A Kinder, Gentler, Simpler Economic Impact Assessment Process

1
A Kinder, Gentler, Simpler Economic Impact
Assessment Process

• Presented by
• Harry Cummings and Don Murray
• Harry Cummings and Associates Inc.
• University of Guelph
• 96 Kathleen St., Guelph, ON. N1H 4Y3
• [phone]
• Website www.hcaconsulting.ca / Email hca_at_web.ca

2
Workshop Objectives

• To increase participants understanding of basic
  concepts and tools related to economic impact
  assessment
• To apply concepts and tools to case studies

3
Agenda

• Topic/Activity Time
• Introductions 1100-1105
• What is economic impact? 1105-1110
• Why conduct an impact study? 1110-1115
• Key concepts and principles 1115-1145
• Economic impact models 1145-1200
• An alternative model case study 1200-1230
• Lunch 1230-130
• Case studies 130-300

4
What is economic impact?
Economic impact is a measure of the affect of a
sector or new project on other sectors of the
local economy. Impact can be measured in terms
of

• Regional or community income
• Employment
• Investment
• Property values
• Construction
• Revenues, expenditures, and capital costs
• Wages
• Taxes

5
What is fiscal impact?

• Fiscal impact assessment is an estimation of
  potential changes in local government revenue and
  costs as a result of a particular development
  project
• Used for estimating only direct, public costs and
  revenues on one jurisdiction it does not
  consider indirect effects

6
Why conduct an economic impact study?

• Assists in making a more informed decision about
  pursuing a new project or allocating development
  funding
• Provides a better understanding of economic
  interdependencies
• Identify investment opportunities
• Identify potential negative impacts

7
Key concepts

• Economic Base Theory
• Basic industry
• Non-basic industry
• Employment by industry, occupation
• Leakage
• Direct, indirect and induced impacts
• Multipliers

8
Economic base theory

• Exports (goods, services and labour) are viewed
  as the engine of economic growth for a region
• Increase in demand for exports generates
  expansion in support activities
• What is the overall gain in employment or income
  in the region associated with each gain in sales
  or employment from the sector or project?

9
Basic industry

• Refers to industries that produce goods and
  services that are sold to consumers outside the
  region
• The export of these goods and services brings
  dollars into the local economy
• This new money results in a net increase in
  local income

10
Non-basic industry

• Refers to those industries that produce goods and
  services that are consumed locally
• The production and consumption of these goods and
  services does not produce a net addition to the
  local economy existing dollars are
  re-circulated in the local economy

11
Leakage

• Some money leaks out of the local economy while
  it re-circulates
• The larger and more diverse the local economy,
  the more likely that purchases will be made
  locally as a result, money tends to leak out at
  a slower rate

12
Direct impacts

• The initial, immediate effects caused by a
  specific activity i.e. employment and income
• Direct impacts initiate subsequent rounds of
  income creation, spending and re-spending and
  result in indirect and induced effects

13
Indirect impacts

• The effects that result from the forward and
  backward linkages that produce the direct effect
  - i.e. the agriculture sector indirectly supports
  jobs in the manufacturing sector
• Changes to production, employment, incomes etc.
  which occur as a result of the direct effects

14
Induced impacts

• The effects of spending wages derived from direct
  and indirect activities i.e. household
  purchases of consumer goods and services
• Direct Indirect Induced Total Impact

15
Multipliers

• Measure of the ripple effect the sector or
  project has on the wider economy
• Derived from total direct, indirect and induced
  impacts
• Sales, earnings or income, employment
• Rounds of expenditure flowing through the economy

16
Can You Identify A

• Basic industry
• Non-basic industry
• Economic Leakage
• Direct Impact
• Indirect Impact
• Induced impact
• Multiplier

17
Economic Impact Analysis

• Economic base analysis
• Location quotient
• Shift Share Analysis
• Base multiplier
• Input-Output analysis
• Tracks production linkages among different
  industries in the region
• Income multiplier is developed for each regional
  industry

18
An alternative economic impact assessment process

• Considerations
• Involve various stakeholders in the process
• Define the region to be studied
• Utilize combination of methodologies in
  collecting data
• Implement media campaign
• Can be used for any sector or project

19
- Case Study -Economic Impact of Agriculture

• Measuring the direct economic impacts
• What variables to examine?
• Where to obtain the data?

20
TRACKING THE ECONOMIC IMPACTS OF THE AGRICULTURE
SECTOR
Direct Economic Impacts
Farm Gate Receipts
Farm Jobs Owners and employees
21
Direct impact data requirements methodology

• Number and type of farms, farm jobs, value of
  farm gate sales
• Review Census data Population and Agriculture

22
Industrial sector data
23
Economic Impact of Agriculture

• Measuring the indirect economic impacts
• What variables to examine?
• Where to obtain the data?

24
TRACKING THE ECONOMIC IMPACTS OF THE AGRICULTURE
SECTOR
Direct Economic Impacts
Farm Gate Receipts
Farm Jobs Owners and employees
Equipment, supplies, etc.
purchases
Agri-related Business Sales
Agri-related Business Jobs Owners and Employees
Indirect Economic Impacts
25
Indirect impact data requirements methodology

• Agri-related business jobs, value of agri-related
  sales
• Conduct agri-related business survey

26
Agri-related business survey

• Develop comprehensive list of agri-related
  businesses located in the region
• businesses that sell products/services to farmers
• businesses that buy products/services from
  farmers
• Draw random sample _at_ 95 level of confidence
• Phone survey data collection
• Agri-related sales
• Location of sales (local vs. outside the region)
• Agri-related jobs

27
Survey spreadsheet
28
Economic Impact of Agriculture

• Measuring the induced economic impacts
• What variables to examine?
• Where to obtain the data?

29
TRACKING THE ECONOMIC IMPACTS OF THE AGRICULTURE
SECTOR
Direct Economic Impacts
Farm Gate Receipts
Farm Jobs Owners and employees
Equipment, supplies, etc.
Goods and services
purchases
purchases
Agri-related Business Sales
Agri-related Business Jobs Owners and Employees
Consumer Goods Services Sales and employment
related to household spending on food, shelter,
clothing, and use of government, education and
health services
Goods and services
purchases
Indirect Economic Impacts
Induced Economic Impacts
30
Induced impact data requirements methodology

• Jobs supported by the re-spending of wages earned
  through on-farm employment or agri-related
  business employment
• Examine the ratio of primary production jobs to
  government service sector jobs in communities
  where the largest employment sector is
  agriculture
• Community case study to track re-spending

31
Estimating the total impact
32
Estimating multipliers

• Sales expenditure multiplier
• Total direct and indirect agri sales divided by
  total direct farm sales
• Ottawa example
• (136 million direct 265 million indirect)
  2.94
• 136 million direct
• Every dollar generated by direct agri sales (farm
  gate sales), generates an additional 1.94 in the
  wider economy

33
Estimating multipliers

• Employment multiplier
• Total direct, indirect and induced jobs divided
  by total direct farm jobs
• Ottawa example
• (3,510 direct 1,045 indirect 5,466 induced)
  2.80
• 3,510 direct
• Every on-farm job supports an additional 1.8 jobs
  in the wider economy

34
Questions?
35
Case Studies

• Identify and select impact projects for case
  studies
• Break-out groups
• Identify possible stakeholders in the study
• Define the region of study
• Identify information needs and possible resources
  for assessing direct, indirect, and induced
  impacts
• Report back
• Questions and answers