Economic impact
Contents
Economic impact
Investments in urban development cost time and money, so a primary question for most urban planners, politicians and investors is what the economic impact will be. An example of this question is the potential economic impact of hosting the Olympics. This question not only receives a lot of attention in the local and national media, but also more and more on an international level.
The scope of economic impact depends on the functionality of the planned 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 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, even within the spectrum of urban planning.
Economic impacts of urban planning in a security environment
With respect to security, however, three different (sub)dimensions of economics are of paramount importance for the urban planner. Thes subdimensions are:
- The economic impact of security threats due to crime and terrorism;
- The economic impact of security measures and;
- The economics of criminal and terrorist behaviour.[1].
Definitions
Impact
An impact implies a clear and unilateral causality between two notions[2].
Economic impact
Economic impacts are unilateral causalities between economic notions on the one hand and outcomes of private and/or public project, decision, event or policy on the other hand. They may be viewed (or measured) in terms of output, value added, wealth, personal income (wages), public income and expenditures or employment levels (economic output)[3].
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. For example, the construction company in charge of building the urban object 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 its 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:
Gross and net economic impacts
Economic impacts are mostly measured in terms of the urban object’s contribution to the economy in the specific area. This is what economists refer to as the gross economic effect, which is not necessarily the same as the net economic impact [4]. 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 impacts are primarily aimed at the costs and benefits induced by an urban project development plan, including transaction costs and public budget effects[5]. 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.
References
- ↑ The economic impact of an act of crime or terrorism is mostly negative due to the damage on buildings, infrastructure, human beings, and so on. Security measures, however, not only have a positive impact on the economy, but can also have a negative impact. Think for example of the security measures on airports which have lead to a decrease in travel time. 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).
- ↑ Source: Dutch department of Infrastructure (2000) ‘Fundamenteel voorwaarts’. Infrastructure Effects Overview (IEO).
- ↑ Source: B. and G. Weisbrod (1997). Measuring economic impacts of projects and programs. Economic Development Research Group.
- ↑ See also: B. and G. Weisbrod (1997). Measuring economic impacts of projects and programs. Economic Development Research Group.
- ↑ 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.
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