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.
Its 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 time-
series 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 statica 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, county-
level models are not always available in
REMI. Available at the state and regional
levels.
 Comparing Models

Software Strengths Drawbacks

I-O IMPLAN County level, Static, ignores govt
understandable costs
multipliers
Fiscal LOCI Measures govt Not good at estim.
costs, city level multipliers
Econometric Many Dynamic Large data needs,
complex
Simulation REMI Dynamic, good Huge data needs,
multipliers complex
Bottom line

No single model can

answer all the questions.
Important Considerations for
Private Sector Impact Measurement
1. How many workers will be hired, and what is
the expected payroll and expected value of
production?
2. What is the multiplier effect?
3. When will the items listed in #1 go into effect?
4. Is the new economic activity associated with the
operation of the business or the construction?
5. 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 communitys 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 Govt
Sector Impact Measurement
1. Within what governmental jurisdictions will
new families live?
2. How many in-migrant families are expected &
what is their expected income level?
3. How many school age children are expected?
4. How well will the public services and schools
be able to handle the expansions?
5. Are there migration fees to cover additional
public service costs?
Important Considerations for Govt
Sector Impact Measurement
6. 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?
 Important Considerations for Govt
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 Govt
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. Will effects vary geographically?
ii. How will different income groups be affected?
iii. Which economic sectors will be affected?
iv. Will the impacts vary over time?
2. 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. How much in-migration will occur?
ii. 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. Will housing value change?
ii. Will housing quality change?
iii. What changes in housing ownership will occur?
iv. 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. Will leadership changes occur?
ii. Will voter participation change?
iii. Will public recreation facilities and use change?
iv. Will physical safety of workers and residents change?
v. 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_over
view.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?