Difference between revisions of "Economic impact"

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'''Economic impact''' is the unilateral causality between economic notions on the one hand and outcomes of a private and/or public project, decision, event or policy on the other hand. It may be viewed (or measured) in terms of output: value added, wealth, personal income (wages), public income and expenditures or employment levels ([[causes::economic output]])<ref>Source: B. and G. Weisbrod (1997). Measuring economic impacts of projects and programs. Economic Development Research Group.</ref>.
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Governments and private parties develop many ambitious ideas and plans for spatial development and new infrastructure. Hence, one regularly reads in the news about claims that the development of a new urban area creates X jobs in an area or that a big sport venue generates Y million Euros in sales or income in a community, et cetera. These effects are also referred to as economic effects or '''economic impact'''.
  
Governments and private parties develop many ambitious ideas and plans for spatial development and new infrastructure. Hence, one regularly reads in the news about claims that the development of a new urban area creates X jobs in an area or that a big sport venue generates Y million Euros in sales or income in a community, et cetera. These effects are also referred to as economic effects or '''economic impact'''.
   

Revision as of 13:26, 10 December 2012


Economic impact

Economic impact is the unilateral causality between economic notions on the one hand and outcomes of a private and/or public project, decision, event or policy on the other hand. It may be viewed (or measured) in terms of output: value added, wealth, personal income (wages), public income and expenditures or employment levels (causes::economic output)[1].



Governments and private parties develop many ambitious ideas and plans for spatial development and new infrastructure. Hence, one regularly reads in the news about claims that the development of a new urban area creates X jobs in an area or that a big sport venue generates Y million Euros in sales or income in a community, et cetera. These effects are also referred to as economic effects or economic impact.

The relevance of economic impact for urban planners

Economic impact(costs and benefits) of urban development (and security threats) are touted by parties for a variety of reasons:

  1. First of all, public investments need to be substantiated and accounted for, and furthermore the desirability and necessity of the investment has to be very clear.
  2. Secondly, also private investors need to know if an investment decision will generate enough future cash flow in relationship to the invested capital (return on investment[2]).
  3. Finally, claims of real estate developers, construction industry and other connected industries about their economic significance, give these industries greater respect among the business community, public authorities, and the public in general.

Definition of economic impact

Impact

An impact implies a clear and unilateral causality between two notions[3].

Economic impact

Economic impact is the unilateral causality between economic notions on the one hand and outcomes of a private and/or public project, decision, event or policy on the other hand. It may be viewed (or measured) in terms of output: value added, wealth, personal income (wages), public income and expenditures or employment levels (causes::economic output)[4].

Scope of economic impact

The scope of economic impact depends on the function (e.g., a mobility function or a residential function) of an is caused by::urban object/environment, and is usually generated by capital costs for the construction and maintenance part, and on the other hand by the return on investment. It considers profits in relationship to capital invested. generated by sales income, real estate value, local spending by tourists, et cetera. These examples already suggest that a lot of different economic impacts can be defined, within the spectrum of urban planning.

Categories of economic impact

Economists use various definitions and terminology for categorizing economic impacts. The two main categories of economic impact are primary and secondary economic impacts, also referred to as direct and indirect economic impact.

Primary economic impact (or direct effects) are generally defined as the initial, immediate economic output generated by a specific urban project development. The construction company in charge of building the urban object, for example, will pay its employees and will pay its suppliers. The user of the urban object will gain utility from the use of the particular urban object.

Secondary economic impact (or indirect effects) are generated each time a subsequent transaction is made. The suppliers of the construction company responsible for the construction of the urban project, for example, will also pay their employees and will buy supplies from subsequent suppliers. Furthermore, the employees will spend their wages on housing and other consumption goods and services. These are all examples of secondary economic impacts. Below an example how € 1 spent on construction generates € 1 of primary economic output and € 1.19 of secondary economic output in another sector:

InvestmentPrimary impactSecondary impactReturn on investmentModel of economic impact.png
About this image

Gross and net economic impacts

Economic impact is mostly measured in terms of the urban object’s effect on the level of economic activities in a given area. This is what economists refer to as the gross economic effect, which is not necessarily the same as the net economic impact [5]. The measurement of the net economic impact includes the effects of other activities, policy or events that should be considered as well, especially when they would have had a more prominent function in the urban environment. An example:

The development of an indoor shopping mall will compete with the already existing retail shops. Therefore, the jobs created in the mall will for a substantial part be shifted away from the latter mentioned stores unless the total consumption in the area will increase (e.g. due to an increase in tourism). The net economic impact takes account of the economic impact on all retail stores in the designated area.

Economic impact versus social impact

Economic impact is primarily aimed at the costs and benefits induced by an urban project development plan, including transaction costs and public budget effects[6]. Social impact, in contrast, focuses more on the more qualitative effects of a project for society. Examples of social impact of urban planning are: the impact on the quality of life in general, the labour market, crime, safety, health, and so on.

Security economics

  • The economic impact of security threats (crime or terrorism) is mostly negative due to the damage on buildings, infrastructure, human beings, and so on.
  • The goal of security measures is to mitigate the economic effects of crime and terrorism, but also security measures create an economic impact[7], referred to as the economic effects of security measures.
  • Criminals and terrorist, finally, will alter their behaviour in reply to security measures to reach their goal (as much as possible gain against as least as possible costs). In Securipedia we explain this phenomenon in the pages on the economics of criminal and terrorist behaviour.

Hence, there are three different (sub)dimensions with regards to security in an urban environment are of paramount importance for the urban planner.

Related subjects

Types of economic impact:

Other related subjects:

Footnotes and references

  1. ↑ Source: B. and G. Weisbrod (1997). Measuring economic impacts of projects and programs. Economic Development Research Group.
  2. ↑ Return on investment is a particular form of economic output.
  3. ↑ Source: Dutch department of Infrastructure (2000) ‘Fundamenteel voorwaarts’. Infrastructure Effects Overview (IEO).
  4. ↑ Source: B. and G. Weisbrod (1997). Measuring economic impacts of projects and programs. Economic Development Research Group.
  5. ↑ See also: B. and G. Weisbrod (1997). Measuring economic impacts of projects and programs. Economic Development Research Group.
  6. ↑ Source: Jongeneel, R., H. Leneman (eds), J. Bremmer, V.G.M. Linderhof, R. Michels, N.P.B. Polman & A.B. Smit (2009). Impact assessment of economic and social consequences of environmental and nature policies; the development of a framework and a checklist. Wageningen, Statutory Research Tasks Unit for Nature and the Environment. WOt-rapport 96.
  7. ↑ Think, for example, of the security measures on airports which have lead to a decrease in travel time.

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