1. Impact Analysis
Assessing the change in local economic activity as a result of some change in the community
Some potential issues
What if we build a new prison?
What is the contribution of agriculture to the local economy?
What might be the effects of a new residential development?
Impact analysis can help with decision making and planning

2. Today’s Goals Introduce the basic aspects of economic impact analysis
Review one use of economic impact analysis

3. Components of an Impact
Community
Demographic
Impacts
Fiscal
Impacts
Impacting
Project
Social and
Environmental
Impacts
Economic
Impacts
Other major developments

4. Impact Analysis Requires We Understand Local Economic Structure
Relationships between:
Households
Businesses
Institutions
There are different aspects of impacts
Local versus non-local
Monetary versus non-monetary
Primary versus secondary
Private versus public

5. An Economy is Less Complicated than We Often Think It Is
Goods and Services
Businesses
Households
and
Government
Capital and Labor

6. A Number of Markets
What are useful frameworks of economic theory in such instances?
General Equilibrium
Keynesian Income Accounting

7. Some Applications of Economic Impact Analysis
Impacts of new or expanding businesses
Impacts of closing or contracting businesses
Economic contributions of an industry sector
Recreation/tourism development
Impacts of a new residential development

8. How Do We Measure Impacts?
Changes in industry output
Changes in local employment
Changes in local income
Local population change
Effects on local government and school districts
Others

9. Impact Analysis is Founded in Two Aspects Economic Theory
National Economic Structure
Keynesian Income Identity
Y = C + I + G + (X – M)
Models of Markets
GE models
Neoclassical Growth Models coupled with household models
Y = a(k,L)
U = u(X)

10. What Is a Multiplier?
A multiplier quantifies how a change in one sector of the economy impacts the entire economy
From an education perspective, it is an intuitive approach to understanding economic linkages

11. Several ways to calculate a multiplier
Economic base multiplier
Input-output models (Leontief)
Both systems are demand driven (assume an exogenous change)

12. Economic base Divides economy into two sectors
Exporting (basic)
Non-exporting (non-basic)
Takes the ratio of the change in total to the change in basic
Multiplies it by the change in basic activity
In practice, it is hard to divide the economy into two sectors

13. Input-Output Models Descriptive model of a local economy
Industry purchase patterns
Industries buy from and sell to other industries
Institutional purchase patterns
Households
Governments

14. I-O approach: Three Components of a Multiplier
Direct effects are changes in the industry directly affected
Indirect effects measure changes in inter-industry purchases in response to direct effects
Induced effects measure the effects of changes in spending as the number and income of households changes due to changes in production

15. Simple Multiplier Formula
Direct+Indirect+Induced
Multiplier =
Direct
Example: 100 mining jobs (direct)
50 canary and shovel jobs (indirect)
20 restaurant jobs (induced)
multiplier = ????
Q: What affects the size of the multiplier?

16. Applied Analysis Multipliers are often used in a policy framework
What are some of the reasons for using multipliers in recreation studies?

17. Local Employment and Income from Outdoor Recreation at Selected BLM Sites
Kriesel et al (1996)
Documents the economic impacts of expenditures by visitors to 3 representative BLM sites
Uses a variety of assumptions
Different geographical range
Total and “growth only” effects

18. Recreation Demand What are the Direct Impacts? visitor spending
(IMPORTANT DISTINCTION: FROM OUTSIDE THE REGION)
hotels, restaurants, food, gas, supplies
here, recreation is an EXPORT activity, bringing outside money into the economy
What are the indirect impacts?
Some of these goods will be bought locally and some will be imported (“leakages”).

19. Recreation Demand
Local firms supplying recreation and inputs will see an increase in demand, and they will need to buy inputs and labor, too.
Induced. Of course, with all these new jobs there is new money (and new people) in the economy, generating additional jobs in retail, services, etc.

20. Methods Estimate total recreation visits
Estimate expenditures per visit
Define the market area
Separate resident and non-resident expenditures
Estimate impacts from:
Non-resident expenditures (growth effects)
Combined resident and nonresident expenditures ( interdependence effect)

21. Discussion How and why would these multipliers be used?
Who would use which multipliers in a policy framework?

22. Strengths--What Multipliers Provide
A low-cost, intuitive understanding of some basic economic impacts
Changes in industry output
Changes in the number of jobs
Changes in local income

23. Weaknesses Misuse Improperly calculated/interpreted
Only give a partial picture