending creates and sustains higher employment numbers vs.
capital spending