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Economic Impact Analysis Glossary Banner

Glossary of Economic Impact Terms

    Impact analysis estimates the impact of dollars from outside the region ("new dollars") on the region's economy. Impact analysis typically includes only the spending of visitors from outside the region.

    Significance analysis estimates the importance or significance of an industry or activity to a region and usually includes spending by both local residents and visitors from outside the region.

    Input-output (I-O) model. An input-output model is a representation of the flows of economic activity between sectors within a region. The model captures what each business or sector must purchase from every other sector in order to produce a dollar's worth of goods or services. Using such a model, flows of economic activity associated with any change in spending may be traced either forwards (e.g., spending generates employee wages, which induces further spending) or backwards (e.g., visitor purchases of meals leads restaurants to purchase additional inputs -- groceries, utilities, etc.). Multipliers for a region may be derived from an input-output model of the region's economy.

    IMPLAN is a micro-computer-based, input-output modeling system. With IMPLAN, one can estimate I-O models of up to 528 sectors for any region consisting of one or more counties. IMPLAN includes procedures for generating multipliers and estimating impacts by applying final demand changes to the model. The current version of IMPLAN is IMPLAN Pro 2.0.

    Final Demand is the term for sales to final consumers (households or government). Sales between industries are termed intermediate sales. Economic impact analysis generally estimates the regional economic impacts of final demand changes. Visitor spending is one type of final demand.

    Direct effects are the changes in economic activity during the first round of spending. For tourism, this involves the impacts on the tourism industries (businesses selling directly to tourists) themselves.

    Secondary effects are the changes in economic activity from subsequent rounds of respending of tourism dollars. There are two types of secondary effects:

    • Indirect effects are the changes in sales, income, or employment within the region in backward-linked industries supplying goods and services to tourism businesses. For example, the increased sales in linen supply firms resulting from more motel sales is an indirect effect of visitor spending.
    • Induced effects are the increased sales within the region from household spending of the income earned in tourism and supporting industries. Employees in tourism and supporting industries spend the income they earn from tourism on housing, utilities, groceries, and other consumer goods and services. This generates sales, income, and employment throughout the region's economy.

    Total effects are the sum of direct, indirect, and induced effects.

    Multipliers capture the size of the secondary effects in a given region, generally as a ratio of the total change in economic activity in the region relative to the direct change. Multipliers may be expressed as ratios of sales, income or employment, or as ratios of total income or employment changes relative to direct sales. Multipliers express the degree of interdependency between sectors in a region's economy and therefore vary considerably across regions and sectors.

    Capture rate is the percentage of spending that accrues to the region's economy as direct sales or final demand. All tourist spending on services within the region is captured; however, tourist purchases of goods are generally not all treated as final demand to the region. For imported goods bought at retail establishments, typically only the retail (and possibly wholesale) margins will accrue to the local economy.

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