21
Methods of Economic Impact Analysis
Daniel E. Chappelle
21.1 Introduction
Chapter 17 described the steps involved in examining economic linkages for a particular region at
a specific time. This chapter discusses how this description can be used to analytically determine economic impacts that may result if a particular action
is carried out in the region. These economic impacts, when combined with other types of impacts
(e.g., ecological, social, sociological, and political),
provide a comprehensive assessment of the region,
which can be of enormous assistance in the
decision-making process for the management of the
region's natural resources.
As indicated in the earlier chapter, input-output
accounts are the most useful type in economic impact analysis. Various types of models, ap~ropriate
to the given situation, can be developed usmg these
accounts as an information system. Alternative
model structures include (1) input-output models
(1-0), (2) linear programming models, (3) econometric models, (4) simulation models, and (5) hybrid models of various types. In this chapter, only
applications that use input-output m~deling are di~cussed, because this type of modelmg strategy IS
necessary to fully express linkages in the regional
economy.
Textbooks providing a thorough description of
regional input-output modeling are Richardson
(1972) and Miller and Blair (1985). Progress reports can be found in Richardson (1985) and Jensen
(1990). The special double issue of the International Regional Science Review (volume 13, numbers 1 and 2, 1990) contains a series of articles on
the construction and use of regional input-output
models. See Otto and Johnson (1993) for a series
of articles on input-output modeling on microcomputers.
21.2 Input-Output Modeling
Input-output models of various types are co~monly used in economic impact assessments. It IS
important to recognize the major assumptions of
input-output modeling.
1. Each product (or group of products) is supplied
by a single sector of production.
-
2. No two products are produced jointly. Each sector produces only one homogeneous output or a
mix of products in fixed proportions.
3. "The basic design of ... interindustry accounts
is derived from the division of uses into two categories-intermediate and final-and the corresponding division of inputs into 'produced' and
'primary' ... , there is some choice as to the
uses which will be considered autonomous (or
'final' . . . ) which must be determined from
both theoretical and empirical considerations"
(Chenery and Clark, 1959, p. 33). These choices
must be specified in the model.
A major task in the assessment is to delineate
boundaries of the system being studied, that is,
what is internal and what is external. Blair
(1991, p. 179) is explicit about boundaries for
the economic system:
Many applications of input-output analysis require
that a distinction be made between exogenous (outside system) and endogenous (inside system) activity. Exogenous activities are determined by forces
outside the region. Exports are determined by forces
outside the region. Exports for each of the sectors
within the economy are normally the major exogenous component. ... The assumption that exports are
the only exogenous factor is consistent with the
export-base theory.
307
Methods of Economic Impact Analysis
Daniel E. Chappelle
21.1 Introduction
Chapter 17 described the steps involved in examining economic linkages for a particular region at
a specific time. This chapter discusses how this description can be used to analytically determine economic impacts that may result if a particular action
is carried out in the region. These economic impacts, when combined with other types of impacts
(e.g., ecological, social, sociological, and political),
provide a comprehensive assessment of the region,
which can be of enormous assistance in the
decision-making process for the management of the
region's natural resources.
As indicated in the earlier chapter, input-output
accounts are the most useful type in economic impact analysis. Various types of models, ap~ropriate
to the given situation, can be developed usmg these
accounts as an information system. Alternative
model structures include (1) input-output models
(1-0), (2) linear programming models, (3) econometric models, (4) simulation models, and (5) hybrid models of various types. In this chapter, only
applications that use input-output m~deling are di~cussed, because this type of modelmg strategy IS
necessary to fully express linkages in the regional
economy.
Textbooks providing a thorough description of
regional input-output modeling are Richardson
(1972) and Miller and Blair (1985). Progress reports can be found in Richardson (1985) and Jensen
(1990). The special double issue of the International Regional Science Review (volume 13, numbers 1 and 2, 1990) contains a series of articles on
the construction and use of regional input-output
models. See Otto and Johnson (1993) for a series
of articles on input-output modeling on microcomputers.
21.2 Input-Output Modeling
Input-output models of various types are co~monly used in economic impact assessments. It IS
important to recognize the major assumptions of
input-output modeling.
1. Each product (or group of products) is supplied
by a single sector of production.
-
2. No two products are produced jointly. Each sector produces only one homogeneous output or a
mix of products in fixed proportions.
3. "The basic design of ... interindustry accounts
is derived from the division of uses into two categories-intermediate and final-and the corresponding division of inputs into 'produced' and
'primary' ... , there is some choice as to the
uses which will be considered autonomous (or
'final' . . . ) which must be determined from
both theoretical and empirical considerations"
(Chenery and Clark, 1959, p. 33). These choices
must be specified in the model.
A major task in the assessment is to delineate
boundaries of the system being studied, that is,
what is internal and what is external. Blair
(1991, p. 179) is explicit about boundaries for
the economic system:
Many applications of input-output analysis require
that a distinction be made between exogenous (outside system) and endogenous (inside system) activity. Exogenous activities are determined by forces
outside the region. Exports are determined by forces
outside the region. Exports for each of the sectors
within the economy are normally the major exogenous component. ... The assumption that exports are
the only exogenous factor is consistent with the
export-base theory.
307