Economic impact analysis

An economic impact analysis (EIA) examines the effect of an event on the economy in a specified area, ranging from a single neighborhood to the entire globe. It usually measures changes in business revenue, business profits, personal wages, and/or jobs. The economic event analyzed can include implementation of a new policy or project, or may simply be the presence of a business or organization. An economic impact analysis is commonly conducted when there is public concern about the potential impacts of a proposed project or policy.

An economic impact analysis typically measures or estimates the change in economic activity between two scenarios, one assuming the economic event occurs, and one assuming it does not occur (which is referred to as the counterfactual case). This can be accomplished either before or after the event (ex ante or ex post).

An economic impact analysis attempts to measure or estimate the change in economic activity in a specified region, caused by a specific business, organization, policy, program, project, activity, or other economic event. The study region can be a neighborhood, town, city, county, statistical area, state, country, continent, or the entire globe.

Economic impact analyses often estimate multiple types of impacts. An output impact is the total increase in business sales revenue. In turn, local businesses use some of this new revenue to pay for goods and services outside of the study region, so the output impact is not synonymous with local business profits. A more conservative measure of economic activity is the value added impact, which estimates the increase in the study region’s gross regional product. The gross regional product (GRP) is very similar to the nation’s gross domestic product (GDP), and represents the total size of the local economy. This impact estimates the increase in local employee wages plus local business profits (not total revenue, like the output impact). However, the value added impact may overstate local profits when they are transferred overseas (such as in the form of dividends or investments in foreign facilities).

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