Tools for Regional Economic Development: Input Output Models · Economic Development:...
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Tools for RegionalEconomic Development: Input‐Output Models
Brian Richard, PhDCenter for Governmental Studies
Northern Illinois [email protected]
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Overview
• Introduction to input‐output models• IMPLAN input‐output model• Economic impact analysis• Some examples
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Input‐Output Models
• Input‐output models measure inter‐industry linkages
• Allow for the evaluation of changes in one industry sector on other sectors
• Produce a multiplier that measures the total effect of an increase (or decrease) in demand on employment or income
Source: Stimson, Stough, and Roberts, 2006, p. 157
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Input‐Output Models
• Based on a set of accounts describing transactions among major economic sectors– Intermediate: private business activities– Households: individuals/families residing or employed in the region
• Both buyers of goods & services and sellers of labor
– Government: local, state, and national– Outside world: activities located outside the region– Capital: stock of private capital
Source: Stimson, Stough, and Roberts, 2006, p. 158
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Input‐Output Models
Source: Hoover, 1971, p. 227
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Input‐Output Models
Source: Hoover, 1971, p. 226
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Input‐Output Models
Source: Hoover, 1971, p. 226
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Impact Analysis
• Impact analysis attempts to determine the effects of a change on specific socioeconomic groups, business sectors, or locations, and/or its effects over time
• Types of impacts– Physical– Demographic– Social– Fiscal– Economic
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Impact Analysis
• Factors to consider– Location of impacts– Monetary or nonmonetary– Primary and secondary– Private and public– Positive and negative
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Impact Analysis
• Location of impacts– Physical borders– Political borders– Economic conditions
• Urban vs. rural• Proximity of likely employees and suppliers
Impact analysis factors to consider• Location of impacts• Monetary or
nonmonetary• Primary and
secondary• Private and public• Positive and negative
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Impact Analysis
• Location
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Impact Analysis
• Location
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Impact Analysis
• Location
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Economic Impact Analysis
• Primary or Direct effects• Multiplier effects
– Indirect– Induced
• Present value of future impacts
• Costs?
• Impact analysis factors to consider– Location of impacts– Monetary or
nonmonetary– Primary and
secondary– Private and public– Positive and negative
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Primary Impacts
• What is a primary impact?• Impact location• Local expenditures vs. imports• Time frame• Dollar amount of impact
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Primary Impacts
Producer value at Factory = $250+
Transportation Margin = $30+
Wholesaler Margin = $100+
Transportation Margin = $30+
Retailer Margin = $190___________
Purchaser Price = $600
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Primary Impacts
• Export Base Theory– Basic + Non‐Basic = Total Activity– Total Activity = f(Basic) = Basic x multiplier
• The economy is driven by “Basic” activity. Basic activity is that which brings in money from outside the region, or keeps money in the region that would otherwise leave.
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Secondary Impacts
• The Multiplier Effect– Indirect impacts
• Increased activity due to firms buying their inputs from other firms within the study area.
– Induced impacts• Increased activity due to firm’s employees spending their income in the study area.
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Input‐Output Models
Source: IMPLAN
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IMPLAN Input‐Output Model
Source: IMPLAN
E X P E N D I T U R E S
Industries Commodities Factors Households Governments Capital Trade TOTALS
RECIEPTS
Industries MAKE EXPORTS Industry Output
Commodities USE CONSUMP-TION
CONSUMP-TION
INVEST-MENT
Commodity Output
Factors VALUE ADDED
Factor Receipts
Households SALES DISBURS-MENTS TRANSFERS TRANSFERS TRANSFERS EXTERNAL
INCOMEHousehold Receipts
Governments SALES DISBURS-MENTS
TAXES & TRANSFERS TRANSFERS TRANSFERS EXTERNAL
SERVICESGovernment
Receipts
Capital SALES DISBURS-MENTS
TAXES & TRANSFERS TRANSFERS TRANSFERS NET
INVESTMTCapital
Receipts
Trade IMPORTS IMPORTS IMPORTS IMPORTS IMPORTS TRANS-SHIPMENTS
Trade Receipts
TOTALS Industry Outlay
Commodity Outlay Factor Outlay Household
OutlayGovernment
OutlayCapital Outlays
Trade Outlays
Employment JOBS
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Input‐Output Model
• Multipliers
– Output multipliers ‐ based on inter‐industry transactions
– Income, employment and value added multipliers are based on output multipliers
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Input‐Output Analysis
• Multipliers
– Includes the direct or primary spending
– Includes indirect spending, or businesses buying and selling with each other
– Plus household spending based on the income earned from the direct and indirect effects ‐ the induced effect
– Multiplier = Primary + Indirect + Induced
Primary
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Input‐Output Analysis
• Multiplier rules of thumb
– At the local level, employment multipliers of greater than 3 are extremely rare
• Manufacturing 1.8 to 2.5
• Non‐manufacturing 1.3 to 1.8
• Service/retail 0 to 0.8
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Input‐Output Analysis
• Some examples using IMPLAN
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Tools for RegionalEconomic Development: Input‐Output Models
Brian Richard, PhDCenter for Governmental Studies
Northern Illinois [email protected]