About Economic Impact Analysis
Economic shifts affect communities, and ripple through local economies in a number of ways. When a plant opens or closes, or when natural and economic disasters blow through, local leaders need to make informed decisions.
That's why the University of Minnesota Extension partners with community organizations and leaders to offer the Economic Impact Analysis (EIA) program. Using IMPLAN™ software and descriptive reports, our team prepares reports and facilitates conversations that inform community planning. For example:
- Community leaders use EIA reports to quantify the effects of real or proposed changes on jobs and revenues within local industries.
- Community leaders, including elected officials, use EIA reports to inform public finance decisions and attract outside support, if necessary.
- Economic development organizations use Economic Futures EIA reports to understand their local economy better as they conduct strategic planning.
- Community organizations use reports to educate residents and create support for local business.
- Economic development organizations use reports to write proposals and describe their local economy to potential new businesses.
What questions does an EIA report answer? Here are a few:
- How many jobs would be affected by this change?
- Which businesses would be most affected?
- How far-reaching would the effects be?
- How are local businesses connected to each other? How would change in one business affect others'?
- How much would total wages change?
- How would this change contribute to or take away from the local economy?
Our Approach -- Applied Research; Local Perspective
An EIA report begins with conversations. We need the questions and perspectives of community and business leaders, and value their understanding of their economy. We start an EIA project by forming questions with these leaders. Getting the questions right is usually the hardest part of the project, but once that's done we can work together to find the answers.
Local leaders are vital to the EIA process. They bring valuable insights to the research and to efforts to craft a community vision.
Sometimes, we need to collect detailed information about the community or the specific change (past, present, or future) that will affect its economy. We also get their reactions to and observations about the data we present.
To find some answers, we use an economic modeling tool called IMPLAN™. IMPLAN™ is based on input-output modeling, a proven economic method that reveals how different parts of an economy are interdependent. With IMPLAN™, we can estimate ways in which changes in one part of a local economy can impact other parts, or how changes in one local business might affect others in town.
Economies are complicated, but input-output analysis nicely cuts through the maze. We start by building a database that yields a spending profile for each business and for households in a community. Then we put together a picture of how these businesses interact.
Once we get answers, IMPLAN™ sorts the data into three types of impacts:
- Direct Impacts from an economic event;
- Indirect Impacts that result from business-to-business transactions; and,
- Induced Impacts that result from consumer-to-business transactions.
There's more to all of this, of course. The key thing to remember is that input-output analysis can quantify the effects of change on your local economy, and can provide valuable perspectives to community decisions.