Input-Output Guidebook: A practical guide for regional economic impact analysis

April, 2009

By: M. Henry Robison, Founder and Senior Economist, EMSI

contact information: Rob Sentz (rob@economicmodeling.com)

For a PDF version of the paper: IO guidebook

Introduction

Our nation’s economic woes have led to many ideas for the best way to transform our economy and get it back on track. Many of these ideas are rooted in “Keynesian” economic theory, which advocates for monetary and fiscal policy responses by the government to stabilize and control the business cycle. The most significant instance of this is the current American Recovery and Reinvestment Act (aka the “stimulus package”), which aims to spend unprecedented amounts of money on everything from infrastructure to health care to educational programs in order to create demand and spur stagnant markets. There is much debate over the true effectiveness of this sort of intervention, which is beyond the scope of this paper. For now we want to provide a practical guide to make sure local planners know how to evaluate projects and programs based on their importance to the region and especially on their potential return on investment. Because of the sheer enormity and pervasive nature of the spending, the federal government would like to see a high level of accountability for organizations, institutions, and programs that will be receiving this money.

A primary tool for this accountability and evaluating where spending might produce the greatest regional benefit is the input-output (IO) model. This tool is often misunderstood and misused. However, if approached and applied correctly, IO can be a very powerful and helpful tool for informing decisions—allowing planners to determine where dollars will have their highest economic and workforce impacts.

In this paper we aim to provide an overview of IO for non-economists, provide some useful illustrations and definitions, and serve as a basic orientation for local, state, federal planners so they can take advantage of this resource. While some of the material is applicable to many economic models, we focus on the capabilities of EMSI’s Economic Impact model.

If you have more questions about using IO modeling for your region, or would like special assistance please feel free to contact us.

Hank Robison

About the author

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Dr. Henry Robison is a senior economist and co-principal of Economic Modeling Specialists Inc. (EMSI). He has over 20 years of experience and a significant publications record in regional economic impact modeling and analysis. He is recognized for theoretical work blending regional input-output and spatial trade theory, and for development of community-level input-output modeling and analysis. He served 10 years as faculty member and consultant to the University of Idaho, where he secured a wide array of grants and contract research.

Dr. Robison’s major EMSI consulting projects include design of the Utah Multiregional Input-Output (UMRIO) Model; work in partnership with Rutgers and Princeton University for the U.S. Department of Commerce Economic Development Administration (EDA) to assess the effectiveness of EDA regional economic development grants; partner with New Jersey Institute of Technology and Rutgers University to develop the Federal Highway Administration’s TELUS transportation project impact model; and extensive work with the U.S. Forest Service in ten western states on measuring the economic impacts of federal land management planning. He is also currently working on a project to develop regional labor market analysis for the Middle East and North Africa.

A retrospective published in the journal of the Regional Science Association International listed Dr. Robison number eighteen on a list of the top one hundred “intellectual leaders of regional science” for the decade of the nineties (Papers in Regional Science, 83(1), 2004).

Table of Contents

I. Regional Economics 101

II. Practical Applications of IO

III. Understanding Multipliers

IV. Avoiding Impact Modeling Pitfalls

V. Using Input-Output for Economic Development Analysis

VI. Defining Appropriate Regions

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