Economic Impact Studies

An Economic Impact Study (EIS) identifies the economic contribution that an organization or new project/development makes to the community in which it operates. Based on this direct financial outlay and the resulting purchases by organizations and individuals with whom your operation does business, one can determine a total economic impact by using multipliers. The idea of multipliers is based on the fact that when a person spends money at a gas station, for example, that purchase supports the payroll responsibilities of the attendant, who in turn will buy groceries, pay rent, and so on. SMS has been involved in executing such economic impact studies for more than 30 years.

The reasons for conducting an economic impact study are many and will vary based on organization or development needs. In a majority of development projects, an EIS is a legal requirement in the permitting process.

The methodology for determining the economic impact of the maritime sector is based on a Keynesian multiplier approach. There are three main ways in which an investment or a level of economic activity has an impact:

DIRECT IMPACT

This is the initial impact made by companies/developments who are being quantified. It is a quantification of the direct employment bases, payroll base, and other resources spent by the organization/development directly in the community.

INDIRECT IMPACT

Organizations/developments involved have an economic impact on the community through the monies they inject into the marketplace. The monies they inject into the economy through spending on goods and services generate an indirect impact. SMS, like other experts, use multipliers to estimate the size of this indirect impact. The size of the multipliers and the impact on the local economy depend on the extent to which these goods and services are sourced locally, i.e. the strength of the supply chain linkages, and the definition of the local economy. Strong supply chain linkages in the local area mean less leakage through companies sourcing their inputs elsewhere. The size of the local economy is also important, as the larger the geographical area, the lower the leakages are likely to be. SMS staff experts are knowledgeable about these multipliers as a result of their extensive work with Input-Output models for all counties in Hawaii.

INDUCED IMPACT

The induced impact relates to the additional economic activity generated as a result of employees in the measured sector spending their earnings, as they too buy goods and services. Again there will be leakages from the local economy as not all employees will live locally and not all their expenditure will be made to local companies.

MEASURING ECONOMIC IMPACT:

The economic impact is measured in four main ways:

  • Economic output - taken from turnover.
  • Value added - this reflects wealth created and is defined as sales less the cost of bought-in goods and services.
  • Employment - expressed in the number of full-time equivalent jobs.
  • Household income - the wages, salaries and other payments made to employees.

These measures are separate ways of presenting economic impact. They cannot be added together to provide a total figure.

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