Regional Impact Modeling Michael Hicks

BUREAU OF BUSINESS RESEARCH BALL STATE UNIVERSITYCenter for Business and Economic Research BALL STATE UNIVERSITY

Regional Impact Modeling

Michael Hicks


Regional Impact ≠ ED or Growth

You can have a new firm or activity that generates regional impact, without relevant economic development and at a time of negative economic growth.


Economic Growth is caused by:

Technological progress – ubiquitous technological change, university and private R&D, and the ability to capture the benefits in-state

Private Capital – investment by business and residents

Public Capital – the quality of public goods and services, such as highways, etc.

Human Capital – the quality of a labor force (health, education, training and culture).

Unexplained factors – perhaps 1/3rd of growth forces


Regional Growth

Growth in a county i, in year t, is a function of technological progress (A), physical capital (both public

and private), K, human capital (H) and ‘unexplained variation’ or e.


Economic Development

A process by which communities attract, retain and reinvest wealth to improve the quality of life.

-David Dodson


Economic Impact

The effect on production, employment, earnings and tax revenues associated with the opening, closing, expansion or contraction of a business, government or other economic activity on a specified region.


How to Measure?

• Historical study

• Case Study

• Economic Model


Economic Model: Input-Output

• Long history of use and interpretation

• Relatively easy to use & low cost

• Well received by policymakers

• Easy to explain to media and stakeholders

• Adaptable to industry and geography


How Input-Output Works

New Firm

Buys equipment

Builds Facility

Hires workers

Buys services

Pays taxes

leakages

Impacts

The size of the impact depends on the size of investment, wages, etc., and the share of leakages (geography and industry).


How it works in Practice

• Data collected and calibrated since 1942

• Multiple sources of model adaptions

• Modeler needs information on industry, investment/employment

• Model is wrong, but typically very useful





What Does Impact Tell You?(first order issues)

• The impacts from a particular firm, in a particular industry

• The tax effects (for a B/C analysis or TIF proposal)

• Employment Impacts (DWD, B/C, etc.)


What Does Impact Tell You?(second order issues)

• Differential impacts by firm/industry

• Insight into negative effects of residential leakages

• Importance of Quality of Place & Education

• Fiscal considerations at local level

• Level of likely reinvestment (commercial & residential)

• Importance of overall region to ED success

• Differentiates role for community (commerce, bedroom, etc.)


Limitations

• Data is 2-3 years old

• Site specific taxes need watching

• No labor supply constraints


Summary

• Impact modeling is a tool for ED work

• Aids in specifics of ED effort (TIF justification)

• Critical tool for strategic thinking about economic and community development


Documents

Regional Impact Modeling Michael Hicks