Economic-Impact Study

It seems every time the Super Bowl is played, the debate over the validity of economic-impact studies surfaces. In the eyes of many economists, the place in which most analyses run aground is the multiplier. More specifically, it is the size and type of multiplier that churns the debate. A multiplier shows the change (positive or negative) to an economy from an event or facility construction. Multipliers exist for nearly every industry in theU.S., and vary widely by industry and area (California Economic Strategy Panel, 2002). Some of the regional variances and items that effect how a multiplier is calculated are population, rural vs. urban areas and diversity of industry mix within a region. The multiplier, described by some economists as a rippling effect in an economy, accounts for money circulating after the initial round of spending has stopped. There are numerous multiplier modeling techniques, such as RIMS II (Regional Input-Output Modeling System, version II), ROI (measuring financial Return On Investment) and IMPLAN (Impact Analysis for Planning). These multiplier models have data on nearly all the industry groups in theU.S., and are based in part on information from the U.S. Bureau of Economic Analysis. Before deciding on one of these economic-impact models, factors such as cost, the time period of analysis and the level of detail in the multipliers should be considered (Bonn & Harrington, 2008).

The champions of multipliers in economic-impact studies simply point to the need to quantify the indirect and induced effects of activities on an economy. Meanwhile, detractors point to heavily inflated multipliers, leading to overstated economic-impact estimates. Schumacher states that in some cases, multipliers can become a real problem. “It is difficult to accept more than a multiplier of 2. We are aware of instances where a study used a multiplier of 6!” Multipliers are many times based on an area’s normal economic patterns, and as such may skew a study by including induced economic fallout that is not present. For example, large special events and athletic tournaments–while they bring in people and money from outside the local economy–many times do not have a lasting economic impact. The induced effect, which accounts for additional permanent jobs and/or population in a community, makes up one component of the total effect. Using multipliers in these circumstances may overstate an event’s true impact on a local economy.

While multipliers arguably have their place in economic impact analysis, it is more how they are “derived” than “used” that is the question. Don’t let multipliers and mega events muddy the waters of a great resource for every parks and recreation professional.

Works cited:  

Bonn, M., & Harrington, J. (2008) A comparison of three economic impact models for applied hospitality and tourism research. Tourism Economics Journal 14 (4), 769-789.

Brown, M., Rascher, D., Nagel, M. & McEvoy, C., (2010). Financial Management in the Sport Industry.Scottsdale,Arizona: Holcomb Hathaway, Publishers.

CaliforniaEconomic Strategy Panel (2002). Using Multipliers to Measure Economic Impacts.California Economic Strategy Panel Publications. 1-2.

Steve Yeskulsky, CPRP is the Director of Recreation and The Arts for the City of Hyattsville, Md. He can be reached via e-mail at syeskulsky@hyattsville.org.

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