Economic Impact Analysis:  Instructions

Economic Base is a good tool for describing the shape and dimensions of a regional economy.  It is also often used to estimate the impacts of various economic activities.  But while it is a beginning, by itself it is a blunt tool for estimating economic impact.


Actual economic impact depends on much more than the “ideal” linkages between industrial sectors.  A more accurate model would, of course, take into account how much production from the various industrial sectors is needed to produce a $1 increment in output, and the indirect effects due to change in production needed to meet the increased output required from the secondary industries to meet the direct demand from the primary sector.  But it would also include the “induced” effects based on personal consumption from the household sector, and the leakages such as those due to social security and income taxes, institutional savings, and commuting.  It would also account for transfers between economic institutions.


Often, these relationships are summarized in a single index number, called the “economic multiplier.”  The multiplier is the direct economic effect (change in final demand) plus the ratio of the indirect effect to the direct effect.  This ratio can range from a low of 1.0 (the only effect is the direct effect; all secondary demand is met from outside the region) to values as high as 10.0 (there is no theoretical limit to the size of the ratio).  Larger regions will have higher ratios than smaller regions, since they will have more firms and more capacity in the various industrial sectors, and so more opportunity to capture the indirect effects as they cycle through the system.   Regions based on certain industries (banking, for example, since capital is a supremely mobile commodity, and extractive industries, if the raw resource is not transformed into a manufactured product in the same region) may have lower multipliers.


A commonly-used tool for analyzing economic impact is the IMPLAN model, developed by MIG, Inc.  A description of the model is available at .  You may get your own demonstration copy of the IMPLAN software from  MIG at

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© 1996 A.J.Filipovitch
Revised 26 July 2005