This document provides an overview of economic impact analysis. It defines economic impact analysis as estimating how spending associated with an event, project, or industry flows through a regional economy. It discusses the basic structure of input-output models, including direct, indirect and induced effects. It also covers assumptions of economic impact analysis and considerations like defining the direct effect, gross versus net impacts, and timing. The document provides examples of economic impact analyses of sporting events, ports, and biofuel plants to illustrate key concepts.

1. Welcome
The Basics of Economic Impact Analysis

2. Agenda
Dashboard
Speakers
Q&A
Follow-Up

3. Celine Favreau
Project Manager
Saskatchewan Economic
Development Association (SEDA)

4. Dr. Terry Clower
Director
Center for Economic Development and Research
University of North Texas

5. Overview of
Economic Impact Analysis
Presented By:
Terry Clower, Ph.D.
University of North Texas
October 27, 2011
Based on materials prepared by: H. Campbell, T. Clower, G. Hewings, K. Poole, M. White

6. Topics for Today
• Define Economic Impact Analysis
• Terminology
• Basic Structure of Input-Output Models
• Assumptions and Key Considerations
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7. What is Economic Impact Analysis?
• Estimating how spending associated with a
particular event, project, or industry flows
through a regional economy.
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8. What Economic Impact Analysis
IS NOT
• It is not the same as fiscal impact analysis.
• It is not usually a risk-adjusted analysis.
• It is not cost-benefit analysis.
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9. Why do we need impact analyses?
• Allocate resources among competing projects
• Assess the potential for an investment policy
– Retaining or expanding an existing business
– Attracting new business & economic activity
• Putting “hard numbers” on political strategies
to test their veracity
• Planning for change
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10. Steps in Performing Any
Research Project
• Identifying stakeholders
• Understanding the project & its details
• Deciding on scope of the analysis
– Geographic
– Type of analysis
– Timing
• Understanding costs and identifying resources
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11. Production
Function
Production Function for a
Spiral-bound notebook
7

12. Input-Output Models
Input-Output Models add Households
• both suppliers of labor inputs to regional industries
and purchasers of regional outputs
• earnings include:
– wages & salaries
– proprietors’ income
– directors’ fees
– employer contributions for healthcare insurance less
– personal contributions for social insurance
• household column based on PCE
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13. Input-Output Models
• Direct effects:
– The direct activity(s) of the project in question
– Usually defined the direct effects in terms of output or
employment.
– Most important step in conducting the analysis!!
• Indirect effects:
– Capture the impacts on firms that (directly and indirectly)
supply the activity defined in the direct effect(s). (Type I
multiplier)
• Induced effects:
– Captures impacts of spending by households receiving income
based on direct and indirect effects (Type II multiplier)
9

14. Input-Output Models
Multipliers are expressed in terms of output, employment and
income.
• Type I
• (direct & indirect effects) measures the economic impact of business
interactions - excludes the impact of household expenditures. (“Open”
model)
• Type II
• (direct, indirect, induced) captures the economic impact of business
and household expenditures in a linear procedure, which tends to
overstate household impacts. (“Closed with respect to households”)
• Type III
• (Social Accounting Matrix SAM multipliers) A hybrid of Type II
multiplier with no set methodology designed to compensate for
overestimations of Type II
Note: Each industry sector has its own multipliers
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15. Input-Output Models
Input-Output Assumptions:
• Constant returns to scale
• Linear and homogenous production functions
• Perfectly elastic factor supplies
• Constant technology
• Note: Some commercial models adjust for these.
Economic Impact Analysis

16. Input-Output Models
Other Considerations
• Study area definition
• Gross vs. Net Impacts
– Accounting for leakages/spending realignment
• Timing
• Adjusting for prices
• Defining the direct effect
• Margins
Economic Impact Analysis

17. The Functional Economic Area
Residential
Travel Location of
Corridors Labor Force
Impact
Site Consumer
Location of
Support Locations
Services
Location of
Supporting
Industries
Economic Impact Analysis

18. Input-Output Models
Gross vs. Net Impacts:
It’s all about the spending and who is doing/receiving
the spending.
Economic Leakages
– When spending leaves the region
– Common in trade shows, etc.
– In Charlotte, 75 percent of trade show vendors came from
other areas
• Took their sales home with them
• $124M (gross) reduced to $30M (net)
Opportunity Costs?
Economic Impact Analysis

19. Input-Output Models
Spending Realignment & Substitution Effects
• The “zero sum” effect:
– When spending on one activity (pro sporting
events) substitutes for other spending
– Can account for as much as 5%-50% direct event
spending.
– Seattle Mariners: have an impact of $75-$100
Mill., but only $22 Mill. is “new” (Dick Conway)
Economic Impact Analysis

20. Case Study 1: Sporting Events
• American Legion World Series
– Shelby, NC
• 500 hotel rooms
• 47 airport pickups
• $5 million economic impact
http://www.shelbystar.com/articles/expected-57245-world-impact.html
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21. Input-Output Models
Timing of the Study
• a-priori
– Projected spending
• Realistic?
• After the event
– Actual spending
• Appropriate timing depends on purpose
• Comparatively few after the fact studies
Economic Impact Analysis

22. Input-Output Models
Timing: Impacts by Endurance
• Temporary impacts of construction activities
– Construction may last several months or several
years (for some roads, never ending)
– Once construction stops, impacts cease
• Recurring Impacts
– Operations
– Maintenance / repair
• Opportunity costs?
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23. Input-Output Models
Price Adjustments
• I-O models are calibrated to a base year
– Rarely corresponds to the impact year
– Dollar values must be adjusted to model base year
• Sometimes secondary data are “dated”
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24. Input-Output Models
Defining the Direct Effect
• Most important step
• New firm coming to town
– Industry already exists in the area: use established
multipliers
– Industry not in area: may have to build estimates
based on firm expenditure patterns
• Bill of goods approach
• Costly, time consuming, fraught with error, probably
can’t get detailed data
Economic Impact Analysis

25. What do you count?
• Impacts of a highway include the new
distribution center that locates nearby?
• Impacts of a new reservoir include the new
powerplant that uses the water supply?
• Impact of the Golden Gate Bridge include
increased tourism?
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26. Case Study 2: Port of Baltimore
• “…provides a very comprehensive and extremely
broad view of the economic impact of cargo …”
• Port activity: 50,200 jobs
– 16,500 direct jobs
– 14,200 indirect jobs
– 19,500 induced jobs
• Related activities: 68,300
• “Nearly 120,000 jobs linked to the port.”
http://mpa.maryland.gov/_media/client/planning/EconomicImpactReport-revisedJan%2708.pdf
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27. Case Study 3: Bio-Fuel Plants in Canada
• Construction and operations phases
– 28 plants plus one R&D facility
• Construction
– Adjusted for “opportunity costs”
– $2.3 billion investment
– $2.9 billion impact
– 14,177 jobs
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28. Case Study 3: Bio-Fuel Plants in Canada
• Operating
– Net and Gross
– Includes increased oil exports
– Includes net present value of 30 years of ops
• Gross:
– $2.7 billion
• Net: displacement of feedstock
– $2.0 billion
http://www.greenfuels.org/uploads/documents/01_doyletech_total.pdf
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29. Impact Issue:
More Adjustments?
• New Jobs vs. More Hours
• Exports
• Import substitution
– Disaster impacts
• Spending realignment
• Adjusting output – producer versus purchaser
prices
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30. It’s Not Just The Model;
It’s Also the User
 The Biggest Errors in Conducting Impact Analyses Are
Often “User Errors”
 All benefits and no negative consequences
Displacement issues (What were residents doing
before there was a baseball stadium?)
 Overstating the net new growth
 Timing of Impacts
Investment Today, Impacts Tomorrow
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31. Un-Measurable Impacts
• Impacts that are real and have quantity, but
are very difficult to assess.
– Value of media exposure
– Long term impact on tourism, business attraction
(nothing draws a crowd like a lot of people)
– Is an event an amenity that enhances the value of
nearby properties?
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32. Intangible Impacts
• Impacts that are real, but are not practically
observable or measurable.
– Civic pride
– Place bonding
– Community cohesiveness
– Other?
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33. Legion World Series will be an economic grand slam for
Cleveland County. Sunday, Aug 7 2011, 1:17 pm.
National media coverage from ESPN3 will showcase the American Legion
games but will also “paint a picture of what our community’s really like,”
…that estimate, however, is only for the time when the World Series is in
town. …. it’s possible baseball fans will return to Shelby in the coming
months and years, if not for a World Series, then for the charm of Cleveland
County.
500 volunteers
“The way that our entire community has pulled together, worked together,
volunteered, raised money to bring it here —that’ s been a tremendously
unifying force,” Alexander said.
http://www.shelbystar.com/articles/expected-57245-world-impact.html
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34. Conclusions
• Economic impact analysis is a valuable tool –
when properly done.
• State clearly or understand the parameters
and limitations.
• Best analysis does not always result in the
biggest number.
• If conducting or commissioning an impact
study, manage stakeholder expectations.
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35. Questions?
Terry L. Clower, Ph.D.
Center for Economic Development & Research
University of North Texas
tclower@unt.edu
www.unt.edu/cedr
Council for Community & Economic Research (C2ER)
www.c2er.org
Economic Impact Analysis 31

36. Links
• Economic Impact Model for Arts and Heritage. Online tool.
http://www.pro.rcip-chin.gc.ca/sommaire-summary/mieap-eimah-eng.jsp
• Ontario tourism impact model
http://www.mtc.gov.on.ca/en/research/treim/TREIM%20Model%20Design.pdf
• Doyletech
http://www.doyletechcorp.com/services-ea.htm
• Nova Scotia Tourism impact model
http://www.gov.ns.ca/tourisminvestment/research.html
• Yukon Economic Impact Calculator
http://economics.gov.yk.ca/impactcalculator.htm
• Statistics Canada model order form
http://www.statcan.gc.ca/bsolc/olc-cel/olc-cel?lang=eng&catno=15F0004X
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37. Q&A
Please send your questions via the Chat or
Question widget on your dashboard.

38. Stay in Touch
Thank you for joining us!
Celine Favreau
Project Managr, SEDA
@saskecdevassoc
@growourregion
celine.favreau@seda.sk.ca
Dr. Terry L. Clower
Director, Center for Economic Development and Research
University of North Texas
tclower@unt.edu