Transcript Document

Economic impact studies –
meaningful analysis or political tool?
Professional Development for
Economics Teachers Day
Sam Richardson
Department of Economics and Finance
Massey University
Economic impacts – examples:
Event
Economic impact
1999 Super Bowl
US$670m (Sth Fla.)
2002 Soccer WC
US$24.8b (Japan)
US$8.9b (Korea)
2003 Rugby WC
A$289m (Aust.)
2000 Americas Cup
NZ$494.7m (NZ)
NZ$396.5m (Auck.)
2003 Americas Cup
NZ$528.6m (NZ)
NZ$449.8m (Auck.)
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Economic impact studies – what are
they?
• Reports commissioned to assess
the economic impact of an event
on a local/regional/national
economy
• Economic impact consists of:
– Income
– Value added
– Employment (job creation)
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Economic impact studies: the
principle
• People who attend events spend
money in and around the event
(direct impact)
• This money is circulated through
the economy (i.e. one person’s
spending = another person’s
income) resulting in further
spending, etc. (indirect and induced
effects)
• There is a multiplier effect at
work!
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What are economic impact studies
used for?
• Often commissioned by event
proponents to justify
government expenditure for the
event
• Used as proxies for costbenefit analyses of the same
events
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Steps in economic impact analysis
1. Define event and location
2. Calculate attendees (non-local)
3. Calculate non-local
expenditure (in appropriate
categories)
4. Apply multiplier(s) to non-local
expenditures
You have the economic impact!
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Impacts = Benefits?
• Economic impacts:
– Measure the economic return of an
event or investment to residents of
the local community
• How do we define an economic
return?
• Can we interpret an increase in
local GDP or employment (as
predicted by economic impact
studies) as a benefit?
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Do the impacts materialise?
• Overwhelming majority of
independent academic research
says NO!
• Why not?
– Substitution effect
• What counts as new spending?
– Leakages
• Smaller economy, larger dependence
on imports
– Subsidies
• Where is the expenditure coming
from?
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Interpreting economic impacts
• They are not necessarily
economic benefits
– A predicted boost in employment
may not materialise if there is slack
in the economy (i.e
underemployment)
– They can be benefits if those
employed were previously
unemployed (depends on the
wages they are paid versus what
they earned when unemployed).
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Interpreting economic impacts
• They ignore opportunity costs
– If local government is involved,
what is the cost to the local
community (i.e. a reduction in local
taxpayer spending)?
• They ignore intangible benefits
and costs
– What is the value to the local
community of an event/facility?
(e.g. community spirit, image
enhancement, noise, congestion,
etc)
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Interpreting economic impacts
• They are not cost-benefit
analyses, no matter how well
done
• Be mindful of who has
commissioned the report
– Economic impact studies are rarely
neutral
• Usually predict large impacts
(substantial increase in GDP, sizeable
job creation, etc) – guess who
commissioned the report?
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Why are they continuously used?
• Frequently observable in the
public domain (news!)
• Claims of substantial economic
impact have significant effects on
political decision-making
– i.e. voter referenda
• The flip side of the argument – if
we don’t have this, then this is
what we miss out on!
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