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
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? - PowerPoint PPT Presentation
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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
Today’s Goals
• Introduce the basic aspects of economic impact analysis
• Review one use of economic impact analysis
Components of an Impact
ImpactingProject
DemographicImpacts
EconomicImpacts
FiscalImpacts
Social andEnvironmental
Impacts
Community
Other major developments
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
An Economy is Less Complicated than We Often
Think It Is
Businesses Householdsand
Government
A Number of Markets
• What are useful frameworks of economic theory in such instances?– General Equilibrium– Keynesian Income Accounting
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
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
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)
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
Several ways to calculate a multiplier
• Economic base multiplier
• Input-output models (Leontief)
• Both systems are demand driven (assume an exogenous change)
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
Input-Output Models
• Descriptive model of a local economy
• Industry purchase patterns– Industries buy from and sell to other
• Who would use which multipliers in a policy framework?
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