1
Economic Impact of Industrial Development
Arising from the Rickenbacker East-West Connector Road
Bill LaFayette, Ph.D., Regionomics LLC
Estimating Economic Impact
The basis for the estimation of the economic impact of the Rickenbacker East-West Connector Road is
the construction of distribution facilities and the employment in those facilities on land that will become
developable for distribution uses once the road is in place. The impact estimated here is that of the
development arising from the road’s construction, not the road itself (which is an insignificant share of
the overall impact).
The project area as defined by Pickaway County includes a total of 6,611 acres bounded by the Pickaway
County line on the north, Walnut Creek Pike on the east, a line parallel to and south of Duvall Road on
the south, and Route 23 on the west. However, only the land within this area and west of the rail line –
2,553 acres – is currently designated for industrial development. This study considers the impact of
development only within this smaller area. While it is likely that a larger area will eventually be
converted to industrial use, predicting future development patterns is essentially conjectural and
beyond the scope of this analysis.
The impact area is defined as the Columbus Metropolitan Statistical Area (MSA), which includes eight
counties: Delaware, Fairfield, Franklin, Licking, Madison, Morrow, Pickaway, and Union. This is a
convenient area of analysis because MSAs are delineated on the basis of worker commuting patterns,
and so reflect the area within which most employees live and shop.
Impacts are of two basic kinds, output impacts and employment impacts. Output impacts measure the
impact of a one-dollar increase in production within a given industry on the gross domestic product of
the region. Employment impacts measure either the impact of either an increase in production or an
increase in employment within the industry in question on total regional employment. These impacts
arise from the fact that increases in production leading to business purchases from suppliers within the
region and wages and salaries paid to workers within the region cause additional increases in economic
activity and output. The sales of Columbus MSA suppliers increase, increasing output, and their
employment may increase as well. The employees of distribution operations in the vicinity of the
connector and their suppliers use the wages paid as a result of the increased output to make additional
household purchases of all types, which creates further rounds of spending and output growth. These
other impacts are referred to as “indirect impacts.” The key point is that this additional spending would
not have occurred had the land not been opened for development and the direct activity not occurred.
For this reason, these indirect impacts are as much a part of the economic impact of the development
arising from the connector and as are the direct impacts.
The indirect impacts can be estimated by applying an economic impact model to the direct output or
employment increase. Several generally-accepted models are available for this purpose; this analysis
uses the Regional Input-Output Modeling System (RIMS-II), developed by the United States Bureau of
Economic Analysis. As is the case for the other impact models, RIMS-II is based on a framework called
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an input-output table. For a given industry in a given geographical area, the input-output table shows
the increase in purchases from other local firms by industry and the sales to other local firms by industry
that result from a one dollar increase in the given industry’s output. Thus, the input-output table can be
used to derive the impact on other local firms of an increase in production within a specific industry.
These impacts are specific both to a given industry and to a given region. The array of suppliers that
benefit from an increase in demand for distribution and logistics services is generally the same
regardless of location. But if the structure of the regional economy is such that these companies are
forced to make most of their purchases from vendors outside the region, then most of the impact will
leak from the economy. Conversely, a broad regional economy with a wide array of suppliers will keep
more of the impact of the output increase circulating within the economy, and the impact of an increase
in activity in the area of the connector will be much greater. Thus, the values within the input-output
table are unique both to the industry and to the MSA. RIMS-II summarizes the information in the
regional input-output table by calculating a set of unique impact factors for each of 490 detailed
industries within the Columbus MSA. Because of their origin in the input-output table, the factors
implicitly reflect the structure of the regional economy and the presence or absence of suppliers within
the Columbus MSA.
In the case of construction impacts, the construction cost – and hence the impact on output – is
available but the number of direct and indirect jobs sustained by the construction activity is not. On the
other hand, the number of jobs supported by operations in a given number of square feet of
development is available but the operating output is not. Because the RIMS-II multipliers are
interrelated, the missing component (jobs for construction and output for operations) can be estimated
along with associated indirect impacts by using the available component to back into the missing one. 1
Specifically, the given construction cost in producer-price terms is multiplied by the factor relating direct
and total output to give the total impact on regional GDP; the indirect impact is the difference between
total impact and indirect impact. Another factor represents the total number of jobs (direct and
indirect) sustained by a $1 million increase in construction output. This is used to estimate the total
impact on regional employment resulting from the construction activity. Direct jobs are obtained by
dividing this total by the factor representing the number of total jobs sustained by each direct
construction job; indirect jobs are the difference between total and direct.
For the operating impacts, the given number of direct jobs enabled by the development is multiplied by
the factor relating direct transportation and warehousing jobs and total jobs to obtain the total
employment impact. Dividing total jobs by the factor relating transportation and warehousing output
and total employment gives the direct output sustained by the employment (in millions). This result
multiplied by the factor relating direct and total output gives the total and hence the indirect output
impact.
1
The RIMS-II model requires that direct output activity be converted to producer-price terms, and all derived
indirect and total output amounts are also in producer-price terms. The RIMS-II system includes the necessary
conversion factors.
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Estimating Construction and Operating Impacts of Development Enabled by the East-West Connector
Impacts arising from development enabled in the 2,553-acre area by the East-West Connector are
inherently speculative, so it is prudent to construct a range of impact estimates based on the amount of
land opened for development and the rate at which development occurs. It is assumed that
development will occur at an even pace over 10, 20, or 30 years.2 Output impacts are the present value
of 40 years’ worth of the annual construction and operating impacts.
Development and employment made possible on the available acreage are estimated from existing
development patterns and employment in the Rickenbacker area. (It is implicitly assumed that the new
development will resemble the existing development nearby in both type and scale.) On average,
buildings in the Rickenbacker area occupy approximately 20,000 square feet of each acre (a floor area
ratio of 46 percent); those 20,000 square feet accommodate approximately 10 workers. Thus, the
2,553-acre area can accommodate 51.06 million square feet of development and employ nearly 17,800.
Construction costs are obtained by surveying executives at local construction companies and averaging
the results, giving a construction cost per square foot of $39.25.
Not all of this development can be counted as impact, however. Impact is created only by development
that would not occur within the MSA if the road were not built. Newly-attracted projects create an
impact, but so do existing projects that would have relocated to a different region had the developable
land not been created. (Economists call this a “blockage impact.”) It is assumed that other projects
locating in the study area would have located elsewhere in the MSA if the new acreage were not
available for development. Because the construction and employment would have occurred within the
region whether the connector were developed or not, this impact is a wash. It is assumed that 40
percent of the total new development represents attraction and one-half of the remaining development
represents a blockage impact, so 70 percent of the total development creates a net impact on the
regional economy.
The final parameter needed is the discount rate to bring future output totals to present value terms.
This rate must be estimated with care because the present value of long-term cash flows is highly
sensitive to the discount rate. Because the flows cannot be forecast with precision, occur over a long
period, and do not include inflation, the correct discount rate is a long-term real (i.e., inflation-adjusted)
equity discount rate. Using the standard approach, this rate is constructed as a risk-free rate less a
premium for expected inflation plus a risk premium. The risk-free rate is the average 30-year constantmaturity Treasury rate for May 2011 (4.3 percent) less an inflation premium of 2.0 percent. The equity
risk premium is 3.5 percent, based on recent work of Donaldson, Kamstra, and Kramer.3 This results in a
discount rate of 5.8 percent.
2
The impact includes only that of the initial construction, not demolition and construction of replacement
facilities.
3
Donaldson, R. Glen, Mark J. Kamstra, and Lisa A. Kramer. "Estimating the Equity Premium." Journal of Financial &
Quantitative Analysis 45.4 (2010): 813-846. Business Source Premier. EBSCO. Web. 1 July 2011.
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Results of the Estimation
The results of the analysis described in the previous sections are summarized below. Table 1 presents
the total present value (in thousands) of the output impacts of the construction and operation of
facilities under each of the three assumptions regarding the time required fully to develop the 2,553
acres. Table 2 gives the estimates of direct and indirect employment at five-year intervals to year 30.
(Direct construction and warehouse employment are combined.)
Table 1: Output Impacts
(Dollar amounts in thousands)
Development period
10 years
20 years
Construction
Direct
Indirect
Total
Operating
Direct
Indirect
Total
Total
Direct
Indirect
Total
Year 5
10-year development
Direct
8,255
Indirect
7,374
Total
15,629
20-year development
Direct
4,127
Indirect
3,687
Total
7,814
30-year development
Direct
2,752
Indirect
2,458
Total
5,210
$
842,554
1,296,776
$ 2,139,330
$
661,001
1,017,347
$ 1,678,348
30 years
$
531,609
818,199
$ 1,349,808
$ 16,216,344
18,300,144
$ 34,516,488
$ 12,147,951
13,708,963
$ 25,856,914
$ 9,248,426
10,436,849
$ 19,685,274
$ 17,058,898
19,596,919
$ 36,655,818
$ 12,808,952
14,726,310
$ 27,535,262
$ 9,780,035
11,255,048
$ 21,035,082
Table 2: Employment Impacts
Year 10
Year 15
Year 20
Year 25
Year 30
17,190
14,803
31,993
17,871
14,858
32,729
17,871
14,858
32,729
17,871
14,858
32,729
17,871
14,858
32,729
8,595
7,401
15,997
13,063
11,116
24,179
17,531
14,830
32,361
17,871
14,858
32,729
17,871
14,858
32,729
5,730
4,934
10,664
8,709
7,411
16,119
11,687
9,887
21,574
14,666
12,363
27,029
17,644
14,840
32,484