An economic impact analysis (EIA) examines the effect of an event on the

economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...

in a specified area, ranging from a single neighborhood to the entire globe. It usually measures changes in business

revenue In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive rev ...

, business

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...

s, personal wages, and/or jobs. The economic event analyzed can include implementation of a new policy or project, or may simply be the presence of a business or organization. An economic impact analysis is commonly conducted when there is public concern about the potential impacts of a proposed project or policy. An economic impact analysis typically measures or estimates the change in economic activity between two scenarios, one assuming the economic event ''occurs'', and one assuming it ''does not occur'' (which is referred to as the

counterfactual Counterfactual conditionals (also ''subjunctive'' or ''X-marked'') are conditional sentences which discuss what would have been true under different circumstances, e.g. "If Peter believed in ghosts, he would be afraid to be here." Counterfactual ...

case). This can be accomplished either before or after the event (''ex ante'' or ''ex post''). An economic impact analysis attempts to measure or estimate the change in economic activity in a specified

region In geography, regions, otherwise referred to as zones, lands or territories, are areas that are broadly divided by physical characteristics ( physical geography), human impact characteristics ( human geography), and the interaction of humanity an ...

, caused by a specific business, organization, policy, program, project, activity, or other economic event. The study region can be a neighborhood, town, city, county,

statistical area The federal government of the United States, United States federal government defines and delineates the nation's metropolitan areas for statistical purposes, using a set of standard statistical area definitions. the U.S. Office of Management an ...

, state, country, continent, or the entire globe.

Types of economic impacts

Economic impact analyses often estimate multiple types of impacts. An ''output impact'' is the total increase in business sales revenue. In turn, local businesses use some of this new revenue to pay for goods and services outside of the study region, so the output impact is not synonymous with local business profits. A more conservative measure of economic activity is the ''value added impact'', which estimates the increase in the study region’s

gross regional product Gross regional product (GRP) is a monetary measure of the market value of all final goods and services produced in a region or subdivision of a country in a period (quarterly or yearly) of time. A metropolitan area's GRP (gross metropolitan prod ...

. The gross regional product (GRP) is very similar to the nation’s

gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is of ...

(GDP), and represents the total size of the local economy. This impact estimates the increase in local employee wages plus local business profits (not total revenue, like the output impact). However, the value added impact may overstate local profits when they are transferred overseas (such as in the form of dividends or investments in foreign facilities). An even more conservative measure is the ''labour income impact'', which represents the increase in total money paid to local employees in the form of salaries and wages. The increases in income may come in the form of raises and/or increased hours for existing employees, or new jobs for the unemployed. This is a measure of the economic impact on just personal incomes, not business revenues or profits. A similar measure is the ''employment impact'', which measures the increase in the number of total employees in the local region. Instead of measuring the economic impact in terms of money, this measure presents the impact on the number of jobs in the region. Another measure of economic impact is the ''property value impact'', measuring the increase in total property values, and is a reflection of generated income and wealth, both personal and business.

Sources of economic impacts

In addition to the types of impacts, economic impact analyses often estimate the sources of the impacts. Each impact can be decomposed into different components, depending on the effect that caused the impact. ''Direct effects'' are the results of the money initially spent in the study region by the business or organization being studied. This includes money spent to pay for salaries, supplies, raw materials, and operating expenses.a The direct effects from the initial spending creates additional activity in the local economy. ''Indirect effects'' are the results of business-to-business transactions indirectly caused by the direct effects. Businesses initially benefiting from the direct effects will subsequently increase spending at other local businesses. The indirect effect is a measure of this increase in business-to-business activity (not including the initial round of spending, which is included in the direct effects). ''Induced effects'' are the results of increased personal income caused by the direct and indirect effects. Businesses experiencing increased revenue from the direct and indirect effects will subsequently increase payroll expenditures (by hiring more employees, increasing payroll hours, raising salaries, etc.). Households will, in turn, increase spending at local businesses. The induced effect is a measure of this increase in household-to-business activity. Finally, ''dynamic effects'' are caused by geographic shifts over time in populations and businesses.

Method

Economic impact analyses usually employ one of two methods for determining impacts. The first is an

input-output model In computing, input/output (I/O, or informally io or IO) is the communication between an information processing system, such as a computer, and the outside world, possibly a human or another information processing system. Inputs are the signal ...

(I/O model) for analyzing the regional economy. These models rely on inter-industry data to determine how effects in one

industry Industry may refer to: Economics * Industry (economics), a generally categorized branch of economic activity * Industry (manufacturing), a specific branch of economic activity, typically in factories with machinery * The wider industrial sector ...

will impact other sectors. In addition, I/O models also estimate the share of each industry's purchases that are supplied by local firms (versus those outside the study area). Based on this data, multipliers are calculated and used to estimate economic impacts. Examples of I/O models used for economic impact analyses are IMPLAN, RIMS-II, Chmura, and Emsi. Another method used for economic impact analyses are economic simulation models. These are more complex

econometric Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics," '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...

and

general equilibrium In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an o ...

models. They account for everything the I/O model does, plus they forecast the impacts caused by future economic and demographic changes. One such an example is the REMI Model.

Comparison to other analyses

Economic impact analyses are related to but differ from other similar studies. An economic impact analysis only covers specific types of economic activity. Some social impacts that affect a region's

quality of life Quality of life (QOL) is defined by the World Health Organization as "an individual's perception of their position in life in the context of the culture and value systems in which they live and in relation to their goals, expectations, standards ...

, such as safety and pollution, may be analyzed as part of a social impact assessment, but not an economic impact analysis, even if the economic value of those factors could be quantified. An economic impact analysis may be performed as one part of a broader

environmental impact assessment Environmental Impact assessment (EIA) is the assessment of the environmental consequences of a plan, policy, program, or actual projects prior to the decision to move forward with the proposed action. In this context, the term "environmental imp ...

, which is often used to examine impacts of proposed development projects. An economic impact analysis may also be performed to help calculate the benefits as part of a cost-benefit analysis.

Applications

Economic impact analyses are used frequently in

transportation planning Transportation planning is the process of defining future policies, goals, investments, and spatial planning designs to prepare for future needs to move people and goods to destinations. As practiced today, it is a collaborative process that ...

. Common tools for this application include the

Transportation Economic Development Impact System Transportation Economic Development Impact System (TREDIS) is an economic analysis system sold by consulting firm Economic Development Research Group that is used in planning major transportation investments in the US and Canada. The role of eco ...

(TREDIS) and TranSight. Several transportation agencies, including the

Transportation Research Board The Transportation Research Board (TRB) is a division of the National Academy of Sciences, Engineering, and Medicine, formerly the National Research Council of the United States, which serves as an independent adviser to the President of the Uni ...

and

US Department of Transportation The United States Department of Transportation (USDOT or DOT) is one of the executive departments of the U.S. federal government. It is headed by the secretary of transportation, who reports directly to the President of the United States a ...

, publish guides, standards, and techniques for utilizing economic impact analyses in transportation planning projects. Economic impact analyses are often used to examine the consequences of

economic development In the economics study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and ...

projects and efforts, such as real estate development, business openings and closures, and

site selection The award-winning ''Site Selection'' magazine, published by Conway Data, Inc., is the official publication of thIndustrial Asset Management Council(IAMC). The magazine delivers expansion planning information to over 44,000 readers including corpora ...

projects. The analyses can also help increase community support for these projects, as well as help obtain grants and

tax incentives A tax incentive is an aspect of a government's taxation policy designed to incentivize or encourage a particular economic activity by reducing tax payments. Tax incentives can have both positive and negative impacts on an economy. Among the posi ...

. An economic impact analysis is commonly developed in conjunction with proposed legislation or regulatory changes, in order to fully understand the impact of government action on the economy. The

United States Department of Energy The United States Department of Energy (DOE) is an executive department of the U.S. federal government that oversees U.S. national energy policy and manages the research and development of nuclear power and nuclear weapons in the United States ...

economic impact model is one example of this type of application. Many times the economic impact analysis is developed by the party advocating for the legislative or regulatory change, to communicate the merits of the proposed action. It can be useful with

lobbying In politics, lobbying, persuasion or interest representation is the act of lawfully attempting to influence the actions, policies, or decisions of government officials, most often legislators or members of regulatory agencies. Lobbying, whic ...

, media relations, and community outreach efforts.

References