Economic Impact Study

Economic Impact Study

An Economic Impact Study is one of the more often used economic tools to facilitate the preparation of a robust urban plan. It traces the flows of spending associated with a development plan to identify changes in economic activities of the sectors in a local/regional economy. This is done by measuring or estimating the changes in economic output (like an increase in sales, income and jobs).

Economic impact calculation

The model used to measure the economic impact of an urban project development contains several modules (depending on the project scope).

The example of below contains three modules: construction, residential, and tourism. The main input for the modules is determined by the scope of the project (the amount of residential units, hotel rooms, bars and restaurant, etc.). Based on the input and its interrelationships, the module calculates the direct output impacts of the development plan.

The Economic Impact Model calculates the direct (primary), indirect and induced (secondary) effects of the urban development plan:

• Direct effects are production changes associated with the immediate effects of change in expenditures. An impulse in construction activity, for example, leads to an increase in wages, profits,taxes paid, et cetera.
• Indirect effects are the production changes resulting from various rounds of re-spending of the receivers of the direct spending impulse in other backward-linked industries. For example: architects and brick suppliers will receive orders from the construction companies responsible for the construction of the ordered development.
• Induced effects are the effects resulting from the re-expenditures of households. Employees of companies earn wages that are spend on goods and services. This means that not only the construction companies purchases are included, but also the expenses of the employees of the construction company, et cetera.

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Figure: Example of an Economic Impact model for a tourist and residential area

Model calculations

Based on the direct input (the amount of invested capital and labour, etc.), economists calculate the impact of the urban development project on the whole economy. This is mostly done with the help of so-called Input-output analysis.

Datacollection and analyses

The data and information model engineers need are mostly available from existing data orprevious studies. The following list shows some of the information needed:

Supply information	Demand information
Demographic statistics (resident population, employment statistics, number and type of businesses etc.)	Statistical data on consumption, investments, export (e.g., the regional andlocal volume of tourist spending)
The details of the Supporting report (amount of planned hotelrooms, residential houses etc.)	Demand surveys (e.g., for the real estate market, construction, and tourism)
Qualitative economic information (expected economic growth, the quality of the local economy etc.)

Related subjects

• Social cost-benefit analysis
• Input-output analysis
• Business case

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