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The regional economic impact of a large-scale, non-profit institution De Grace, Margaret E. 1979

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THE REGIONAL ECONOMIC IMPACT OF A; LARGE-SCALE, NON-PROFIT INSTITUTION by Margaret E. Ide Grace THIS THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS IN THE SCHOOL OF COMMUNITY AND REGIONAL PLANNING i n THE FACULTY OP GRADUATE STUDIES ' We accept th i s thesis as conforming to the required standard: THE UNIVERSITY OF BRITISH COLUMBIA APRIL, 1979 © Margaret E l i z a b e t h de Grace t 1979 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make i t freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the Head of my Department or by his representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department nf SCHOOL OF COMMUNITY AND REGIONAL PLANNING The University of British Columbia 2075 Wesbrook Place Vancouver, Canada V6T 1W5 APRIL 30, 1979 Date ) - i i -THE REGIONAL ECONOMIC IMPACT OF A LARGE, NON-PROFIT INSTITUTION - A CASE STUDY ABSTRACT Regional planners are often faced with having to estimate the various impacts of a new or ex i s t i n g project on the regional economy and to place these estimates i n a regional planning context. Their concern i s not only with impacts d i r e c t l y attributable to the project i t s e l f , but also with the m u l t i p l i e r e f f e c t which occurs as a r e s u l t of successive rounds of respending i n the l o c a l economy as a r e s u l t of the project. There are the o r e t i c a l and p r a c t i c a l problems connected with the derivation of the m u l t i p l i e r values. Much of the research i n regional economic impact analysis has focused on ways to correct for poten t i a l errors i n the analysis and on the use of appropriate models for analysis. In t h i s thesis three models are examined: economic base, income expenditure and input-output. Theoretical weaknesses and p r a c t i c a l problems associated with each p a r t i c u l a r model or common to the three models are i d e n t i f i e d . The r e l a t i v e strengths and weaknesses of the models are evaluated to determ-ne appropriate uses for each. - 1 1 1 -Research has also focused on the p a r t i c u l a r impacts generated by unique types of projects and on p a r t i c u l a r regional economies. A growing awareness that there are s i g n i f i c a n t impacts from large, non-profit i n s t i t u t i o n s on regional economies has stimulated an i n t e r e s t i n i d e n t i f y i n g and quantifying these impacts. In t h i s thesis a number of empirical studies u t i l i z i n g each of the three models to analyse the impact of a large, non-profit i n s t i t u t i o n on a regional economy i s reviewed. In the context of t h i s review, the s p e c i f i c advantages and disadvantages of the d i f f e r e n t models are discussed. The thesis, then, develops a viable methodology through the appropriate use of an e x i s t i n g model to indicate the extent of economic impact of a complex i n s t i t u t i o n on a regional economy. A case study i s presented of the regional economic impact of the P a c i f i c National Exhibition complex - a large, non-profit i n s t i t u t i o n i n the Lower Mainland of B r i t i s h Columbia. The study demonstrates the economic impact of the PNE Complex by i s o l a t i n g income, employment and expenditure impacts generated i n the regional economy by the Complex for the base year 1977. The thesis concludes by considering the role of regional economic impact analysis i n the context of regional planning and policy formulation. - i v -TABLE OF CONTENTS Abstract Table of Contents L i s t of Tables Acknowledgement CHAPTER I INTRODUCTION TO REGIONAL ECONOMIC IMPACT ANALYSIS I. The Thesis Framework CHAPTER II REGIONAL ECONOMIC IMPACT MODELS I. Introduction II . Economic Base Analysis A. Overview B. The Structure of the Economic Base Model C. Procedural Steps of the Model Elaborated 1. The D e f i n i t i o n of the Region 2. Measuring the Base Sector a. Simple Judgment b. Survey c. Location Quotient d. Minimum Requirements e. Regression Analysis 3. Equation S p e c i f i c a t i o n 4. Demand I d e n t i f i c a t i o n 5. Estimates of Future Impacts D. Critique of the Economic Base Model - v -Page I I I . Income Expenditure Analysis 27 A. Overview 27 B. The Structure of the Income Expenditure Model 29 1. The Conventional Model 30 2. Modifications to the Model 31 3. Extension of the Model 35 C. Critique of the Income Expenditure Model 36 IV. Conclusion V. Input-Output Analysis 37 A. Overview 37 B. The Structure of the Input-Output Model 3 9 1. The Transaction Table 42 2. The Table of Direct Requirements 42 3. The Total Requirements Table 42 C. Critique of the Input-Output Model 45 CHAPTER III APPLICATION OF ECONOMIC IMPACT MODELS TO NON-PROFIT INSTITUTIONS 53 I. Introduction 53 II. Economic Base Studies 55 A. The Caffrey-Isaacs Model 57 B. The Manning-Viscek Model 60 C. The Wilson-Raymond Model 62 D. The Wilson Model 6 6 - v i -\ Page II I . Income-Expenditure Studies, 68 A. The Brownrigg Model 71 IV. Input-Output Studies 7 9 A. The Blake-McDowall Model 80 V. Conclusion 88 CHAPTER IV A CASE STUDY OF A LARGE-SCALE NON-PROFIT INSTITUTION 91 I. Introduction 91 II. Overview of the P a c i f i c National Exhibition Study 91 III. Description of the Model Chosen for the Impact Study 94 A. Transaction Table 96 B. Table of Direct Requirements 97 C. Table of Direct Plus Indirect Requirements 97 IV. Methodology Developed to Analyse the Regional Economic Impact of the PNE Complex on the Economy of the Lower Mainland 104 A. The Data Base 105 B. Direct Impact 106 C. Indirect Impact 108 1. Sales Generated Through Commodity Purchasing and Wage Payments 110 a. Commodity Purchasing 110 b. Wage Payments 112 2. Payrolls 114 3. Employment 116 - y i l -D. Other Indicators E. Total Impact V. Conclusion CHAPTER V CONCLUSION I. Introduction II . The Role of Regional Economic Impact Analysis i n the Planning and Development Processes v I I I . The Context of the PNE Case Study IV. Integrating Regional Economic Impact Studies i n the Planning/ Development Processes V. Conclusion Appendix "A" Selected Bibliography - VIXI -LIST OF TABLES CHAPTER ONE CHAPTER TWO CHAPTER THREE I.: Transaction Table for the Burgh of St. Andrews CHAPTER FOUR I. The Economic Sectors of the Metropolitan Vancouver Input/Output Study II. Metropolitan Vancouver Sales M u l t i p l i e r s I I I . Sales Generated through Commodity Purchasing by the PNE Complex, 1977 IV. Sales Generated through Wage Payments, 1977 V. Indirect Payrolls Generated by the Presence of the PNE Complex, 1977 VI. Indirect Employment Generated by the PNE Complex, 1977 VII. Types of Employment Within the PNE Complex, 1977 VIII. Age Ranges of Persons Employed by PNE, 1977 IX. Breakdown of PNE Complex Sales, Payrolls and Employment by Three Main Sectors of the Economy, 1977 X. Direct and Indirect Impact of the PNE Complex, 19 ACKNOWLEDGEMENT I would l i k e to acknowledge with gratitude the continuous support and encouragement of Dr. H. Craig Davis, whose patience, s k i l l and understanding made t h i s work a very enjoyable experience. My thanks also to P h i l Paulsen for his constructive and careful c r i t i c i s m . F i n a l l y , a note of thanks to a very dedicated t y p i s t -Lynne Kenward. - 1 -CHAPTER ONE INTRODUCTION TO REGIONAL ECONOMIC IMPACT ANALYSIS Economic growth i n a region, and how t h i s growth i s managed, have ramifications i n the physical, s o c i a l and environmental milieux of the region. Development projects therefore tend to be of considerable i n t e r e s t to regional planners and policy makers. Regional economic impact analysis arose out of a desire to measure as accurately as possible the impact of e x i s t i n g and/or pote n t i a l developments on a regional economy. I t i s a descriptive, quantitative approach used to measure changes i n the regional economy due to the introduction of a new industry, expansion of e x i s t i n g industries or commercial establishments, public investment projects and s i m i l a r developments. Central to regional economic impact analysis i s the concept of a m u l t i p l i e r . The basic theory of the m u l t i p l i e r i s that a monetary i n j e c t i o n into an economic system w i l l cause an increase in the l e v e l of income and employment in that system by some multiple of the o r i g i n a l i n j e c t i o n . The m u l t i p l i e r e f f e c t i s due to successive rounds of respending within the economy. The m u l t i p l i e r concept assumes that the introduction of a monetary stimulus i n the regional economy w i l l r e s u l t i n an upward s h i f t i n aggregate spending due to an increase i n income and employment. This s h i f t results i n a process of respending which produces a multiple increase i n the aggregate income i n the region. - 2 -The m u l t i p l i e r thus provides a framework for the analysis of monetary change i n the economy. Lane 1 points out that the concept of a, m u l t i p l i e r was f i r s t developed by Kahn i n 19 31 as a conceptually complete a n a l y t i c a l t o o l i n economics. He further points out that Kahn's work was extended by Keynes i n The General Theory  of Employment, Interest and Money. Keynes showed the difference between the income m u l t i p l i e r (which depends upon the marginal propensity to consume) and the employment m u l t i p l i e r (which also depends upon labour and investment e l a s t i c i t i e s ) . Lane suggests that by the early 1940's m u l t i p l i e r analysis had become a mainstay i n the toolbox of aggregate economic analysis and that the properties of a m u l t i p l i e r had been substantially worked out. In t r a d i t i o n a l Keynesian theory the income m u l t i p l i e r measures the change i n personal household income attributable to an exogenous i n j e c t i o n of expenditure into an economy. Thus an i n j e c t i o n of expenditure into an economy w i l l raise personal incomes i n that area by some c o e f f i c i e n t or multiple of i t s e l f , i . e . i f the amount of expenditure injected i s DE, the personal incomes generated within that economy w i l l be K.DE where K i s the income m u l t i p l i e r . 1. Theodore Lane, "The Urban Base M u l t i p l i e r : An Evaluation Of the State of the Art", Land Economics, Vol. 42, 1966: pp. 339 - 347. - 3 -In a regional context, much of the i n i t i a l investment leaks d i r e c t l y out of the r e c i p i e n t economy without generating any income whatsoever to the resident population. Quantifying the leakage process i s of concern i n economic impact analysis because the degree of leakage increases or decreases the value of the m u l t i p l i e r . The value Of the m u l t i p l i e r depends upon: 1. the region 1s marginal propensity to consume; 2. the region's marginal propensity to import; 3. the region's marginal propensity to save; and 2 4. the tax rate. Regional economic impact analysis i s an important source of information for regional planners and p o l i c y makers. Besides generating useful information regarding the e x i s t i n g economic relationships within the regional economy, impact analysis a s s i s t s the planners i n a n t i c i p a t i n g problems (housing, t r a n s i t , etc.) and i n planning to adjust or accommodate for those impacts accompanying a development project. The obvious and immediate value i n being able 2. 1... determines the proportion of t o t a l income that w i l l be respent at each successive round of income creation; 2... determines the proportion of t o t a l spending at each, round which w i l l leak out of the area and w i l l hence hot be available for further respending within the l o c a l area; 3... determines the proportion of t o t a l income that w i l l be withheld from the l o c a l area due to savings; and 4... determines the proportion of earned income that w i l l leak out of the area as a r e s u l t of taxes. - 4 -to assess the influence of e x i s t i n g economic rel a t i o n s i n a region and the influence of the potential impact of a change in those economic rel a t i o n s has p r e c i p i t a t e d a great deal of research i n economic impact analysis both by academics and by p r a c t i t i o n e r s . The research has demonstrated that there are both t h e o r e t i c a l and p r a c t i c a l problems connected with the derivation of 3 . m u l t i p l i e r values. Wilson suggests that while the use of the m u l t i p l i e r concept i n economic impact analysis i s absolutely correct, the type of m u l t i p l i e r adopted 4 i s often inappropriate. Also, as Archer points out, economists do not a l l agree i n the d e f i n i t i o n of the m u l t i p l i e r i t s e l f . It i s not reasonable to assume that every type of economic a c t i v i t y which att r a c t s non-lbcal. funds w i l l have i d e n t i c a l l o c a l m u l t i p l i e r e f f e c t s . Leakages, for example, are often higher i n the case of small regions than i n larger areas. Also, the influence of a stimulus to the economy i s f e l t d i f f e r e n t l y according to the i n t e r n a l structure of the r e c i p i e n t economy and the manner i n which the i n j e c t i o n i s d i s t r i b u t e d across 3. J. Holton Wilson, "Impact Analysis and M u l t i p l i e r S p e c i f i c a t i o n s " , Growth and Change, July 1977: 42-46. 4. B. H. Archer, "The Anatomy of a M u l t i p l i e r " , • Regional Studies, 107519.76: 71-77, - 5 -the various sectors of the recipient economy. Much of the research i n regional economic impact analysis has focused on ways to correct for potential errors i n the analysis and on the correct use of appropriate models for analysis. Research has also, however, focused on the p a r t i c u l a r impacts generated by unique types of development projects (e.g. pulp and paper m i l l s , smelters, port and r a i l f a c i l i t i e s ) , on p a r t i c u l a r regional economies. Much concern has been expressed recently about the c o n t r i -bution of large-scale non-profit i n s t i t u t i o n s such as hospitals,, u n i v e r s i t i e s and colleges and recreational f a c i l i t i e s to the regional economy. A growing awareness' that there are s i g n i f i c a n t impacts from these i n s t i t u t i o n s not only on the physical development of the community,5 but also on municipal expenditure and financing,6 and on the socio-economic milieu^ of the region has stimulated an i n t e r e s t i n i d e n t i f y i n g and quantifying these impacts. 5. Michael B. T e i t z , "Toward a Theory of Urban Public f a c i l i t y Location", Papers of the Regional Science  Association, Vol. XXI, 1968: pp. 33 - 51. 6. Craig L. Moore and Sidney C. Sufrin, J'The Impact of Non-Profit Institutions, on Regional Income", Growth  and Change, January 1974: pp. 36 - 40. 7. J. Holton Wilson, and Craig L. Moore and Sidney C. Sufrin, "The Impact of a Non-Profit I n s t i t u t i o n on Regional Income: A Discussion", Growth and Change, July 1975: pp. 45 - 48. - 6 -I. THE STUDY FRAMEWORK This thesis i s a case study of the economic impact of the P a c i f i c National Exhibition (PNE), a large-scale non-profit i n s t i t u t i o n , on the regional economy of the Lower Mainland of B r i t i s h Columbia. The study i s of inte r e s t for two reasons: 1. The PNE i s a large-scale multiple-use f a c i l i t y operated by a non-profit society. While the physical impact of the PNE i s very e x p l i c i t , there i s l i t t l e accurate information available on the regional economic impact of t h i s i n s t i t u t i o n . 2. The study i s representative of the p r a c t i c a l conditions faced by an analyst i n attempting to conduct an impact study. The l a t t e r i s an important aspect to consider when economic impact analysis i s placed within a planning and po l i c y making context. The value of a regional economic impact analysis i s the information i t generates. Very often, however, conditions exi s t which l i m i t both the scope and the q u a l i t y of analysis. The most obvious of these conditions are budgetary and time constraints and the constraint of data a v a i l a b i l i t y . In B r i t i s h Columbia, most regional economic impact analyses are i n i t i a t e d i n the public sector i n response to development proposals. The studies are conducted on a limited budget and because they are - 7 -usually a response or reaction to a project already under consideration (or indeed, i n the i n i t i a l construction phase), time i s almost always a constraint. The study deadline may seriously l i m i t the scope of the analysis. J These two factors, combined with the quality and a v a i l a b i l i t y of data, are constraints which influence quite considerably the study methodology. Despite both th e o r e t i c a l and p r a c t i c a l d i f f i c u l t i e s , regional planners are often faced with having to estimate as accurately as possible the various impacts of development projects and to place these estimates i n a regional planning or p o l icy context. Given budgetary and time l i m i t a t i o n s , and a dependency upon available data, the analyst must design the study as e f f i c i e n t l y as possible. The following questions must be c l a r i f i e d at the beginning of the study: 1. What answers w i l l the study be expected to provide? 2. Which impacts must be i s o l a t e d i n order to answer the study questions? 3. What w i l l be the l i m i t s of the study area? 4. What i s the most appropriate economic impact model to use for this p a r t i c u l a r study? 5. Can the data requirements be met? 6 . Can the analyst develop a study methodology which adequately answers the questions being addressed? - 8 Ideally the analyst w i l l choose the most appropriate model to answer the study questions given the external constraints of time, budget and data a v a i l a b i l i t y . In order to make this choice, the analyst should: 1. know the th e o r e t i c a l assumptions, the conceptual and technical d i f f i c u l t i e s and the r e l a t i v e merits o f the mode1. 2. be fa m i l i a r with current l i t e r a t u r e on the economic impact of project developments s i m i l a r to the study i n question; and 3. be able to adapt e x i s t i n g models to include the unique c h a r a c t e r i s t i c s of the p a r t i c u l a r study area being analysed. The case study for t h i s thesis originated i n a p o l i t i c a l context. In 1977 a proposal was put forward by the PNE to renovate and improve i t s grounds. This proposal has since expanded into a considerably larger project, including the construction of a large multiple-use f a c i l i t y estimated to cost approximately $163 m i l l i o n . Concern has arisen over such issues as congestion., the s o c i a l impact of such development on the surrounding community, the f i n a n c i a l r e s p o n s i b i l i t y of the City of Vancouver as well as the p r o v i n c i a l and federal governments. The controversy which accompanied the proposal put forth - 9 -by the PNE gave r i s e to questions about the impact of the exi s t i n g i n s t i t u t i o n on the lower mainland economy. An economic impact analysis was therefore generated. Using the PNE economic impact analysis as an example, thi s thesis argues that the maximum accuracy from a regional economic impact study w i l l be obtained i f the analyst i s fam i l i a r with the advantages and disadvantages of the models avail a b l e , i s fam i l i a r with studies analogous or sim i l a r to the project i n question, chooses the most appropriate model and adapts the model to r e f l e c t the conditions of the study area. Furthermore, the thesis argues that maximum value from an economic impact study w i l l be obtained only i f the information generated by the study i s placed i n a broader planning and policy context. Chapter II examines the three main models used i n regional economic impact analysis and demonstrates t h e i r merits and weaknesses with .suggestions as to t h e i r most appropriate uses. Chapter III i s a review of some current studies of large-scale non-profit i n s t i t u t i o n s , namely u n i v e r s i t i e s and colleges. This chapter reviews cases where the. three models i d e n t i f i e d i n Chapter II have been applied to speci-f i c i n s t i t u t i o n s i n p a r t i c u l a r regional economies. Posi-t i v e and negative aspects of the model applications are discussed. - 10 -Chapter IV i s a regional economic impact analysis of the P a c i f i c National Exhibition, using an .input-o.utput model. This chapter demonstrates a study methodology using input-output analysis developed under p r a c t i c a l conditions l i k e l y to be faced by most analysts working in t h i s f i e l d . The chapter argues that the model and methodology chosen answer as accurately as possible the study questions. Chapter V relates regional economic impact analysis to the planning process and demonstrates the value of t h i s type of analysis when co r r e c t l y used by planners and policy makers. Regional economic impact analysis i s a quantitative approach, which, despite t h e o r e t i c a l and p r a c t i c a l d i f f i c u l t i e s , can make a useful and constructive contribution to planning and policy.making. - 11 -CHAPTER TWO REGIONAL ECONOMIC IMPACT MODELS I. INTRODUCTION Regional economic impact analysis provides information on the economic consequences of a monetary stimulus to a regional economy. There are a number of models available to the analyst which w i l l a s s i s t i n the provision of that information. These models attempt to describe i n various degrees of d e t a i l the system of economic relationships governing a region, sector, industry or firm. In t h i s chapter, three models are presented: economic base, income-expenditure and input-output. Each model i s placed i n an h i s t o r i c a l context. The working concepts and techniques of each model are then described. The r e l a t i v e strengths and weaknesses of the models are evaluated and appropriate uses for each are suggested. II . ECONOMIC BASE ANALYSIS A. Overview Economic base analysis has emerged from both formal economic analysis (aggregate income analysis) and early base studies developed primarily by geographers and planners who argued that the growth of a c i t y should be analysed by dividing i t s t o t a l employment into primary (d i r e c t l y concerned with the functions of the town) - 12 -and s e c o n d a r y ( c o n c e r n e d w i t h t h e m a i n t e n a n c e o f t h e w e l l b e i n g o f t h e p r i m a r y w o r k e r s ) o c c u p a t i o n s . They s u g g e s t e d t h a t t h e r e l a t i o n s h i p b e t w e e n p r i m a r y a n d s e c o n d a r y o c c u p a t i o n s was t h e b a s i s o f u r b a n g r o w t h . Lane-*- s u g g e s t s t h a t s i n c e t h e m i d - t h i r t i e s , t h e c o n c e p t i o n o f an u r b a n b a s e s t u d y h a s r e m a i n e d e s s e n t i a l l y u n c h a n g e d . " T h i s c o n c e p t i o n v i e w s an u r b a n a r e a ' s economy as h a v i n g two s e c t o r s : an e x p o r t s e c t o r a n d a l o c a l s e c t o r . " 2 By p r o d u c i n g goods a n d s e r v i c e s w h i c h a r e s o l d t o t h e " r e s t o f t h e w o r l d " , t h e e x p o r t . s e c t o r c a u s e s i n c o m e t o f l o w i n t o t h e a r e a . P a r t o f t h e i n c o m e g e n e r a t e d f r o m t h e e x p o r t s e c t o r i s s p e n t l o c a l l y t o p u r c h a s e c o n s u m e r p r o d u c t s . " T h i s l o c a l s p e n d i n g s u p p o r t s t h o s e s e c t i o n s o f t h e a r e a ' s economy w h i c h p r o d u c e n o n - e x p o r t e d i t e m s . E c o n o m i c b a s e t h e o r y assumes t h a t t h e r a t e a n d d i r e c t i o n o f g r o w t h o f a r e g i o n o r c i t y i s d e t e r m i n e d by i t s f u n c t i o n as an e x p o r t e r t o t h e r e s t o f t h e w o r l d . The i n c o m e a n d e mployment l e v e l o f an a r e a i s d e p e n d e n t upon t h e economy's a b i l i t y t o e x p o r t t o o t h e r a r e a s . F o r t h e p u r p o s e o f a n a l y s i s , t h e r e f o r e , t h e e c o n o m i c a c t i v i t i e s o f a r e g i o n a r e d i v i d e d i n t o t h o s e w h i c h p r o d u c e f o r t h e e x p o r t m a r k e t and t h o s e w h i c h p r o d u c e f o r t h e l o c a l m a r k e t . 1. T h e o d o r e L a n e , "The U r b a n B a s e M u l t i p l i e r : An E v a l u a t i o n o f t h e S t a t e o f t h e A r t , L a n d E c o n o m i c s , V o l . 42. , 1966 : 2. I b i d . f P. 341 3. I b i d . , P- 341 pp. 339 - 347. - 13 -Exports may be i n the form of goods and services . including labour that flow out of the region, or expenditures by foreigners i n the region on goods and services that are immobile, such as those connected with the geography, climate, h i s t o r i c a l s i g n i f i c a n c e or 4 r e l a t i v e location of the region. Allowance i s made for such items as the earnings of commuters,., c a p i t a l flows, government transfers and linked i n d u s t r i e s . ^ Given these basic or. export a c t i v i t i e s , the l e v e l of non-basic or residentiary a c t i v i t i e s can be determined. The theory holds that a l l economic a c t i v i t y i n the region can be c l a s s i f i e d as basic or non-basic and that a stable r e l a t i o n s h i p exists between the basic and non-basic sectors so that changes i n base sector employment and income w i l l lead to predictable changes i n service sector employment and income and therefore i n the t o t a l employment and income of the region. The theory further states that both employment and income i n the base sector are a function of exogenous demand. 4 . Charles M..:. Tiebout , The Community Economic Base Study, Supplementary Paper No. 16, New York Committee for Economic Development, 1962. 5. Ibid. - 14 -As th i s demand increases, the requirement for non-basic sector a c t i v i t i e s increases and the t o t a l regional income and employment w i l l increase by some multiple of the i n i t i a l increase i n demand. The r a t i o between basic (export) a c t i v i t i e s and non-basic (service) a c t i v i t i e s i s then used as a m u l t i p l i e r . The base sector d i r e c t l y supports the service sector and the income of the region i s therefore assumed to be t i e d to the l e v e l of exports. B. The Structure of the Economic Base Model The intent of the economic base model i s to measure the impact of a change i n demand for export commodities on income and/or employment within the region. The altered l e v e l of demand w i l l cause changes i n employment and/or income i n the export sector and consequently i n the service sector, since a l l service sector a c t i v i t y i s dependent upon a c t i v i t y i n the base sector. Construction and application of the economic base model requires f i v e steps: 1. D e f i n i t i o n of the region or study area. 2. Calculation of t o t a l basic employment i n the community being studied. 3. Estimation of the relationship between basic and non-basic a c t i v i t i e s i n the region, e.g. simple r a t i o . . 4. Estimation of the change i n the base sector i n i t i a t e d by a change i n f i n a l demand for i t s export product or service. 5. Calculation of the e f f e c t s of change i n the basic sector on the non-basic sector, assuming the rel a t i o n s h i p established i n (2), the m u l t i p l i e r , remains constant. C. Procedural Steps of the Model Elaborated Various options are available to the analyst for each procedural step i n the model:^ 1. The d e f i n i t i o n of the region or study area i s a r b i t r a r y , e.g. may be an exis t i n g administrative area or may be the area of perceived impact. Since export volume i s a function of regional si z e , the m u l t i p l i e r w i l l vary i n r e l a t i o n to the size of the study area. 2. Measuring the base sector can be done i n at least f i v e ways. Each of the techniques available, however, has problems which can cause serious underestimation or overestimation of the base sector employment. This i s p a r t i c u l a r l y true i n economies made up of many export ' a c t i v i t i e s and related industries. While t h i s tendency to error can be corrected somewhat, i t does r a i s e serious questions about the accuracy of the economic base model. Base sector employment can be i d e n t i f i e d i n the following ways: a. Simple Judgement: The basic and non-basic sectors are categorized according to the analyst's understanding 6. W. Cris Lewis, "Export Base Theory and M u l t i p l i e r Estimation: A Cri t i q u e " , Annals of Regional Science, 10(2), July, 1976: 58-70. - 16 -of the structure of a p a r t i c u l a r regional economy. Basic employment may be understated or overstated in t h i s case, depending on the way industries are assigned to the two broad classes. M u l t i p l i e r estimates vary according to the assignation given. Survey: Surveys are used to generate data on which i s based an estimation of the volume of export a c t i v i t y . The costs of these surveys are often p r o h i b i t i v e and r e s u l t s depend on high response rates. There i s often error i n the respondents' i d e n t i f i c a t i o n of the base sector. Location Quotient: The analyst calculates the location quotient for each sector. A location quotient greater than one provides an index of surplus workers ( i . e . the difference between actual regional industry employment and the region's pro rata share of national industry employment). The surplus for each sector i s summed to y i e l d an estimate, of base employment. The rest of the region's labour force i s assigned to the non-basic category. Thus, the location quotient, LQi for any industry: LQ i = R i / R (1) l/N Where: = employment i n the regional sector i R = t o t a l employment i n the region - 17 -ISL = employment i n the national sector i N, = t o t a l national employment And: the base employment Bi for. any industry = B. + R. - N i x R (2) 1 I — N If the r a t i o i s greater than one, regional industry i i s an exporter. If the r a t i o i s less than one, i t i s an importer. If the r a t i o i s equal to one, the region i s s e l f - s u f f i c i e n t i n the production of the p a r t i c u l a r good being analysed, i . e . i t s a t i s f i e s the regional demand for that good. The location quotient technique i s dependent upon six main assumptions which, in f a c t , give r i s e to estimation problems: assumes that productivity per worker i n each region i s the same as i n the national sectors. If labour i s more productive i n the region or sector being analysed, the employment requirements would be d i f f e r e n t and the location quotient technique would understate the base employment as compared to the nation; ' assumes that the pattern of consumption•in each region i s i d e n t i c a l to that of the nation. I f consumption i n the region i s , for example, higher than that of the nation, corrections for consumption must be made or the base employment w i l l be overstated. - 4 -assumes t h a t the p a t t e r n o f p r o d u c t i v i t y i n each r e g i o n i s i d e n t i c a l t o t h a t o f the n a t i o n . I f p r o d u c t i v i t y i s , f o r example, h i g h e r i n the r e g i o n , the requirements f o r s e l f - s u f f i c i e n c y would be d i f f e r e n t and base employment c o u l d be und e r s t a t e d ; assumes no c r o s s h a u l i n g , when i n f a c t , w i t h i n any i n d u s t r y c l a s s i f i c a t i o n (or f o r t h a t matter w i t h i n a s i n g l e f i r m or esta b l i s h m e n t ) t h e r e are d i f f e r e n t s p e c i f i c products and the r e g i o n may be i m p o r t i n g some and e x p o r t i n g o t h e r s . S i n c e the l o c a t i o n q u o t i e n t estimates o n l y the net s u r p l u s o f output over r e g i o n a l consumption, i t may s e r i o u s l y u n d e r s t a t e the gross exports o f products o f t h a t i n d u s t r y . ? The model thus assumes t h a t each i n d u s t r y taken over the whole n a t i o n produces a s i n g l e homogeneous pr o d u c t ; - assumes t h a t the n a t i o n i s s e l f - s u f f i c i e n t which i s not n e c e s s a r i l y so. I f a n a t i o n i s a net e x p o r t e r the base w i l l be o v e r s t a t e d . I f the n a t i o n i s a net importer the base w i l l be un d e r s t a t e d . Both o v e r e s t i m a t i o n s and un d e r e s t i m a t i o n s o f the base employment by t h i s technique r e q u i r e some adjustment b'y the a n a l y s t . 7. Edgar M. Hoover, An I n t r o d u c t i o n t o Regiona l Economics, (New York: A l f r e d A. Knopf Inc., 1971). - 19 -d. Minimum Requirements: In t h i s technique a large number of "similar" regions are selected. For each region the percentage of t o t a l employment or income di s t r i b u t e d among the various industries i s computed. The percentages attributed to each industry are then ranked by order of magnitude. The lowest ranked values for each industry then becomes a minimum requirements p r o f i l e . The technique assumes that the smallest percentage i s the minimum required by any of the regions to s a t i s f y i t s own needs and therefore a l l employment i n other regions above t h i s percentage i s considered as base export employment. This technique possesses a l l the weaknesses of the location quotient method. g A d d i t i o n a l l y , Richardson refers to c r i t i c i s m of the technique by Pratt, who points out that there i s no objective reason why minima should make a better basis for reference than the average, which forms the basis of location quotient treatment. Pratt also suggests that manipulation of the l e v e l of disaggregation can y i e l d almost any r e s u l t s the analyst would l i k e to confirm. 8. Harry W. Richardson, Elements of Regional Economics, (Middlesex, England: C. Nicholls & Company Ltd., (1969)). 9 Regression Analysis: Ma.thur and Rosen applied econometric techniques rather than the location quotient method to estimate employment i n the basic and non-basic sectors. They hypothesized that the basic employment i n the region would be sensitive to changes i n employment i n the rest of the world (W). Therefore the portion of i n d u s t r i a l employment i n the region that i s sensitive to employment i n the rest of the world (E ) would be the basic employment, while W the portion d i r e c t l y i n s e n s i t i v e to changes i n the rest of the world employment would be non-basic. They . therefore assumed'for industry i : E• = B . + B, . E (3) r ^ 0 1 ^ l i w v •' Where: E r = t o t a l employment i n the region _BQ^ = non-basic employment B l i E w = basic employment and: B and B. are constants, 'o -'I Estimating the above equation by ordinary least squares method (OLS), they obtained estimated c o e f f i c i e n t s B Q ^ and B,.. In those industries where c o e f f i c i e n t s B . and f l l ' o i 9. V. K. Mathur and H. S. Rosen, "Regional Employment M u l t i p l i e r : A New Approach", Land Economics, 50:1, 1974: 93-96. - 21 -B^^ a r e s i g n i f i c a n t , M a t h u r and R o s e n o b t a i n e d t h e a v e r a g e e s t i m a t e d n o n - l o c a l i z e d a n d l o c a l i z e d e m p l o y m e n t i n t h e i t h i n d u s t r y . The a v e r a g e e m p l o y m e n t i n i t h i n d u s t r y (E^) i s : = B . + B . E . (4) R O l l x W D i v i d i n g b o t h s i d e s o f (4) by E^ , M a t h u r a n d R o s e n R o b t a i n e d two p r o p o r t i o n s B . E^ a n d B,. E E^. The • c ox R l x w R f i r s t e x p r e s s i o n r e p r e s e n t s t h e p r o p o r t i o n o f l o c a l i z e d e m p l o y m e n t , a n d t h e s e c o n d e x p r e s s i o n i s t h e p r o p o r t i o n o f n o n - l o c a l i z e d e mployment i n t h e i n d u s t r y . The amount o f e s t i m a t e d l o c a l i z e d a n d n o n - l o c a l i z e d e mployment i s o b t a i n e d b y m u l t i p l y i n g t h e r e s p e c t i v e p r o p o r t i o n s and a c t u a l e m p l o y m e n t o f t h e r e s p e c t i v e i n d u s t r y . Summing t h e s e r e s p e c t i v e c o m p o n e n t s a c r o s s a l l t h e i n d u s t r i e s , t h e a n a l y s t s o b t a i n e d b a s i c a nd n o n - b a s i c e m ployment t o t a l s . T h ey f e l t t h a t u s i n g t h e e c o n o m e t r i c t e c h n i q u e r a t h e r t h a n t h e l o c a t i o n q u o t i e n t t e c h n i q u e r e n d e r e d t h e e c o n o m i c b a s e m o d e l a m a n a g e a b l e a n d f e a s i b l e m e t hod f o r e s t i m a t i n g s h o r t - r u n i m p a c t e f f e c t s . D e s p i t e c r i t i c i s m s o f t h e l o c a t i o n q u o t i e n t t e c h n i q u e , i t i s c u r r e n t l y t h e most common m e t h o d use d , b y p r a c t i t i o n e r s . The method r e q u i r e s l i t t l e d a t a a n d a n a l y t i c a l s k i l l . I t c a n be c a r r i e d o u t q u i c k l y a n d e f f e c t i v e l y . E v i d e n c e o f t h e i n a c c u r a c y o f t h e t e c h n i q u e , h o w e v e r , s u g g e s t s t h a t t h e r e i s a n e e d f o r f u r t h e r r e s e a r c h a n d f u r t h e r t e s t i n g o f e c o n o m e t r i c t e c h n i q u e s . - 22 -3. The methods of establishing the equation s p e c i f i c a t i o n to estimate the relationship between basic and non-basic a c t i v i t i e s i n the region vary (e.g. simple r a t i o , lease square, regression). The method adopted w i l l a f f e c t the value of the m u l t i p l i e r . For example, a simple r a t i o can be used to derive an employment m u l t i p l i e r by ca l c u l a t i n g the r a t i o of t o t a l employment to the basic employment. The base m u l t i p l i e r i s thus: t o t a l employment basic employment Because t o t a l employment i s the sum of basic employment and non-basic employment, the formula can be written a l g e b r a i c a l l y as: Base M u l t i p l i e r = 1~ = R (1) 1 - S/R B Where: B = employment i n the base sector S = employment i n the non-basic sector R = B + S = t o t a l employment Likewise, i f the concern i s solely with changes i n the sectors due to an outside stimulus i n the economy, the formula may be written as: Base M u l t i p l i e r = _R (2) B - 23 -4. The increase i n f i n a l demand must be i d e n t i f i e d outside of the model. 5. Estimates of future impacts rest on present or past base r a t i o s . Thus, the c a l c u l a t i o n of values for changes i n the basic sector on the non-basic sector assumes that the rel a t i o n s h i p derived from section 3 above i s constant. The assumption of a constant' re l a t i o n s h i p gives t h i s model a short-run value only. However the,analyst chooses to approach the above steps, his study may y i e l d vastly d i f f e r e n t values of the m u l t i p l i e r . Lewis, i n his c r i t i q u e of export base theory and m u l t i p l i e r estimation, states: "Clearly, the a v a i l a b i l i t y of several alternatives in each step of the process suggests the p o s s i b i l i t y of a range of m u l t i p l i e r estimates... the predicted impacts of a given project w i l l vary greatly simply by varying the way the m u l t i p l i e r i s obtained." 10 C. Critique of the Economic Base Model The economic base model has come under increasing c r i t i c i s m , both as an u n r e a l i s t i c theory of regional growth and as an inadequate income determination model. Some analysts have concluded that the concept of the export base i s a short-run concept and, as such, may be f a i r l y accurate. 10. Lewis, "Export Base Theory and M u l t i p l i e r Estimation: A C r i t i q u e " , p.60. - 2.4 -Others suggest that d e f i c i e n c i e s i n the model are such that the export base model should not be used at a l l . T h eoretically, the model errs i n i d e n t i f y i n g exports as the sole source of regional income change. As Charles Tiebout states: "There i s no reason to assume that exports are the sole or even the most important autonomous variable determining regional income. Such other items as business investment, government expenditures, and the volume of r e s i d e n t i a l construction may be just as autonomous with respect to regional income as are exports." 11 Tiebout further points out that export volume i s a function of regional size. Usually the boundaries of a region are suggested by the variables chosen by the analyst to study or are set by other considerations. W. C r i s Lewis furthers Tiebout's argument. He states that export base theory i s d e f i c i e n t to the extent that 11. Charles M. Tiebout, "Regional Exports and Regional Economic Growth", i n Regional P o l i c y : Readings i n  Theory and Application, ed. by J. Freedman, (Cambridge, Mass.: the MIT Press, 1975), p.349. 12. W. Cris Lewis, "A C r i t i c a l Examination of the Export Base Theory of Urban Regional Growth", Annals of Regional Science, December, 1972: 14-25. i t f a i l s to consider stimuli a r i s i n g within the region from the. consumer, business and government sectors. The theory i m p l i c i t l y assumes "the price e l a s t i c i t y of demand for commodities and labour to be zero, while the e l a s t i c i t y of the labour supply function 13 i s i n f i n i t e " . In other words, the focus of e c o n o m i c base theory on exports has led to the exclusion of such factors as labour input, technological progress and elimination of resource misallocation as sources of growth. Lewis argues that the development and growth of an i n d u s t r i a l export base i n a region i s more l i k e l y a symptom of economic growth than a casual factor. The economic base model cannot i d e n t i f y the reason, for an increase i n export demand. Lewis suggests that base theory per se, with i t s emphasis on basic and non-basic a c t i v i t i e s i n the regional economy, be largely dismissed fron consideration. Not a l l the l i t e r a t u r e , however, r e f l e c t s Lewis' b e l i e f that economic base theory w i l l eventually be excluded from serious economic analysis. Attention has been paid to improving the method of separating the. basic and non-basic sectors Of the economy; to developing techniques for i d e n t i f y i n g d i f f e r e n t i a l m u l t i p l i e r s for d i s t i n c t 13. Ibid., p. 16. - 26 -sectors of export a c t i v i t y and to the type of application 15 for which the economic model i s most suitable.- Also, p r a c t i c a l considerations of time and data constraints have led to the continued use of t h i s model because of i t s r e l a t i v e s i m p l i c i t y . The major problem with economic base analysis i s the assumption of a constant base/service r a t i o over time. Estimates Of future impacts rest on present or past base r a t i o s when, i n f a c t , new developments may bring r a d i c a l s t r u c t u r a l changes to the economy. Structural change inevitably expresses i t s e l f in a much altered r a t i o . Equally serious i s the assumption that export i s the sole engine of growth i n a regional economy and the assumption of a homogeneous export sector as well as the f a i l u r e to allow for i n t e r n a l growth factors. The high degree of aggregation c h a r a c t e r i s t i c of t h i s model reduces the value of i t s application. 14. See, for example, S. J. Weiss and E. C. Gooding, "Estimation of D i f f e r e n t i a l Employment M u l t i p l i e r s i n a Small Regional Economy", Land Economics, 1968: 235-244. These authors use a p a r t i a l l y disaggregated economic base m u l t i p l i e r model to estimate for d i s t i n c t sectors of export a c t i v i t y . 15. See, for example, Daniel Garnick, " D i f f e r e n t i a l Regional M u l t i p l i e r Models", Journal of Regional  Science, Vol.10, No.l, 1970: 35-47. This author argues that where there are limited objectives i n -the study, economic base m u l t i p l i e r s are cost e f f e c t i v e alternatives to other m u l t i p l i e r s i f the region i s small. Economic base analysis can, however, be a useful t o o l i n analysing small-scale regional economies such as resource communities which tend to be impacted by single "resource-exporting" industries and are c h a r a c t e r i s t i c a l l y simple i n t h e i r economic structure. I I I . INCOME-EXPENDITURE ANALYSIS A. Overview The income-expenditure model i s an extension of t r a d i t i o n a l Keynesian income theory i n which the income m u l t i p l i e r measures the change i n personal household incomes attributable to an exogenous i n j e c t i o n of expenditure into an economy. Much of the e a r l i e r work i n regional income m u l t i p l i e r s occurred i n the United Kingdom because of increasing concern over regional d i s p a r i t i e s and the 16 need to develop mitigating "regional" p o l i c i e s . The l i t e r a t u r e on regional income m u l t i p l i e r s i s somewhat 17 sparse and most research can be seen, as Brownrigg points out, as a further development of the work of Archibald (minimum m u l t i p l i e r values); Brown and Steele (feedback effects from interregional trade); and Wilson (effects from leakages). 16. The policy implications of the income m u l t i p l i e r i n a regional context are discussed i n G.C. Archibald, "Regional M u l t i p l i e r E f f e c t s in the U.K.", Oxford  Economic Papers, March, 1967: pp. 22 - 45. 17. Mark Brownrigg, "The Regional Income M u l t i p l i e r : An Attempt to Complete the Model", Scottish Journal  of P o l i t i c a l Economy, Vol. 18, 1971: pp. 281 - 297. - 28 -Archibald considered the l i m i t s within which regional m u l t i p l i e r s were l i k e l y to be fixed, given certain sensible assumptions. The value of a "minimum" m u l t i p l i e r as analysed by Archibald would seem to be rather l i m i t e d in p r a c t i c a l analysis. He did, however, c l a r i f y the d i s t i n c t i o n between the impact of the i n i t i a l expenditure and the generalized m u l t i p l i e r . He also demonstrated the i n i t i a l leakages from d i f f e r e n t types of expenditures were applicable before any generalized m u l t i p l i e r was operational!zed. Brown documented the relationship between income and employment. Both Brown and Steele concentrated on modifications to the m u l t i p l i e r to include repercussions 18 from interregional trade. Wilson broadened the concept of the simple m u l t i p l i e r 19 as applied to the private sector and the public sector. He suggests that i n many cases a r i s e i n public investment can be expected to induce additional private investment as well as to raise consumption. Wilson also i n t r o -duced the idea of interregional feedback in.the private 18. D.B. Steele, "Regional M u l t i p l i e r s i n Great B r i t a i n " , Oxford Economic Papers, July 1969: pp. 2 6 8 - 2 9 2 ; and A.J. Brown, "The Green Paper on Development Areas", National Institute Economic Review, May 1967. 19. T. Wilson, "The Regional M u l t i p l i e r : A C r i t i q u e " , Oxford Economic Papers, November, 19 68. sector; Certain leakages such as taxes may not, according to Wilson, be independent of further feedback relationships with income. Both Wilson and Archibald argue that a gradual and prolonged r i s e i n the l e v e l of income and expenditure associated with the growth of a new project, coupled with the inflow of immigrants, w i l l induce a s i g n i f i c a n t amount of additional in-migrant investment i n the area. Wilson suggests that the contribution of income-expenditure to regional policy issues has been minimal except i n the area of economic impact analysis where the application of the model to smaller regional economies has been en-lightening, p a r t i c u l a r l y i n regard to the importance of considering leakages i n the impact analysis process. B. The Structure of the Income-Expenditure Model Like input-output and economic base, the income-expenditure model attempts to trace the monetary flows through a region once an i n j e c t i o n into an economic system has occurred. The model divides economic a c t i v i t y into d i r e c t , i n d i r e c t and induced categories. Direct a c t i v i t y i s a c t i v i t y stimulated by an i n j e c t i o n i n the economy r e s u l t i n g from the presence of a new project or enterprise. Indirect a c t i v i t y i s a c t i v i t y by firms i n the region that s e l l inputs to or purchase outputs from the new enterprise. Induced - 30 -a c t i v i t y i s attributed to consumption spending generated by wages and s a l a r i e s of d i r e c t and i n d i r e c t employees. Regional income i s increased by an amount greater than d i r e c t and i n d i r e c t income because a portion of t h i s income i s spent l o c a l l y and retained i n the economy i n the form of wages, sa l a r i e s and p r o f i t s . Likewise, a certain portion of these wages, s a l a r i e s and p r o f i t s w i l l be spent l o c a l l y , further increasing the regional income. 1. The Conventional Model: The income-expenditure model i s based on the standard income m u l t i p l i e r form: A Y t = k r J (1) Where: Y^ i s the t o t a l income generated i n the regional economy, and J i s the income ( i . e . wages and salaries) generated d i r e c t l y by the operations of the impacting industry or i n j e c t i o n , k i s the m u l t i p l i e r , r The model assumes that the l e v e l of investment (I), government expenditure (G) and regional exports (X) w i l l remain constant and autonomous. Allowances are made for the various leakages which occur during the m u l t i p l i e r process. A leakage i s income l o s t to the regional economy through savings, non-local expenditures and non-local taxation, a l l of which take money out of l o c a l c i r c u l a t i o n . The problem of undistributed 20 p r o f i t s i s usually ignored. Brownrigg presents the following as the basic m u l t i p l i e r formulation toward which a l l income-expenditure studies move "despite differences i n the approach taken": k r = I (2) 1-c ( l - t d - u ) (l-m-t i) Where: i t i s assumed that I, G and X remain constant as mentioned, and: c = the proportion of additional income consumed t ^ = d i r e c t taxation u = decline i n transfer payments with the r i s i n g l e v e l of regional income m = imported consumer goods t. = i n d i r e c t taxation. I 21 Modifications to the Model: Brownrigg suggests that the f i r s t main modification to the conventional model concentrated on the problem of i n j e c t i o n leakages, since i t was pointed out that the i n j e c t i o n i t s e l f was subject to leakages before undergoing m u l t i p l i e r expansion. For 20. Brownrigg, "The Regional Income M u l t i p l i e r : An Attempt to Complete the Model", p.2 82. 21. Ibid., p.283. - 32 -example, i f the i n d u s t r i a l structure of the region i s such that c a p i t a l goods must be purchased elsewhere, i t i s l i k e l y that the only part of the i n j e c t i o n to pass to the m u l t i p l i e r would be the wages and s a l a r i e s of the workers i n the construction phase. The modified multiplicand would be expressed as: A Y r = k r J (1-m*) (3) Where: AY r = the change i n t o t a l income generated i n the regional economy J = the i n j e c t i o n m* = the d i r e c t leakage i n imported c a p i t a l goods k^ = the m u l t i p l i e r . A second main modification to the conventional model suggests that a similar i n j e c t i o n leakage must be applied to the induced investment component. The argument i s that as income and expenditure r i s e through the m u l t i p l i e r , some additional investment i s l i k e l y to be induced, p a r t i c u l a r l y i f excess capacity i s not present. If induced investment does occur, a further component i s introduced into the multiplicand with considerable e f f e c t s on regional income l e v e l s . An attempt to include induced investment i n the formulation 22 of the m u l t i p l i e r model was made by Archibald. 22. Archibald, G.C., "Regional M u l t i p l i e r E f f e c t s i n the U.K.", Oxford Economic Papers, March 1967: p.37. - 33 -Considering the case where a l l employees i n a new project were immigrants to the region, he argued that investment would be induced by the immigrants' expenditure; where A N represents the annual induced investment i n both private and public sectors and £±L represents the t o t a l earnings of immigrants, and where i s fu n c t i o n a l l y related to . A Z , then: A N = n 4 Z (4) 23 Brownrigg suggests that Archibald's .A Z i s i d e n t i c a l to the i n j e c t i o n J used i n the conventional m u l t i p l i e r model so that the simple multiplicand can be. elaborated to include induced investment as: A Y r = k r 4Z + k r A N (5) which by substitution and rearrangement becomes: 4 Y r = k r (1+n) A Z (6) Brownrigg also suggests that i n a more normal s i t u a t i o n where there i s some proportion of non-immigrants on the s t a f f of the project then: -AY r = k r J (1-m*) + k r <4N (.7) and by substituting from equation (.5) : A Y r = k r (J (1-m*) + n^Z) (8) 23. Brownrigg, "The Regional Income M u l t i p l i e r : An Attempt to Complete the Model", p.284. Brownrigg also explains that i f A N F= n A Z , then n = ^ N ^ \ z ' Brownrigg suggests that for most regional projects the J component of the multiplicand w i l l have two elements: J ^ -the construction expenditure phase of the project, and J 2 -the operational expenditure phase of the project. The i n j e c t i o n leakage modification i s applied to the construction expenditure component. Thus equation (3) i s rewritten as: AY r = k r J 1 (1-m*) + k r J 2 or: AY r = k r (J 1(l-m*) + J 2) (3)" The modification i s also applied to the induced investment 24 component. The model i s thus restated: 4 Y r = k r J^l-m*) + k rJ 2+k r (1-m*) which by substitution and rearrangement becomes: AY r = k r ( J 2 + (J x+ nAz) (1-m*)) '(. 8)' The values for , J 2 and A.Z w i l l depend upon the nature of each i n d i v i d u a l project. To derive a value for n, Brownrigg claims that i f = n-AZ, then n = - ^ ^ / ^ Z ' T ^ e v a l u e f o r m * i s usually based on average national data because l o c a l data i s not available. In the Archibald s i t u a t i o n , A Z = j " 2 . In a more normal s i t u a t i o n , however,AZ w i l l be a proportion of J 2 . Varying with the dependence upon immigrant labour Al = ZJ^ therefore. Substituting t h i s into the formulation of the model gives: A Y r = kr{Jj (1-m*) + J 2(l+nZ(l-m*))) (8)" Once the period of immigration to the project region has finished and the c a p i t a l requirements of the immigrants 24. Induced investment as normally defined relates to the construction .'of .additional capacity i n the service sector. - 35 -have been met, N w i l l drop out of the multiplicand as would , and the model would revert to the simple Y,. = k r J 2 . (10) 3. Extension of the Model: . Art extension of the simple 24 regional income m u l t i p l i e r model was developed by Davis for a small-scale regional economy. In t h i s model, l o c a l consumption expenditures are disposed of i n a way peculiar to the i n d i v i d u a l tastes and preferences of the population. A certain portion of the income i s spent on food, clothing, transportation, etc. In each of the expenditure categories part of the income i s l o s t through leakages, part i s taxed by the l o c a l government and the remainder stays i n the l o c a l area i n the form of wages and s a l a r i e s . Successive rounds of expenditures are generated by the proportion of l o c a l consumption expenditures and l o c a l government expenditures that i s captured l o c a l l y . The values of the model parameters were gathered from l o c a l , p r o v i n c i a l and national data sources. M u l t i p l i e r estimates were then constructed for a major northern c i t y (Prince George), a smaller service centre type town (Kitimat), and a resource development community (Hat Creek). The m u l t i p l i e r values were found to be 1.35, 1.24 and 24. H.C. Davis, "Assessing the Impact of a New Firm on a Small Scale Regional Economy: An Alternative to the Economic Base Model", Plan Canada, September, 1976: pp. 171 - 176. 1.08 respectively. The model e x p l i c i t l y considers the contribution made by the l o c a l government sector. P r o v i n c i a l per capita grants increase with permanent additions to the region's population. Thus, leakages that have been i d e n t i f i e d as going to the p r o v i n c i a l government w i l l return- i n the form of a per capita grant through'the l o c a l government sector. The model recognizes the separate components by which income may be disposed. I t i s thus possible to deal with transient groups such as construction workers who w i l l leave the region after the construction phase of the project i s finished. The consumption patterns of transients are l i k e l y to be extremely d i f f e r e n t from those of ozher immigrants and the already e x i s t i n g population. C. Critique of the Income-Expenditure Model The income-expenditure model i s a useful t o o l i n the analysis of small-scale regional economies. Income as a unit of measurement provides a more sensi t i v e indicator of change i n economic a c t i v i t y than does employment. Because the model i s not t i e d to a base/service r a t i o , i t can appropriately r e f l e c t the increased income i n the 25. For an elaboration of the assumptions of the Davis model and a mathematical representation of the m u l t i p l i e r , see: Ross Taylor "Northeast B.C. Community by Impact Study", Department of Municipal  A f f a i r s and Housing, 1978. service sector. The model thus recognizes the p o s s i b i l i t y of increased income due to circumstances other than an increase i n base employment. The degree of disaggregation i n the model allows greater d e t a i l i n assigning induced impact to sectors of the l o c a l economy. The model i s applicable to analyses of new a c t i v i t i e s i n any sector of the economy, and i s not therefore r e s t r i c t e d to a c t i v i t i e s taking place i n the base sector. The most advantageous feature of the income-expenditure model, however, i s the e x p l i c i t recognition of leakages from the l o c a l economy. The model i s less data demanding than i s input-output analysis, but i s more informative than the rather crude economic base method. IV. INPUT-OUTPUT ANALYSIS  A. Overview Input-output analysis i s concerned with inter-industry transactions generated by the demand for f i n a l production. B a s i c a l l y , t o t a l production i s divided by industry to derive an inter-industry matrix from which the flow of goods and services can be traced from one production 26 sector to another. 26. Avrom Bendavid, Regional Economic Analysis for P r a c t i t i o n e r s , (New York: N.Y.: Praeger Publishers Inc.: 1974) . - 38 -Preliminary research on the construction of an empirical input-output system was concluded i n the 19 30's. The model was a simple and elegant system developed by W. Leontief for which s t a t i s t i c a l information could be. compiled with r e l a t i v e ease, and which brought many new insights into the interdependence of p r i c e s , outputs, and incomes i n d i f f e r e n t i a l sectors of the economy. L e o n t i e f s analysis attempted to retain the form of the general equilibrium models by recognizing the "interwoven web of economic interdependence while i t purported to derive i t s content 27 from empirical r e a l i t y . " The model provides a format for examining the interdependent structure of an observable economy and offers the p o s s i b l i t y of predicting the impact of any change i n the data on the entire system. The application of input-output analysis has spread rapidly. The family of input-output studies generally include: 1. studies applied to national economies; 2. studies on regional and multi-regional l e v e l s ; and 3. sectoral or enterprise studies. Other areas i n which 1-0 has been applied recently are environmental protection, short-term forecasting and business cycle analysis. 27. Amitabh Kundu et a l . , Input-Output Framework and  Economic Analysis, (New Delhi, India: K.B. Publications: 1976) p.22. - 39 -B. The Structure of the Input-Output Model Three basic versions of the input-output model emerged from the work of ifhe 1940's and early 1950's: the open s t a t i c model, the closed s t a t i c model and the dynamic 2 8 model. The closed s t a t i c model has evolved into a p a r t i a l l y closed model where the degree of closure i s determined by the analyst, and the dynamic model which received a great deal of attention i n the la t e 1950*s and the 1960's, i s of much less i n t e r e s t today. The open s t a t i c model has proved to be very useful i n coping with a variety of economic problems. This model was applied f i r s t to regional input-output analysis and l a t e r as an analysis of the interdependencies of countries linked by trade flows. In t h i s paper i t i s the application of input-output analysis to regional economies that i s of prime concern. 28. K. R. Polenske and J. V. Skolka ed., Advances  in Input-OUtput Analysis, (Cambridge, Mass.: Ballinger Publishing Company, 1976). - 40 -"Input-Output.deals with inter-industry transactions 29 generated by the demand for f i n a l product." In the input-output table, t o t a l regional production i s divided by industry to derive an inter-industry matrix from which the flow of goods and services can be traced from one pro-duction sector to another. The table can f u l f i l l two separate functions: 1. It i s a descriptive framework for showing the relationship between industries between inputs and outputs. As an account, input-output data breaks down the business sector into a large number of in d i v i d u a l industries or sectors and records the trans-actions between sectors i n an inter-industry trans-action matrix. The matrix i s designed to divide the structure of the economy into endogenous and exogenous sectors. The endogenous-exogenous d i s t i n c t i o n i s revealed i n the d i v i s i o n of outputs into intermediate and f i n a l ; and of inputs into intermediate and primary. 2. Given certain economic assumptions about the nature of production functions, 1-0 i s an a n a l y t i c a l t o o l for measuring the impact of autonomous disturbances on economic output and income. 3^ 29. Bendavid, Regional Economic Analysis for  P r a c t i t i o n e r s , p.128. 30. H.W. Richardson, Input-Output and Regional Economics, (Towbridge, W i l t s h i r e : Redwood Press Ltd.: 1972). - 41 -There are three assumptions which are t y p i c a l l y made i n input-output analysis. These are: 1. The economy can be divided into a f i n i t e number of sectors, each of which produces a simple homogeneous product. Thus there are no j o i n t products since each commodity i s supplied by a single industry and v i a one method of production. 2. There are neither external economies nor diseconomies in production. The l i n e a r input function assumption means constant returns to scale and no substitution between inputs. Thus the system i s i n equilibrium at given prices. (The problem of c a p i t a l i s ignored i n s t a t i c versions of the input-output model by assuming that the supply of each good i s p e r f e c t l y e l a s t i c - no capacity constraints). 3. The l e v e l of output i n each sector uniquely determines the quantity of each input which i s purchased. This assumption means that the l i n e a r input c o e f f i c i e n t s remain constant over time and are thus the l i n k between f i n a l demand and gross output. - 42 -The analysis requires three basic tables of . information: 1. The Transaction Table This table contains basic data concerning flows of .goods and services among suppliers and users during the study period. The flows are measured i n (or con-r verted to) money terms and are viewed as sales trans-actions between s e l l e r s and purchasers. 2. The Table of Direct Requirements This table i s derived from the transaction table and shows di r e c t requirements c o e f f i c i e n t s computed by d i v i d i n g through each processing column of the transaction table by the t o t a l . For any estimated output dir e c t input requirements can be computed by multiplying each of the c o e f f i c i e n t s for each applicable industry by the t o t a l output figure. 3. The Total Requirements Table This table i s derived from the technical c o e f f i c i e n t s table and shows the t o t a l purchases of d i r e c t and i n d i r e c t inputs that are required throughout the economy per unit of output delivered to f i n a l demand by any sector. - 43 -The f i r s t task of the analyst i s therefore to divide the economy into various sectors. These sectors are usually categorized by an e x i s t i n g code - the Standard Ind u s t r i a l C l a s s i f i c a t i o n Code - or a combination of convenient codes. Having broken the economy into sectors, the analyst i s then interested i n the relationships between these sectors i n terms of sales and purchases of goods and service. In order to produce outputs both for intermediate and export sales, the sectors exchange goods and services with one another as well as outside the region. The analyst therefore i d e n t i f i e s the endogenous and exogenous components of the regional economy. Information on the above i s obtained through surveys, interviews and e x i s t i n g s t a t i s t i c a l data. Each scale - 44 -31 in the economy i s recorded as intermediate or f i n a l . Since t o t a l inputs equal t o t a l outputs, a simple computation t e l l s the analyst the d i s t r i b u t i o n of inputs per unit of output for each sector of the economy. A technical production function r e l a t i o n s h i p i s therefore described between outputs and inputs. Usually some sectors play a more s i g n i f i c a n t r o l e i n the economy than others. Thus the i s o l a t i o n of i n t e r -dependent re l a t i o n s i n the economy provides a useful s t r u c t u r a l approach to understanding the working of the-regional economy. Furthermore, the technical production function r e l a t i o n s h i p or technical c o e f f i c i e n t s permit the analyst to calculate d i r e c t inputs required for any l e v e l of demand for the output of any processing industry. However/ the analyst i s interested i n more than the d i r e c t input requirements. He i s also interested i n those additional inputs required to produce the d i r e c t inputs; the i n d i r e c t inputs. B a s i c a l l y , what emerges, i s a pattern of successive rounds of spending and the output of each round serves as inputs for the round that i s one step closer to the f i n a l product. 31. For a mathematical summary of the three-table construction, see: H. C. Davis, "An Inter- Industry Study of the Metropolitan Vancouver  Economy, Report No. 6, Urban Land Economics: 1972, p.8-9. - 45 ^ To capture the ef f e c t s of the rounds of respending necessary to produce intermediate and f i n a l demands (gross output), the analyst uses the Leontief inverse matrix. The inverse matrix i s used to express gross output as a function of (exogenous) f i n a l demand, i . e . the matrix i s post-multiplied by f i n a l demand i n order to obtain the l e v e l of gross output for each industry. C. Critique of the Input-Output Model Input-output analysis i s a useful t o o l for regional impact analysis because i t recognizes that the t o t a l impact on income (output, employment) w i l l vary according to which sector, experiences the i n i t i a l change i n f i n a l demands. The model enables the analyst to derive sets of m u l t i p l i e r s , and to estimate d i f f e r e n t types of mu l t i p l i e r s depending on the information required, i . e . output, income or employment. The employment and income m u l t i p l i e r s are not "uniquely determined but are 32 governed by a degree of model closure". The model closure i s determined by the a l l o c a t i o n of sectors between the endogenous matrix and f i n a l demand. In other words, the analyst has a degree of freedom i n determining for his own purposes which output w i l l be applied to intermediate demand and which to f i n a l demand. The more 32. H. W. Richardson, Input-Output and Regional Economics, p.34. - 46 -the model i s closed the higher the m u l t i p l i e r s but the base narrows through which exogenous output demands impact the regional economy. Also, the higher the m u l t i p l i e r the greater the interdependence of the 33 sector with the rest of the economy. Input-output has become a useful a n a l y t i c a l t o o l . The model offers a form of regional s o c i a l accounts with b u i l t - i n consistency checks. The strengths of the model l i e i n i t s a b i l i t y to: 1. measure the economic interdependence of the region 1s i n d u s t r i a l structure; 2. provide a set of disaggregated m u l t i p l i e r s that are more precise and sensitive than the aggregate Keynesian income m u l t i p l i e r ; 3. calculate the e f f e c t s on economic a c t i v i t y i n in d i v i d u a l regions of change i n the l e v e l and pattern of national demand; 4. calculate the economic impacts of any changes i n f i n a l demand; and 5. generate short-run projections. However, there are some rather c r i t i c a l problems with the model. The problems l i e i n both the p r a c t i c a l constraint 33. I b i d . r p.35, of heavy data requirements and i n the t h e o r e t i c a l constraint of the model's operating assumptions. Intra-regional flows of goods and services are usually only obtainable v i a very costly and time consuming survey methods. Also, there are often d i f f i c u l t i e s on the part of the respondents i n i d e n t i f y i n g endogenous and exogenous sales/purchase d i s t i n c t i o n s . The assumption of no multi-product industries for t h e o r e t i c a l purposes i s v a l i d i n that i t i s reasonable to assume that an input-output sector consists of plants producing a single homogenous product with s i m i l a r techniques. Empirically t h i s means lumping together many separate- a c t i v i t i e s into one sector which reduces the accuracy of the analysis and d i s t o r t s somewhat the i n d u s t r i a l structure presented i n the analysis. The emphasis on l i n e a r production relationships also leads to d i f f i c u l t i e s . The essence of the 1-0 model i s the technological relationship upon which the purchase of any sector from any other sector with i n the regional economy depends. This relationship i s determined by the l e v e l of output required by the purchasing sector, which i s again determined by f i n a l demand. The l i n e a r production function i s assumed to e x i s t between sales, purchases and f i n a l demand. However, the notion of - 48 -a l i n e a r production function i s not very meaningful i n many non-industrial sectors such as agricu l t u r e , trade, services industries and the government sector. Furthermore, by assuming away factor substitution and economies of scale, the model can be quite misleading in i d e n t i f y i n g r e a l s t r u c t u r a l changes within the economy. F i n a l l y , input-output cannot handle very well the e f f e c t s of inter-regional trade where changes i n one region i n technology, output, prices, incomes, etc. s i g n i f i c a n t l y a f f e c t the region under study. Within the regional economy i t s e l f , the model i s not equipped to explain or predict important s t r u c t u r a l changes such as entry of new firms or the obsolescence and disappearance of o l d ones. Again, the model can be misleading i n i t s presentation of the s t r u c t u r a l composition of the regional economy. 3 4 Richardson ' argues for the -model, however, as a t o o l for regional analysis. He suggests that the departure from r e a l i t y of the 'assumptions-w.as.\inten4ed;^Ore^9Se- w.the. variables i n the model to sizeable proportions and the assumptions are not so far o f f as to render the model 34. Ibid. - 49 -i t s e l f meaningless. The assumption of the production function i s not too bad when money values are used as a measure of physical purchases i n r e a l terms, since r e l a t i v e price changes do not d i s t o r t too much the input purchase pattern per unit of output. He also suggests that the pace of technological change i s slow enough that the assumptions contained i n the model w i l l hold at least i n the short run. Despite the heavy data requirements, the input-output model continues to be used extensively and i s probably the best a n a l y t i c a l t o o l for measuring the economic impact of developments in a f a i r l y complex regional economy. Once the assumptions of the model are recognized and accepted, its;'.significance i s both d e s c r i p t i v e : as a.set of regional accounts, for t r i a n g u l a t i o n , for observable interdependencies, etc., and a n a l y t i c a l : to measure economic impacts, capacity u t i l i z a t i o n demands, price changes i f the value added i n a l l the sectors i s exogenously determined, p o l i c y implications for f i s c a l measures, etc. Changes i n technology can be incorporated into the model as these changes occur i f t h e i r influence i s thought to be s i g n i f i c a n t i n the economy. The model has been found to be a powerful', f l e x i b l e and i n s t r u c t i v e t o o l which y i e l d s many insights into the workings of a regional economy. - 50 -V. CONCLUSION Economic impact can be measured i n several d i f f e r e n t ways. Which of these i s appropriate w i l l depend upon the purpose of the study, f i n a n c i a l and temporal constraints and the a v a i l a b i l i t y of necessary data. Usually an economic impact study w i l l be a component of a larger study and, as such, w i l l contribute to development po l i c y decisions. The three models presented i n t h i s work represent the mainstream of economic impact analysis research, but by no means do they cover the wide range of work done i n t h i s f i e l d . The three models are conditional predictive models: the consequences of a s p e c i f i e d external impact are predicted, given an otherwise undisturbed environment. Thus, a l l three models assume that the parameters of the model remain constant over the study period, i . e . economic base assumes a constant base/service a c t i v i t y r a t i o , input-output assumes constant expenditure patterns over time. F i n a l l y , a l l three models assume i n f i n i t e e l a s t i c i t y of supply and that demand i s the force of growth and change within the regional economy. While the degree of sophistication i n the models varies, each model has s p e c i f i c advantages and appropriate a p p l i c a b i l i t y . The economic base model i s best used - 51 -to study the impact of changes on very simple regional economies. The categorization of a l l employment as either basic or non-basic i s a gross s i m p l i f i c a t i o n which does not apply i n more complex regional economies but can be a useful way of considering resource communities and single-industry communities. The p o s i t i v e aspects of the economic base model are that data i s generally available and costs to construct the model are low. The model suffers from a high degree of aggregation, but i s useful to get a general understanding of the flows i n a small regional economy. Income-expenditure i s also a highly aggregated model, but i t o f f e r s the advantage of e x p l i c i t l y accounting for the various leakages from the regional economy (imports, savings, taxes and reductions i n transfer payments). Also, income i s a more sensitive unit of measurement than i s employment. This model i s most appropriately applied to small-scale economies where the inter-industry dependencies are e a s i l y i d e n t i f i e d , and i n studies where a great deal of s t r u c t u r a l d e t a i l i s not necessary. The model i s simple to construct and consequently i s not c o s t l y . Input-output i s appropriately applied only to economies which are s u f f i c i e n t l y complex to warrant the modelling - 52 -of the economic interdependencies between the various sectors i n the region. The model suffers from considerable construction costs and high data demands, the l a t t e r being the hardest problem to overcome. The po s i t i v e aspects of t h i s model are i t s in-depth presentation of the economic structure of the region, i t s l e v e l of d e t a i l , p a r t i c u l a r l y i n the presentation of disaggregated sectoral m u l t i p l i e r s , and i t s wide range of usefulness aside from impact analysis. Input-output can present highly interdependent and very complex economies i n a simple and l o g i c a l manner. While i t i s the most complex and expensive of the three models, i t i s also the most informative, f l e x i b l e and consequently useful of the three. However, i t should be applied only i n instances where such; advantages are necessary to answer the study questions. - 53 -CHAPTER^ THREF/:--- , APPLICATION OF ECONOMIC: IMPACT MODELS TO NON-PROFIT INSTITUTIONS I. INTRODUCTION The influence of any development on a regional economy may be marginal or quite considerable, depending upon such factors as the l o c a l i n d u s t r i a l structure, the size of the project, and the extent to which the project stimulates l o c a l trade flows. An area of increasing inter e s t to regional analysts i s the economic impact of large-scale non-profit i n s t i t u t i o n s on the regional economy. Many of these i n s t i t u t i o n s ( u n i v e r s i t i e s , colleges, trade and convention centres, m i l i t a r y i n s t a l l a t i o n s , recreation centres, hospitals and medical centres, etc.) account for substantial i n t e r - r e g i o n a l export of services and constitute a s i g n i f i c a n t source of employment and income to the l o c a l economy. Wilson 1 points out that i n the past f i v e to ten years an upsurge of intere s t i n estimating the l o c a l economic impact of non-profit i n s t i t u t i o n s has been sparked by increased community awareness of undesirable e f f e c t s that these i n s t i t u t i o n s have on the l o c a l area. Economic impact studies have become vehicles to promote some of 1. J. Hoiton Wilson, "The Impact of a Non-Profit I n s t i t u t i o n on Regional Income: A Discussion", Growth and Change, July 1975: 45-46. the posi t i v e attributes of non-profit i n s t i t u t i o n s for the l o c a l area. While less quantifiable benefits are not e a s i l y translated into concrete measures, l o c a l employment, l o c a l income and l o c a l trade flows can be subjected to empirical examination. These, then, have become the focus of many recent studies on the economic impact of large-scale non-profit i n s t i t u t i o n s on the l o c a l economy. 2 Brownrigg suggests that early studies i n t h i s area were primarily inventory studies which stated i n s t i t u t i o n a l employment as some s p e c i f i e d percentage of t o t a l community employment, and i n s t i t u t i o n a l expenditure as some portion of l o c a l sales. More recent;:studies have attempted to measure the economic impact through the use of the models outlined i n Chapter One. The purpose of t h i s chapter i s to consider a series of empirical studies which have u t i l i z e d the three models, economic base, input-output and income-expenditure to measure the economic impact of sim i l a r types of non-profit i n s t i t u t i o n s ( u n i v e r s i t i e s ) . The r e l a t i v e merits of the methods chosen w i l l be discussed i n l i g h t of the advantages and disadvantages of the models described i n Chapter One. 2. Mark Brownrigg, A Study of Economic Impact: The  University of S t i r l i n g , (Edinburgh, Scottish Academic Press Ltd.: 1974). - 55 -Since p r a c t i c a l applications of th e o r e t i c a l models require adjustments and modifications to s u i t actual regional conditions, the sectoral d i v i s i o n s i n t h i s chapter are meant only to aid the reader i n distinguishing basic types of approaches. There tends to be an overlap between income-expenditure and economic base analysis, and the Wilson-Raymond and Wilson models could also f a l l into the income-expenditure section. They are kept i n the economic base section because they assume that the university i s part of the export sector. II. ECONOMIC BASE STUDIES Economic base theory has been used by many i n s t i t u t i o n s to analyse development proposals and the pot e n t i a l economic 3 impacts of growth. The main thrust of th i s approach when applied to u n i v e r s i t i e s i s that a university i s a part of the export or base sector. The theory assumes that the r a t i o of basic to service/.employment i s a constant which provides the underpinning for a very simple m u l t i p l i e r determined by the r a t i o of t o t a l (basic and service) to basic employment or income. 3. Sherry Manning and David Viscek, "Measuring the Economic Impact of a Community College System", Growth and Change, 1976: pp. 112 - 119. - 56 -Four studies are considered i n d e t a i l i n t h i s section: 4 a model developed by Caffrey and Isaacs and applied to Oakland University, Rochester, Michigan; a modification of the Caffrey-lsaacs model by Manning 5 and Viscek to better s u i t a college complex and applied to the Metropolitan Community Colleges i n Kansas C i t y , Missouri; a considerably revised economic base model developed by Wilson and Raymond which attempts to correct for errors i n both the base m u l t i p l i e r s and i n the l o c a l employment impact of student spending and applied to .Kent State University; and a r e v i s i o n of 7 the Wilson-Raymond model by Wilson and applied to the University of Tulsa. 4. John Caffrey and Herbert H. Isaacs, Estimating  the Impact of a College or University on the Local  Economy, (Washington, D.C., American Council of Education: 1971). 5. Sherry Manning and David Viscek, "Measuring the Economic Impact of a Community College System". 6. J. Hoiton Wilson, and Richard Raymond, "The Economic Impact of a University Upon the Local Community", Growth and Change, 1973: 430-442, 7. J. Holton Wilson, "Impact Analysis and M u l t i p l i e r S p e c i f i c a t i o n " , Growth and Change, July 1977: 42-46. - 57 -A. The Caffrey-Isaacs Model The purpose of t h i s model i s to design a generalized a n a l y t i c a l framework which w i l l enable almost any college or university to conduct a useful economic impact study for i t s e l f with a reasonable investment 8 of resources. The study concerns i t s e l f only with the d i r e c t and i n d i r e c t impacts related to the univer s i t y on the immediate l o c a l environments - the businesses i n the l o c a l communities, the l o c a l government, and the individuals who reside i n those l o c a l communities. Estimates of d i r e c t impacts were obtained through e x i s t i n g data ( i . e . u n i v e r s i t y records, state and national s t a t i s t i c s ) and through simple surveys of the l o c a l business community and faculty and student population. Indirect impacts were determined through income and employment m u l t i p l i e r s and by deriving a c o e f f i c i e n t representing the degree to which l o c a l businesses purchase goods and services from l o c a l sources. 8. John Caffrey and Herbert H. Isaacs, "Estimating the Impact of a College or University on the Local Economy", p.11. - 58 -9 The income m u l t i p l i e r used by the study team was 1.9. The use of a single income m u l t i p l i e r such as the above for the en t i r e community i s problematic because the basic portion of the l o c a l economy may consist of a number of separate sectors with d i f f e r e n t expenditure patterns p r e v a i l i n g among the employees of each i n d i v i d u a l sector. I f , in fact, the expenditure patterns of university employees are d i f f e r e n t from the rest of the community, e.g. a smaller percentage of the employees' t o t a l spending i s done within the l o c a l economy, the m u l t i p l i e r may be s i g n i f i c a n t l y mistated. The employment m u l t i p l i e r used by. the study team ranged from 1.2 to 1.5, and was based on an area of approximately 50,000 (including student population) with employment in manufacturing averaging about 4% and i n services and 9. The income m u l t i p l i e r was derived by the following: The study assumed i n the f i r s t round, 35 cents of a d o l l a r spent i n l o c a l business establishments by community residents i s returned to the spenders as income. Approximately 65 cents i s spent by l o c a l business establishments for materials and supplies for other l o c a l enterprises (including l o c a l taxes) or for goods and services produced outside the community (including non-local taxes). In the second round (after savings, taxes and leakages) on the average, 35 cents out of a d o l l a r spent l o c a l l y i s returned i n the form of income. This r e c y c l i n g process continues with diminishing increments at each stage. Eventually income received by l o c a l residents from the i n i t i a l d o l l a r spent t o t a l s approximately 66 cents. The r a t i o of t o t a l income, 66 cents, to the i n i t i a l income received, 35 cents, i s almost two to one, 1.9:1.0. - 59 -trade (including government and educational i n s t i t u t i o n s ) , about 55% respectively, of t o t a l employment i n the community. The study suggests that the m u l t i p l i e r estimates derived by Weiss and Gooding 1 0 are acceptable in t h i s case. The Weiss-Gooding study, however, applied to only small-scale regional studies which rather severely l i m i t s the appropriateness of using these m u l t i p l i e r s . Also, as Wilson and Raymond point out "in cases where the size of the university i s not determined by the size of the l o c a l community, the m u l t i p l i e r w i l l be overstated because some portion of the university employment w i l l be defined as s e r v i c e i f part of the school's enrolment consists of l o c a l r e s i d e n t s " . 1 1 Also, the Caffrey-Isaacs ' model may understate the university's impact because i t ignores the import substitution e f f e c t of t h i s service employment. 10. S. J. Weiss and E. C. Gooding, "Estimation of D i f f e r e n t i a l Employment M u l t i p l i e r s i n a Small Regional Economy", Land Economics, 1968: 235-244. 11. J. Holto Wilson and Richard Raymond, "The Economic Impact of a University Upon the Local Economy", p.431. - 6 0 -Total production requirements due to the presence of the university were analysed by developing a c o e f f i c i e n t to represent the additional value of l o c a l production gen-erated by one d o l l a r spent by l o c a l households i n l o c a l business establishments. The range of the c o e f f i c i e n t was 15 to 30 cents per d o l l a r of expenditures by l o c a l residents in l o c a l business establishments. Income-induced require-ments per d o l l a r of f i n a l demand were derived by considering households as business establishments carrying out trans-actions with other l o c a l business establishments. The range determined by the study was: 60 to 80 cents per d o l l a r of expenditures by l o c a l residents i n l o c a l business e s t a b l i s h -ments . B. The Mannlng-Viscek Model The Manning Viscek model considerably modifies the l o c a l business section of the Caffrey-Isaacs model. The economic impact of a community college system d i f f e r s from a univer-s i t y i n that expenditures made in the l o c a l economy by students who already reside i n the community w i l l not be additional expenditures i n the community attributable to enrolment i n the community college. The Manning-Viscek model includes three factors p a r t i c u l a r l y important to a community college system: 1. It included expenditures by part-time students (usually completely excluded). - 61 -2. It analysed the extent of expenditures by students s p e c i f i c a l l y attributable to the basic a c t i v i t i e s of the community college. 3. It i s o l a t e d any difference i n expenditure patterns of faculty and s t a f f , based on income. The major problem i d e n t i f i e d by Manning and Viscek i n the Caffrey-Isaacs model was the assumption of s i m i l a r expendi-ture'patterns by a l l persons i n a l l sectors. They attempted to overcome th i s problem by developing a model for estimating expenditure based on three income l e v e l s . The model uses i n -come di s t r i b u t i o n s for faculty and s t a f f derived from p a y r o l l records of the i n s t i t u t i o n and income .distributions for"'. students derived from student c h a r a c t e r i s t i c data usually available from the r e g i s t r a r ' s f i l e s . Expenditure patterns by income class were taken from the U.S. Department of Labour. For example, expenditures for expenditure category j computed 12 for f u l l - t i m e faculty and s t a f f are: E . = f <T I.e. .N. 1 Si 1 ^ 1 Where: E_. = t o t a l expenditures i n category j f = proportion of faculty residing l o c a l l y 1^ = average income of group i e^j = proportion of income group i spends for category j 12. Sherry Manning and David Viscek, "Measuring the Economic Impact of a Community College System", p.113. - 62 -ISL = number of faculty and s t a f f i n group i i = income category (low, moderate, upper income) j = expenditure category (rental housing, goods and services, etc.) While the inclusion of part-time student expenditures and the d i f f e r e n t i a t i o n i n expenditure patterns by income class probably do more accurately r e f l e c t the impact of expendi-tures i n the l o c a l economy, Manning and Viscei: f a i l to deal with the more s i g n i f i c a n t problem of using a highly aggregated m u l t i p l i e r . In fact, the m u l t i p l i e r s for t h i s study "were selected for guidelines o r i g i n a l l y presented by Caffrey and Isaacs and were based on a comparison of the 13 Kansas City area to other metropolitan areas". C. The Wilson-Raymond Model 14 Wilson and Raymond describe, both conceptual and s t a t i s -t i c a l errors i n the economic base method. The economic base m u l t i p l i e r i s prone to errors of over or under estimation depending upon the relationship of the university .to .'the l o c a l community. The use of a single m u l t i p l i e r for the entire com-munity tends to mistate the m u l t i p l i e r because of d i f f e r e n t expenditure patterns i n d i f f e r e n t sectors. To i l l u s t r a t e the l a t t e r problem, Wilson and Raymond obtained a m u l t i p l i e r of 1.82 for the Kent University, using standard base techniques. 13. Ibid. , p.114 14. J. Holton Wilson and Richard Raymond, "The Economic Impact of aVUniversity Upon the Local Economy", p.130 - 63 -The study team then estimated a l o c a l m u l t i p l i e r by using a l o c a l value added approach, based on spending emanating s p e c i f i c a l l y from the university sector. This m u l t i p l i e r was estimated to be 1.09. ' The Wilson-Raymond model recognized that the primary source of error i n economic base analysis i s i n specifying the appropriate m u l t i p l i e r . They argue that the conventional m u l t i p l i e r , being the weighted average of the appropriate m u l t i p l i e r s for each of the basic employment sectors, over-states the size of the m u l t i p l i e r e f f e c t because the univer-s i t y community i n most cases has a lower propensity to con-sume l o c a l l y than the community at large. By introducing expenditure categories and i d e n t i f y i n g the university fac-ulty and s t a f f expenditure^ patterns , .Wilson •.. and Raymond disaggregated the marginal[propensity to consume l o c a l l y produced goods and services by the university personnel, and thereby considerably lowered the m u l t i p l i e r value and subsequent impact on the l o c a l community. They f e l t that a disaggregated approach gave a more r e a l i s t i c m u l t i p l i e r value to the induced impact a n a l y s i s . 1 ^ The study assumes that the university i s a part of the base sector of the community. To reach the' m u l t i p l i e r , the study team: 1. determined from survey data the percentage of t o t a l 15. J. Holton Wilson and Richard Raymond, "The Economic Impact of a University Upon the Local Economy", p.137. - 64 -university spending which occurred l o c a l l y for each category of expenditure (a^); and 2. obtained estimates of the p a y r o l l to sales r a t i o for each category (b^). (This i s the proxy for l o c a l value added.) Thus, i f t o t a l university spending was X d o l l a r s , then a^X do l l a r s would be spent i n category i within the l o c a l economy, and Q^a^X d o l l a r s of l o c a l value added would be generated i n category i . The following computation was then applied: Z = b na nX + b 0a.X + b-,a_X...+b a x, or (1) 1 1 2 2 3 3 n n Z = x C b . a . (2) I I Where: Z = the t o t a l d o l l a r amount of f i r s t round spending remaining i n the l o c a l economy X = t o t a l university spending i n category i b^ = sales/p a y r o l l ratios i n category i a^ = percentage of X spent l o c a l l y i n category i Then: d i v i d i n g both sides of expression (3) by X, Wilson and Raymond obtained the proportion of f i r s t round spending which stays i n the l o c a l economy (£.b^a^) . Since £.b^a^ i s the product of two n-dimensioned Vectors, i t i s a scalar (denoted) as m. The t o t a l l o c a l impact T of x do l l a r s of expenditure by the university community i s : T = x + mx + m^ x + m3x...+ mnx, or (3) T = x/l-m, for 0^m<l (4) - 65 -The l o c a l m u l t i p l i e r i s M = l / ^ _ m (.*' The l o c a l m u l t i p l i e r for the Kent State University sector determined by the study team was: M •= _1_ = 1 = 1.09 (je) 1-m 1-.083 This m u l t i p l i e r , as Wilson and Raymond admit, i s based on the assumption that the propensity to spend l o c a l l y and the d i s t r i b u t i o n of expenditures are the same for both service sector of the l o c a l population and the university sector. " I f t h i s i s true, m i s constant through successive rounds of spending. I f , however, m i s d i f f e r e n t for the service 16 sector the size of the m u l t i p l i e r w i l l be affected." As the authors suggest, the m u l t i p l i e r for the university sector i s not t h e o r e t i c a l l y inconsistent with a community-wide m u l t i p l i e r of 1.82, but the choice between the two i s extremely important when the t o t a l impact of the univer-s i t y i s at issue. "A m u l t i p l i e r of 1.09 gives a t o t a l university employment impact of 3359, whereas a 1.82 17 m u l t i p l i e r y i e l d s a figure of 5609." 16. J. Holton Wilson and Richard Raymond, "The Economic Impact of a University Upon the Local Community", p.138. 17. Ibid., p.139 - 66 -18 Wilson l a t e r c r i t i c i z e d a study by Moore and Sufrin because they used an aggregated regional trade m u l t i p l i e r i n t h e i r study of Syracuse University. Moore and Sufrin argued with Wilson that categorizing l o c a l consumption i s only relevant in the f i r s t round of spending i n the l o c a l community. Subsequent rounds of expenditure s p i l l over into other subsectors, whose income recipients may also have varying marginal propensities to consume l o c a l l y . They f e l t that: 1. there i s no evidence to support the Wilson-Raymond contention that there i s a s i g n i f i c a n t d i f f e r e n t i a l in the propensity to consume l o c a l l y produced goods and. services among the employees of the university; and 2. the Wilson-Raymond disaggregation holds an u n r e a l i s t i c assumption that subsequent rounds of expenditure are is o l a t e d in or r e s t r i c t e d to the i n i t i a l subsector i n which the income entered the region. D. The Wilson Model 19 Wilson l a t e r presented a revis i o n of the o r i g i n a l Wilson-Raymond model as a r e s u l t of the Wilson-Moore-Sufrin d i s -cussion. In the revised model, Wilson attempted to incorp-orate spending d i s s i m i l a r i t i e s . He calculated three possible 18. Craig L. Moore and Sidney C. Sufrin, "The Impact of a Non-Profit I n s t i t u t i o n on Regional Incomes", Growth  and Change, January 1974: 36-40. 19. J. Holton Wilson, "Impact Analysis and M u l t i p l i e r S p e c i f i c a t i o n " , p.42-46. - 67 -m u l t i p l i e r s , , and where i s the o r i g i n a l Wilson-Raymond m u l t i p l i e r demonstrated e a r l i e r , K 2 i s based on the spending c h a r a c t e r i s t i c s and l o c a l value added of businesses of the other end of that spending, and i s an integration of and K^. In the m u l t i p l i e r , the f i r s t round effects of the spending unit being investigated (the university f a c i l i t y and staff) are included and i n subsequent rounds, the l o c a l community's expenditure patterns are taken into account. The c r i t i c a l factor i n determining the differences between the m u l t i p l i e r s i s the difference i n the rate of leakage in the sector being studied, and. the l o c a l economy. Wilson states that p a r t i c u l a r spending c h a r a c t e r i s t i c s of the con-stituents of the a c t i v i t y being analysed should be combined with the s t r u c t u r a l character of the l o c a l economy, and i t would not be s u f f i c i e n t to use the spending c h a r a c t e r i s t i c s of the university nor of the community without combining the two. The economic base approach i s appealingly simple. However, errors i n the technique lead to t h e o r e t i c a l and p r a c t i c a l problems i n i t s application. In i d e n t i f y i n g the university as part of the export base, errors occur since much of the "output" of the university i s consumed l o c a l l y . Different expenditure patterns suggest that aggregate expenditure - 6 8 -f i g u r e s may d i s t o r t t h e a n a l y s i s . The u s e o f more d e t a i l e d e x p e n d i t u r e c a t e g o r i e s i n d i c a t e s a n e e d t o b e t t e r i n c o r p o r a t e l e a k a g e s and t h e p o s s i b l e u s e o f i n t e r - r e g i o n a l t r a d e m u l t i -p l i e r s . The i n a b i l i t y t o m e a s u r e i m p o r t s u b s t i t u t i o n s i s a s e r i o u s p r o b l e m w i t h t h i s m e t h o d , p a r t i c u l a r l y w i t h s t u d i e s l i k e u n i v e r s i t i e s whose p e r s o n n e l a n d s t u d e n t e x p e n d i t u r e s t e n d t o be v e r y s e r v i c e - o r i e n t e d . F i n a l l y , t h e r e e x i s t s i n s u c h a n a l y s i s t h e p r o b l e m s o f a g g r e g a t i o n a n d o f t h e a s s u m p t i o n o f s t a b i l i t y o f t h e r a t i o b e t w e e n s e c t o r s o v e r t i m e i n f a c e o f c h a n g i n g t e c h n o l o g y a n d i m p o r t s u b s t i t u t i o n . I I I . INCOME-EXPENDITURE STUDIES The c r i t i c i s m s o f t h e e c o n o m i c b a s e method l e a d many a n a l y s t s t o c o n s i d e r t h e r e g i o n a l i n c o m e m u l t i p l i e r m o d e l a more a p p r o p r i a t e a p p r o a c h : t o a n a l y s i n g t h e i m p a c t o f a u n i v e r s i t y on t h e r e g i o n a l economy. The i m p a c t o f a u n i v e r s i t y w i l l d e p e n d on i t s i m p a c t on e m p l o y m e n t , b o t h d i r e c t a n d i n d i r e c t ; w h i l e d i r e c t e mployment w i l l be g o v e r n e d b y . t h e l a b o u r r e q u i r e -m ents o f t h e u n i v e r s i t y , t h e amount o f i n d i r e c t e m p l o y m e n t g e n e r a t e d w i l l d e p e n d upon t h e in c o m e r e c e i v e d a n d s p e n t w i t h i n t h e r e g i o n a l economy by t h o s e d i r e c t l y e m p l o y e d . The c r i t i c a l i m p a c t , t h e r e f o r e , i s t h e i n c o m e i n j e c t e d i n t o t h e l o c a l economy b y t h e u n i v e r s i t y , t o g e t h e r w i t h i t s s u b -s e q u e n t e x p e n d i t u r e . The r e g i o n a l i n c o m e m u l t i p l i e r m o d e l i s w e l l s u i t e d t o t h i s t y p e o f a n a l y s i s . T h i s s e c t i o n - 69 -considers i n d e t a i l a study by Mark Brownrigg. Brownrigg 1s study has two main objectives. The f i r s t i s to provide estimates of the economic impact of a new univer-s i t y on the l o c a l economy of S t i r l i n g . The study area i s a subregion with a population of 92,800 people. The second objective i s to show how the regional m u l t i p l i e r approach offers a r e l a t i v e l y simple .'.but workable means of assessing quickly the main aspects of the economic impact of a new project. The model developed by Brownrigg contains three main modi-fi c a t i o n s to the conventional application of the model: 1. It suggests that the economic base used for the model should be a subregion rather than an established administrative region, because i t f e l t that the economic impact of most projects w i l l be concentrated on the former. 2. It recognizes the effects of immigration on the m u l t i p l i e r process. It i s f e l t that the conventional model, by missing the income/employment interactions of immigration, would understate the economic effects of the project. 3. It also recognizes.the effects of in-migration inflow 21 i n the formulation of the multiplicand. 20. Mark Brownrigg, A Study of Economic Impact, The University  of S t i r l i n g , (Edinburgh, Scotland, Scottish Academic Press: 1974). 21. Ibid., p.110 Brownrigg suggests that i n order to estimate the impact of the new project on l o c a l income l e v e l s , i t is" necessary to distinguish between sources of income generation which con-s t i t u t e the i n i t i a l i n j e c t i o n into the economy (the multi-plicand) and the process of income generation (the multi-p l i e r ) . Employment estimates are established consisting of both d i r e c t employment in the project and i n d i r e c t employment generated i n the secondary growth. Indirect employment i s c a l -culated from the income generation figures. Knowing the es-timates for d i r e c t and i n d i r e c t employment, and given the nature of the project and i t s secondary growth, the study then considers the extent to which s t a f f i n g needs are met from local, and outside resources,. Non-local labour supply determines the number of in-migrants which then provide the data from which estimates.can be made of adult and c h i l d dependents. "The number of immigrants and t h e i r dependents represent the impact of the project on the l o c a l 22 population." Brownrigg 1 s study, was a comprehensive analysis which includes a study of the e x i s t i n g i n d u s t r i a l structure and employment ch a r a c t e r i s t i c s of the region. By analysing the repercussions of the changing i n d u s t r i a l structure as measured i n the un-employment s t a t i s t i c s for the study period, he was able to make a rough analysis of the state of the l o c a l labour market. (Analysis of past unemployment trends w i l l show i f any.. 22. Ibid., p.111. s i g n i f i c a n t surplus or d e f i c i t of labour existed i n the area). He concluded that there was not any r e a l or l a s t i n g surplus of labour supply over labour demand and that there was an evident swing toward employment i n the service sector over the study period. This was an important factor i n deter-mining the type of modifications necessary to the regional m u l t i p l i e r , ( i . e . i n c l u s i o n of the immigrant feedback) l a t e r on i n the study. Projections were also done of the study area population. Employment projections in the study area were done by examining past trends of l o c a l growth and decline by industry i n employ-ment terms and comparing these to national performance i n the same industries over the period i n question. National employment projections were then applied to the l o c a l indus-t r i a l structure and corrected for l o c a l divergence from the national pattern as observed i n the past. A. The Brownrigg Model Given an understanding of l o c a l population and employment c h a r a c t e r i s t i c s , and the changing i n d u s t r i a l structure of the region, Brownrigg then developed the regional income m u l t i p l i e r model. His s t a r t i n g point was the broad agreement by analysts on the value for the m u l t i p l i e r k as described i n Chapter II p. He then focused attention on adjustments to the formulation of the multiplicand. In view of the r e l a t i v e l y small economic b a s e o f t h e s t u d y a r e a , i t was a r g u e d t h a t i t i s u n l i k e l y t o c a u s e o r r e c e i v e s i g n i f i c a n t r e p e r c u s s i o n s f r o m i n t e r -r e g i o n a l t r a d e . The f e e d b a c k e f f e c t s f r o m t h i s s o u r c e a r e t h e r e f o r e i g n o r e d . The W i l s o n l e a k a g e m o d i f i c a t i o n , on t h e o t h e r h a n d , was c o n s i d e r e d e s s e n t i a l t o t h e m o d e l as was a m o d i f i c a t i o n t o i n c l u d e a f e e d b a c k e f f e c t f r o m i n d u c e d i n v e s t m e n t . B r o w n r i g g b r o u g h t t o g e t h e r t h e W i l s o n - A r c h i b a l d m o d i f i c a t i o n s i n t h e c o n t e x t o f a "more n o r m a l s i t u a t i o n w h e r e t h e r e i s some p r o p o r t i o n o f n o n - i m m i g r a n t s on t h e s t a f f o f t h e new p r o j e c t , ( i . e . A Z < J ) " . 2 3 B e c a u s e t h e c o n s t r u c t i o n p h a s e o f t h e u n i v e r s i t y was t o be s p r e a d o v e r a p e r i o d o f f o u r t e e n y e a r s , B r o w n r i g g f e l t t h a t i t was e s s e n t i a l t o i n c l u d e t h e c o n s t r u c t i o n e x p e n d i t u r e a n d l e a k a g e i n v o l v e d i n s e t t i n g up a n d e q u i p p i n g t h e p r o j e c t . A s i m i l a r i n j e c t i o n l e a k a g e i s a p p l i e d t o t h e i n d u c e d i n v e s t m e n t component s i n c e c a p a c i t y u t i l i z a t i o n i s assumed t o be m a x i m i z e d b e f o r e t h e p r o j e c t i s i n t r o d u c e d . The b a s i c m o d e l u s e d b y B r o w n r i g g t o e s t i m a t e t h e e f f e c t o f t h e new u n i v e r s i t y on r e g i o n a l i n c o m e i s : & $ : r = k r p 1 ( l - m * ) + J 2 ( l + nz ( 1 - m * ) ^ 2 4 23. Mark B r o w n r i g g , "A S t u d y o f E c o n o m i c I m p a c t : The U n i v e r s i t y o f S t i r l i n g " , p . 6 3 . 24. F o r an e l a b o r a t i o n o f t h e B r o w n r i g g m o d e l See C h a p t e r I I , - 73 -Brownrigg generalizes his model using the basic formulation: y\Y = k (J, + J„ + J- +...+ J ) r r 1 2 3 n to include, for any given project, a l l s i g n i f i c a n t sources of income generation, so long as these are stated net of a l l leakages from the region and deductions are made to avoid double counting. The values for m*, n and z have been stated as 0.75, 2.4, and 0.09 respectively. A s p e c i f i c value for the m u l t i p l i e r k r can be set for any given region, provided that a l l the c o e f f i c i e n t s of the m u l t i p l i e r can be estimated for that region. However, Brownrigg suggests that i n most cases i t should be s u f f i c i e n t l y accurate to use a range of probable 25 m u l t i p l i e r values. He suggests that such a range could be set from a lower m u l t i p l i e r value of 1.30 to an upper m u l t i p l i e r value of 1.45 unless exceptional circumstances 2 6 ex i s t . The J values were taken from e x i s t i n g data and pro-ject requirements information; (J^ = the annual expenditure on construction work on the university campus for year X; j " 2 = the annual t o t a l income figure for year X of a l l income of s t a f f and students), as was t h e ^ Z value, which i s the annual earnings of immigrants to the University i n year X. Brownrigg then analysed the e f f e c t of the university on l o c a l employment. The o v e r a l l impact of the new university on 25. Ibid., p.69. 26. Brownrigg used the m u l t i p l i e r values for k derived by Brown and Grieg i n t h e i r studies. - 74 -employment levels i n the l o c a l economy i s made up of d i f f e r e n t employment i n university s t a f f , maintenance s t a f f , and s t a f f i n the service sector within the university i t s e l f . Indirect employment i n construction and i n the l o c a l economy for the year X i s estimated i n the following way: 1. Construction employment i s estimated by taking 30% of the t o t a l cost of construction to represent wages paid to construction workers. Average earnings of construction workers were then divided into the t o t a l wage figure to arrive at the number of construction workers required. 2. Indirect employment i n the l o c a l economy i s estimated through an employment m u l t i p l i e r model developed by - 27 Grieg. The model estimates t o t a l direct.employment in two stages: f i r s t l y , i t estimates i n d i r e c t employ-ment a r i s i n g from the f i r s t round of expenditure (AE ), a then adds to thi s an estimate of i n d i r e c t employment gen-erated by the second and subsequent expenditure rounds Indirect employment, i n the f i r s t round of expenditure (AE ) cl i s made up of: 1. additional public service employees needed by the new dir e c t employees ( E ^ e ) ; 2. additional employees i n the private sector (AV) ; and T 3. the additional public service employees required by (2): (AV) .9) , so that: A . ,. 2J.. M.. A. .Grieg,. "The Regional. Income and Employment Ef f e c t s of a Pulp and Paper - M i l l " , Scottish Journal of P o l i t i c a l  Economy, February, 19 71. - 75 -^ AE = E-,0 + AV (1 + 0) A D T~ Where: /\E = in d i r e c t employment generated i n the f i r s t a round of expenditure E^ = direc t employment 8 = r a t i o of public service to other employees V = additional l o c a l value added from expenditure of d i r e c t employees' incomes J = income needed to create an additional job Induced employment in the second and subsequent rounds of expenditure (^Eb) / i s estimated from taking the additional income from these stages of the m u l t i p l i e r , ( E^ w a ( k a - 1 ) ^ kb - 1^ ' and di v i d i n g t h i s by an income figure r e f l e c t i n g the additional income needed to create an additional job i n the private (1) and public (Wp) sectors, so that: A E b - E dw d ( k a - l ) ( k b - l ) (4) i d - e ^ + w p e 1 Where: E^ = induced employment generated i n the second and subsequent round of expenditure E w d d = income of di r e c t employees k = f i r s t round m u l t i p l i e r a ^ k^ = second and other rounds m u l t i p l i e r Wp = average wage i n public service. The model i s written thus: A E . =AE +AE, , or (£) I a b v A E l = E d9 + A V (1+9) + E dw d(k a-1) (k b - l ) W ) Q ( l - e , ) + w e , * l p i - 76 -Where: = t o t a l i n d i r e c t employment. Brownrigg actually modified Grieg's model to better s u i t a university s i t u a t i o n . By using lower m u l t i p l i e r estimate using the Brown value for k^, Brownrigg eliminated the l i n k between income and employment i n public services. This i n -volved discarding the rati o s 9 and 9, and also w . He also 1 p used a modified formulation f o r ^ V so that: AV = E dw d(l-s-t) (1-m) lj) Where: s = average propensity to save t = average propensity to tax m = average propensity to import By substitution and rearrangement, then, Brownrigg's model using the Brown k , becomes: ^ r A E ± = E d w d ( l - s - t ) (1-m) + ( k a - l ) ( k b - l ) /(,) 1 Whe re: k =1.35 a and: k, - 1.25. b When applying the upper m u l t i p l i e r value, Brownrigg used the Grieg value for k r so that in the context of employment the f u l l Grieg formulation with i t s additional boost from public sector employment was used as in equation ( if ) . Some modi-fi c a t i o n s were necessary because students were defined as part of di r e c t employment i n the university model. This d i r e c t employment d i f f e r s i n nature from the E d figure used by Grieg " i n that the students have a much lower l e v e l of expenditure, a much smaller household size background than the t y p i c a l d i r e c t employee, and normally use public service 2 8 f a c i l i t i e s for only part of the year." Brownrigg estimated a rough income equivalent of four students to one normal dire c t employee: Ed. Brownrigg estimated additional l o c a l value added from expenditure of di r e c t employees' concerns,AV to be the same as the Grieg formula-tion , = E^w^V. His upper m u l t i p l i e r value model was there-fore : 1 , <3E. = E d9 + E dw dV (1+0) + E w d(k a-l) ( k b - l ) L ( o) A / d - e ) + wpe1 Where: k =1.40 a and: kfe = 1. 35 .l' F i n a l l y , Brownrigg attempted to relate i n d i r e c t employment to various sectors of the i n d u s t r i a l structure of the region. He made two basic assumptions: 1. that the pattern of i n d i r e c t employment generally w i l l follow the expenditure pattern of university incomes; and 2. that t h i s expenditure pattern w i l l be si m i l a r to that estimated for Scotland as a whole over the study period. The s i m i l a r i t y of i n d i r e c t employment and expenditure patterns w i l l only occur i f capacity i n a l l expenditure sections i s already f u l l y u t i l i z e d and i f the relationship 28. Mark Brownrigg, "An Economic Impact Study: The University of S t i r l i n g " , p.89. - 78 -between employment, productivity and expenditure i s the same for a l l sections. Brownrigg argues that the main economic questions raised by an economic impact study can be answered by the type of mu l t i p l i e r constructed i n the model. The advantages offered by this approach are modest data requirements, r e l a t i v e s i m p l i c i t y and speed of operation. The model has,.however, some problems. The f i r s t i s the assumption of maximum capacity u t i l i z a t i o n . This assumption i s c r i t i c a l because only i n such a si t u a t i o n i s the generation.of additional employment for ex i s t i n g capacity and induced investment in capacity extension l i k e l y . If the university were b u i l t where there exists a considerable degree of underutilized capacity i n both labour and c a p i t a l , i t would be d i f f i c u l t to estimate c l e a r l y the f u l l income and employment effects of the project. The capacity u t i l i z a t i o n assumption i s not r e s t r i c t e d solely to the income-expenditure model. The second problem with the model i s again a problem not sole l y related to t h i s type of analysis, that i s , the problem of timing i n the m u l t i p l i e r process. Brownrigg points out that "even assuming a reasonable degree of capacity u t i l i z a t i o n , i t i s d i f f i c u l t to estimate how quickly the various m u l t i p l i e r lags w i l l operate, and the income, expenditure, employment generation and income cycle w i l l be completed." Likewise, i t i s d i f f i c u l t to estimate how quickly construction on the project and an induced investment w i l l take e f f e c t on income l e v e l s , or for how long aft e r i t s completion i t w i l l continue 29 to influence incomes." Two other problems arise i n t h i s type of analysis. F i r s t l y , the assumption of stable c o e f f i c i e n t s over time - a problem common to a l l impact analysis models - makes the analysis less than s a t i s f a c t o r y over the long term. And secondly, the recognized need to be able to see the project within the context of' :the whole structure of the regional economy suggests that the model i s not, i n f a c t , suited to more com-plex economies. Structural analysis of complex economies i s best accomplished by input-output tables. Because Brownrigg's subregion i s small, the analyst can probably draw a f a i r l y accurate picture of the economic structure (recognizing "other world" constraints), but his dependence on national unemployment s t a t i s t i c s i s rather tenuous. The dependence on aggregated data sources i s a continuing problem throughout Brownrigg's study. IV. INPUT-OUTPUT STUDIES The need for a more detailed framework against which the impact of a new project can be measured has been widely recognized. As Moore and Sufrin point out, the only way to trace the: t o t a l impact of both d i r e c t and i n d i r e c t income 29. Ibid., p.112; - 80 -and employment, i s through the use of input-output a n a l y s i s . 3 0 ''•Furthermore, the only way to analyse i n depth the economic structure of the region i s through input-output analysis. Nevertheless, the expenditure of e f f o r t and time due to problems of data a v a i l a b i l i t y , c o l l e c t i o n and processing, have tended to preclude t h i s type of analysis from the budget of non-profit i n s t i t u t i o n s . Even when constructed, the models are open to c r i t i c i s m on the set of industries chosen, the data used and the accuracy and s t a b i l i t y of the c o e f f i c i e n t s 31 which have been calculated. A. The Blake and McDowall Model 32 A study by Blake and McDowall i n the Burgh of St. Andrews i n Scotland, provides some int e r e s t i n g insights into the input-output approach. The study was not an impact analysis of some future development, but a study of the r e l a t i v e im-pact on St. Andrews of i t s two main in d u s t r i e s : tourism and the university. The model developed was an "open" model wherein the economy i s divided into i n t e r n a l and external sectors, with only the former self-balancing. .The Burgh i s the lowest unit of p o l i t i c a l control i n Scotland, and 30. Craig L. Moore and Sidney C. Sufrin, "The Impact of a Non-Profit I n s t i t u t i o n on Regional Income", Growth and  Change, January 1974; 36-40 31. Mark Brownrigg, "A Study of Economic Impact: The University of S t i r l i n g " , p.55 32. Christopher Blake.and Stuart McDowall, "A Local Input-Output Table, The Scottish Journal of P o l i t i c a l Economy, November 1967: 227-242. - 81 -St. Andrews' population was only 10,000. Therefore, the study ignored any feedback from imports or exports as part of the adjustment of outputs to a change i n external demand. Households were included as an i n t e r n a l sector. Because they conceived t h e i r transaction table as an account of resident economic agents functioning as both producers and consumers i n t h e i r relationship with each other and the rest of the world, Blake and McDowall drew no fundamental d i s t i n c t i o n between intermediate and f i n a l goods or services, i . e . they dealt only with l o c a l l y produced and/or processed goods and services, which were actually less than one half of the absorption of l o c a l outputs of goods and services. The study team also c l a s s i f i e d tourism and the university as "outside" the town's economy, although they treated hotels (whose raison d'etre i s to provide t o u r i s t accommodation) and the households of the s p e c i a l l y q u a l i f i e d people (largely) migrant) who teach i n the university, as natural parts of the domestic economy. A method of successive approximation was used to refine the sectoral t o t a l s to better f e f l e c t the unique c h a r a c t e r i s t i c s of t h i s p a r t i c u l a r area. The following Table I represents the i n t e r - s e c t o r a l flows i d e n t i f i e d by the study team. As the table shows, there are twelve i n t e r n a l sectors whose mutual transactions represent the s t r u c t u r a l interdependence - 82 -of the community. In addition, there are columns for " i n jections" into the town of demand from outside sources (out-side employers, outside buyers, unrequited receipts, tourism and the u n i v e r s i t y ) ; and rows for leakage out of the study region to external r e c i p i e n t s , (outside employees, outside suppliers, unrequited payments). 33 Table 1 Transaction Table for the Burgh of St. Andrews. (1965) (in '000's) (see following page) 33. Ibid., p. 236. - 83 -(for Table 1) - 84 -From the table i t s e l f , Blake and McDowall could draw the following inferences: 1. Occupations can be ranked according to t h e i r contribution toward t o t a l earned incomes paid 34 d i r e c t l y to St. Andrews' households. Per Cent. University 26.5 Banking, etc. 14.5 D i s t r i b u t i v e Trades 14.5 Outside Employment 13.0 Hotels and Catering 7.5 Construction 6.0 Other Services 5.5 Garages 4.0 Manufacture 3.0 A l l Other 5.0 100.0 2. The "value added" figure for each i n t e r n a l sector can be computed:3^ 34. Ibid., p.230. 35. Ibid., p.231 - 85 -' OOP's Dis t r i b u t i v e Trades 827.0 Banking, etc. 584.5 Hotels and Catering 309.5 Other Services 220.0 Construction 214.5 Garages 181.0 Manufacturing „ 138.5 Town Council 80.0 XThis figure cannot be compared with a l o c a l GDP, although Blake and McDowall's ca l c u l a t i o n i s based on approximate GDP of 2,750,000, the estimate i s not dependable.) 36 3. A l o c a l "balance of trade" can be abstracted" Import of Goods and Services 4,719,500 Export of Goods and Services (inc. sales to university and tourism) 5 , 350 ,500 Balance + 631,000. While the value of 1 and 2 i s evident i n t h e i r demonstration of the r e l a t i v e importance of various sectors of the St. Andrews economy, both i n terms of income and value added, the value of 3 i s somewhat questionable, given the size of the region and the dependence of the university on federal 36._ Ibid. , p.,231. - 86 -funding. Clearly the transaction table does o f f e r a picture of the i n t e r n a l workings of the St. Andrews economy and of the leakages which are a f f e c t i n g the s t a b i l i t y of that economy. In considering the impact of tourism and the university, however, i n d i r e c t as well as d i r e c t effects must be c a l -culated, either by deriving input-output c o e f f i c i e n t s from the transaction table and computing the effects of successive rounds of spending through the system, or by inverting the matrix and multiplying each component i n the sector by the corresponding component i n each row of the inverse. The matrix method was used by Blake and McDowall to est a b l i s h the o v e r a l l impact of these sectors on household incomes. While the d i r e c t expenditure t o t a l s as shown i n Table I are very s i m i l a r for tourism (1259.0) and the university (1390.0), the combined d i r e c t and i n d i r e c t household i n -come attributable to tourism was found to be 425,400 (roughly $1,063,500.0 i n Canadian d o l l a r s ) , and the combined di r e c t and i n d i r e c t household income attributable to the university was found to be 1,197,500 (roughly $2,993,750.0 in Canadian d o l l a r s ) . 1 of university expenditure generated 16/lld. of household income and 1 of tourism expenditure generated 6/9d. Thus, the university m u l t i p l i e r was approxi-mately 1.8, while the tourism m u l t i p l i e r was approximately 1.34. - 87 -The s t u d y d i d n o t a n a l y s e d i r e c t a nd i n d i r e c t e m p l o y m e n t g e n e r a t i o n . N o r was i t a b l e t o c o n s i d e r o c c u p a t i o n a l d i s -t r i b u t i o n . The l a t t e r two w e r e n o t c o n s i d e r e d due t o a l a c k o f a v a i l a b l e d a t a . The B l a k e - M c D o w a l l s t u d y h a s some p r o b l e m s q u i t e a p a r t f r o m t h e s t a n d a r d c r i t i c i s m s o f t h e i n p u t - o u t p u t a p p r o a c h men-t i o n e d e a r l i e r . I t i s t h e f e e l i n g o f t h i s w r i t e r t h a t t h e r e g i o n i t s e l f was n o t a p p r o p r i a t e f o r i n p u t - o u t p u t b e c a u s e o f i t s s i z e . The s t u d y t e a m i t s e l f p o i n t s o u t t h a t " l i n e a r p r o d u c t i o n a n d c o n s u m p t i o n f u n c t i o n s , j u s t do n o t c a r r y much p l a u s i b i l i t y when r e l a t e d t o t h e f a c t s o f e c o n o m i c 37 l i f e on s u c h a s m a l l s c a l e . " A t t h e s c a l e o f S t . A n d r e w s , e v e n s m a l l c h a n g e s i n t h e e c o n o m i c s t r u c t u r e r e v e r b e r a t e t h r o u g h t h e economy r a t h e r q u i c k l y . The d e p e n d e n c e on g o v e r n m e n t f u n d i n g f o r t h e u n i v e r s i t y c r e a t e s a v e r y v o l a t i l e e c o n o m i c s i t u a t i o n , s u b j e c t t o f e d e r a l b u d g e t a l l o c a t i o n s w h i c h c a n c h a n g e s i g n i f i c a n t l y f r o m y e a r t o y e a r . The i n t e r d e p e n d e n c e o f t h e two s e c t o r s i n q u e s t i o n , p a r t i c u l a r l y t o u r i s m , s u g g e s t s c o n s i d e r a b l e m u t u a l i n t e r -a c t i o n . I t i s p o s s i b l e t h a t w i t h o u t t h e u n i v e r s i t y , t o u r i s m w o u l d n o t be a v i a b l e i n d u s t r y , ( t h e u n i v e r s i t y p r o v i d e s a c c o m m o d a t i o n , e t c . ) . The m o d e l d o e s n o t c o n s i d e r c a p a c i t y c o n s t r a i n t s . F i n a l l y , t h e m o d e l assumes t h a t t h e c o n s u m p t i o n - e x p e n d i t u r e p a t t e r n t h r o u g h o u t t h e p o p u l a t i o n 37. I b i d . , p . 2 3 3 . - 88 -i s homogenous - a highly unlikely assumption given that the two main employers i n the region generate quite d i f -ferent income l e v e l s . The study does, however, present a useful i l l u s t r a t i o n of the economic structure of the St. Andrews economy and does show that while the expenditures of the two sectors are very s i m i l a r , the actual impact of the two are s i g n i f i c a n t l y d i f f e r e n t . Income-expenditure would probably have been a less costly and equally as e f f e c t i v e method to use i n t h i s case. Unless tables are a v a i l a b l e , input-output i s better suited to larger regions and more complex economies. V. CONCLUSION The series of studies reviewed i n the previous sections are p r a c t i c a l applications of economic impact method-ologies. They are not d i r e c t l y comparable, but they do demonstrate the advantages and l i m i t a t i o n s of the three approaches. It i s increasingly clear that the type of model chosen should be determined not only by budget and time constraints, but also according to the size of region, the economic complexities involved, the data a v a i l a b i l i t y and the exact nature of the questions being asked i n the impact analysis. It i s the opinion of this writer that the disadvantages of the economic base model (the a r b i t r a r y dichotomy - 89 -between base and service sectors, the tendency to regard the university as solely part of the base sector, the use of highly aggregated m u l t i p l i e r s , the i n a b i l i t y to i d e n t i f y backward leakages and import substitutions, as well as the assumption of a constant base-service ratio) would suggest that t h i s model be disregarded despite the advantages of s i m p l i c i t y and data a v a i l a b i l i t y . The model i s simply too crude for the types of non-profit i n s t i t u t i o n a l developments that would be of concern. Income-expenditure, on the other hand, i s also r e l a t i v e l y simple and does not s u f f e r from data a v a i l a b i l i t y constraints. This model, as Brownrigg demonstrated, has the important ad-vantage of being able to i d e n t i f y leakages from the regional economy, and to estimate i n d i r e c t and induced impacts on regional incomes r e s u l t i n g from an i n j e c t i o n into the l o c a l economy. If the multiplicand i s c a r e f u l l y quantified, the income-expenditure m u l t i p l i e r i s comparable to smaller i n -put-output studies and i s more r e a l i s t i c than the economic base m u l t i p l i e r s . This model has the added advantage of being less costly to construct than the input-output models. It does not, however, o f f e r any insights into the s t r u c t u r a l interdependencies of the regional economy, and i t i s depend-ent upon the a b i l i t y of the analyst to adjust aggregated data to r e f l e c t l o c a l conditions without (possibly) a thorough knowledge of the i n d u s t r i a l structure of the region. - 90 -The disadvantages of income-expenditure are for the most part overcome by input-output analysis, which presents a detailed representation of the economic structure of the region. This approach allows for analysis of the production and d i s t r i b u t i o n c h a r a c t e r i s t i c s of the main industries of the region, as well as t h e i r trading i n t e r -relationships between each other and with other regions. The Blake-McDowall study presented a matrix which allowed them to analyse the component sectors of the i n d u s t r i a l structure i n r e l a t i o n to each other. Their study i s a simple demonstration of what the input-output model offers i f the problem of data a v a i l a b i l i t y , c o l l e c t i o n and pro-cessing can be overcome. It c l e a r l y has the advantage of in-depth analysis with disaggregated m u l t i p l i e r s which allows for a closer scrutiny of the impact of a project on various sectors. Assumptions of maximum capacity u t i l i z a t i o n , assumptions i n the timing of the m u l t i p l i e r process and s t a b i l i t y assumptions, are a l l problems common to the three models and, consequently, must be recognized i n a l l economic im-pact analysis. CHAPTER FOUR CASE STUDY OF A LARGE-SCALE NON-PROFIT INSTITUTION  I. INTRODUCTION The studies c i t e d i n Chapter III are i l l u s t r a t i v e of economic impact analyses applied to non-profit i n s t i t u t i o n s which are producing homogeneous products (i . e . education) and a l l aspects of the i n s t i t u t i o n are oriented to the production of that product. In many cases, however, large-scale non-profit i n s t i t u t i o n s are not, i n fact, single e n t i t i e s but a complex of i n t e r r e l a t e d agencies involving many d i f f e r e n t a c t i v i t i e s and producing quite d i f f e r e n t products. The following i s a case study of the economic impact of a large-scale non-profit i n s t i t u t i o n composed of many d i f f e r e n t agencies producing many d i f f e r e n t products. The study describes the i n s t i t u t i o n chosen for analysis - the P a c i f i c National Exhibition, explains the model chosen and the perceived advantages of using that model - the Metropolitan Vancouver Input-Output Model, outlines the study methodology and summarizes the conclusions of the study. II . OVERVIEW OF THE PACIFIC NATIONAL EXHIBITION STUDY The P a c i f i c National Exhibition (PNE) was established by an Order-in-Council i n 1908 as a non-profit society with lands set aside i n a Crown tr u s t and a mandate to manage those, lands f o r the enjoyment and recreation of the public of B r i t i s h . Columbia, The Society i s governed by a sixteen-person board of d i r e c t o r s . The o r i g i n a l a c t i v i t y of the Society was a, large yea,rly exhibition. Through the years, however, the PNE has expanded i t s own. a c t i v i t i e s and has. become the. landlord of several other agents, some, of which, are also non-p r o f i t s o c i e i t i e s and some of which, are p r i v a t e : enterprises The objective of t h i s study i s to analyse the economic impact of the PNE with a l l i t s i n t e r r e l a t e d a c t i v i t i e s (referred to as the PNE Complex) i n the greater Vancouver area. The study methodology consists of developing a data base from which, could be anaiysed the. d i r e c t and i n d i r e c t impact of the PNE Complex on employment, payrolls and sales by sector i n the l o c a l economy. Direct impacts are those jobs:, incomes and sales by sector d i r e c t l y attributable to the various components of the PNE Complex. Since increased production i s needed i n various sectors of the lower mainland" economy to support the d i r e c t purchases of the PNE Complex, successive rounds of spending and respending occur to produce, inputs necessary to the Complex,. Employment i s created by t h i s increase i n production requirements, and consequently there i s an increase i n household consumption. These - 93 -additional a c t i v i t i e s , which occur due to the presence of the PNE Complex, are c a l l e d the i n d i r e c t impacts. The assumption for the purpose of t h i s analysis was that should the PNE Complex not e x i s t , these i n d i r e c t a c t i v i t i e s would not e x i s t . To the extent that i n fact other a c t i v i t i e s would take the place of the PNE, t h i s assumption overstates the impact of the PNE Complex. The Complex i t s e l f consists of f i v e major components, categorized primarily by the type of a c t i v i t y involved. The f i v e components are: 1. The P a c i f i c National Exhibition Society (including property management and a 17-day F a i r ) ; 2. sports a c t i v i t i e s (professional and otherwise); 3. the midway and related services; 4. the racetrack; and 5. trade/consumer and other shows. The indicators used to guage the economic impacts of the PNE Complex are: 1. the t o t a l number of man-years of work d i r e c t l y and i n d i r e c t l y related to the PNE Complex; 2. the t o t a l payrolls supporting employment d i r e c t l y and i n d i r e c t l y related to the PNE Complex; and - 94 -3, the t o t a l sales generated through a c t i v i t i e s related to the PNE Complex. These indicators were further broken down by the following: 1. types of jobs generated i n selected sectors; 2. age categories of.persons employed by the PNE; and 3. percentage breakdown by major i n d u s t r i a l sectors of impacts generated. The base year chosen for the study was 1977. I I I . DESCRIPTION OF THE MODEL CHOSEN FOR THE IMPACT STUDY  Because the PNE Complex contains a variety of very d i f f e r e n t agencies with d i f f e r e n t expenditure and employment patterns, and because the lower mainland economy i s a very complex and interdependent economy, input-output analysis was f e l t to be the most appropriate model to use i n t h i s study. An exi s t i n g model, the Metropolitan Vancouver Input-Output Model, 1 had alrady been developed and was available for the purposes of t h i s study. The model was developed i n 1972 under the j o i n t auspices of the Faculty of Commerce, U.B.C. and the Vancouver Board of Trade. The study area was 1. H. Craig Davis, An Interindustry Study of the  Metropolitan Vancouver Economy, Report No. 6, Urban Land Economics, Faculty of Commerce, 1972. - 95 -equivalent to the Vancouver Census Metropolitan Area (CMA) with an approximate population of 1.5 m i l l i o n . . The delimitation of the study area made i t possible to use 1971 census data corresponding to the same area. 2 While Brownrigg, i n his study of the University of S t i r l i n g , argued for smaller subregions because he f e l t that i t i s i n the subregion that the major impact would be f e l t , the location and a c t i v i t i e s of the PNE Complex are such that i t s impact i s f e l t throughout the Vancouver CMA. The residences of the PNE employees were found to be scattered throughout the area, p a r t i c u l a r l y i n Burnaby, Vancouver, North Vancouver, Coquitlam and Port Coquitlam, but also i n Surrey, Richmond, New Westminster and Port Moody. The purchases by the PNE Complex also tended to be scattered throughout the region, although the largest proportion occurred i n the Vancouver/Burnaby areas. The Vancouver Metropolitan Input-Output Model was f e l t to be i d e a l l y applicable to an analysis of the economic impact of the PNE on the lower mainland. 2. Mark Brownrigg, A Study of Economic Impact: The  University of S t i r l i n g , (Edinburgh, Scotland, Scottish Academic Press: 1974 )„. - 96 -The model i t s e l f can be mathematically summarized as 3 follows: A. Transaction Table Total sales or output of any sector of an n sector model as expressed as: n x ± j + Y i = xt (i=l,...,n) (1) j = l Where: x^j = the value of the output of sector i purchased by sector j = the f i n a l demand for the output of sector i ; and x^ = the value of the t o t a l output of sector i . The economy i s thus conceptualized by n l i n e a r equations, each equation expressing the transactions of a p a r t i c u l a r sector with the processing sectors, and with f i n a l demands (sales). Equation (2) represents the major portion of our f i r s t table, the Transactions Table. As such, i t i s merely a set of balance equations or accounting i d e n t i t i e s . To complete the mathematical descriptions of the Transactions Table, we write: n x. . + p . = x . ( j=l,...,n) (.2) • ± J J J i = l Where: p.. = f i n a l purchase (purchases of imports and other factors) by sector j x^ = X j for a l l i = j . ( 3 ) 3 . H. Craig Davis, An Interindustry Study of the  Metropolitan Vancouver Economy, p.8-9. B. Table of Direct Requirements The Table of Direct Requirements, can be expressed as the matrix (a. . J_ where 1D x. . a.. = i ] iD — -(1, j =. 1, . , . ,n)_ x. 3 Substituting (41 into cd_ y i e l d s : . .n x a . .x.. + y.., 1 j ^ - i ^  3 y i - (i . = 1, . .. ,n) which may be expressed more compactly as; X = AX + Y Where: (4 L (5)._ ( 6 ) X2 x n a l l a 1 2 * * - a l n A ~ ' a21 a22 2n n l n2 nn / Y= (A-7) C. Table of Direct Plus Indirect Requirements It may now be shown that t o t a l output minus intermediate demand equals the net output of the system or f i n a l demand. X - AX = (I-A) X = Y (A-8) where I i s an n x n i d e n t i t y matrix. Given the exogenous or f i n a l demands on the economy, i t i s possible to solve the system for t o t a l outputs: (A-9) where (I-A) ^  i s the t h i r d table of the 1-0 Model, the Table of Direct Plus Indirect Requirements, which i s X = (I-A) _ 1Y -1 - 98 -customarily written i n transposed form, (I-A) ^ T , for convenience of reading tabular information. The published version of the model divides the regional economy into eighteen economic sectors ( i n i t i a l l y twenty-seven), defined at the two-digit Standard 4 Ind u s t r i a l C l a s s i f i c a t i o n (SIC)1 l e v e l . The economic sectors of the study are l i s t e d i n Table I below: Table I The Economic Sectors of the Metropolitan Vancouver Input/Output Study. 5 Sector Name 197 0 SIC Code 1. Agriculture, Forrestry, Fishing and Mining 1-9 2. Construction 40-42 3. Food and Beverages 10 4. Wood Industries 25 5. Paper and A l l i e d Products 27 6. Chemicals and Petroleum 36-37 7. Non-Metallic Industries 35 8. Metal Fabricating 30 9. P r i n t i n g and Publishing 28 10. Manufacturing nec* 15-18, 23-24, 26, 31-33, 39 11. Trade and Transport 50-52, 60, 69 4. Dominion Bureau of S t a t i s t i c s Standard In d u s t r i a l C1 a s s i f i cat ion Manila 1 (Ottawa, Ministry of Industry, Trade and Commerce, December 1970), p.309. 5. H. Craig Davis, An Interindustry Study of the  Metropolitan Vancouver Economy, p.12. - 99 -12. Communications 54 13. U t i l i t i e s 57 14. Finance, Insurance, Real Estate 70-73 15. Health and Welfare 82 16. Education 80 17. Business Services 85-86 18. Other Services 83-84, 87-89, 90, 93, 95 The table of interindustry transactions was constructed from data generated i n a questionnaire. The table demonstrates the d o l l a r flows of sales and purchases between the producing sectors of the regional economy as well as those flows between the producing sectors and the f i n a l sales and purchase categories. It also i l l u s t r a t e s the d i s t r i b u t i o n of f i n a l sales over the eighteen producing sectors and i n some categories, over the f i n a l purchases categories as well. The transaction table also enabled some detailed s t r u c t u r a l analysis of the regional economy. Employment and employee compensation data from S t a t i s t i c s Canada were applied to the transaction table to analyse various measures of the contribution of each sector to the region's economy. The study grouped the eighteen sectors into eight major categories to summarize these contributions. - 100 -The regional counterpart of GNP, Gross Regional Product (GRP), for Metropolitan Vancouver (1971}, was calculated from.the transactions table to derive t h i s area's share of the nation's GNP. Also, by examining the f i n a l sales categories, expenditures upon f i n a l goods and services were derived and presented i n four expenditure categories similar to the format of the national GNP accounts. The contribution of each of the producing sectors to the t o t a l value added for the Vancouver region was also learned from the transactions table. The input-output format was p a r t i c u l a r l y appropriate i n the case study of the PNE Complex because the sales/ purchase: patterns of each of the agents within the Complex were very d i f f e r e n t . Sectoral impacts were therefore of considerable i n t e r e s t . Through the input-output method, i t was possible to i d e n t i f y d i r e c t and i n d i r e c t sales as t h e i r impact was f e l t on each of the producing sectors. The t o t a l sales impacts derived do not, however, represent the contribution of the PNE Complex to the Gross Regional Product of the lower mainland economy, since the l a t t e r i s a measure of f i n a l sales only. The estimates constructed i n t h i s study measure sales to f i n a l consumption as well as sales of commodities which w i l l undergo further processing within the region. - 101 -S i m i l a r l y , the inputs-output format was a useful method in s c r u t i n i z i n g the contribution of the PNE Complex to l o c a l employment. The d i s t r i b u t i o n of that employment could also be analysed across the eighteen sectors presented. The Metropolitan Vancouver Model, through the table of Direct C o e f f i c i e n t s , demonstrates the extent to which various sectors of the economy depend upon the regional economy for inputs. The table of Direct Sales per Dollar of Total Output shows the percentage sales of each Of the eighteen sectors to a l l other sectors and to the various f i n a l sales categories. It thereby demonstrates variations i n the concentration of markets within the region. F i n a l l y , the table of Direct Plus Indirect Requirements "reveals the economic impact upon the regional economy, sector by sector, of an increase i n the f i n a l demand for the production of any g one of the regional economic sectors". In t h i s p a r t i c u l a r model, the m u l t i p l i e r s are derived for the various sectors of the Vancouver regional economy, but the calculations are limited to the 6. H. Craig Davis, An Interindustry Study of the  Metropolitan Vancouver Economy, p.26. - 102 -estimated effects of increased household consumption. This i s a "closed" version of the input-output model in which the Household Consumption column, as well as a portion of the Value Added row i s transferred into the processing matrix i n order to incorporate into the m u l t i p l i e r values the income and consumption processes of households. The following i s a table .of the sales m u l t i p l i e r s derived for the Metropolitan Vancouver Model: Table II Metropolitan Vancouver Sales M u l t i p l i e r s , 1971 Sector Sales M u l t i p l i e r 1. Agriculture, Forestry, Fishing & Mining 1.61 2. Construction 1.68 3. Food & Beverages 1.63 4. Wood Industries 1,49 5. Paper & A l l i e d Products 1.64 6. Chemicals & Petroleum 1.18 7. Non-Metallic Products 1. 97 8. Metal Fabricating 1.63 9. Pri n t i n g & Publishing 1.67 10. Manufacturing, nec 1.50 7. Ibid., p.26. - 103 -11. Trade & Transport 1.69 12. Communications 1.64 13. U t i l i t i e s 1.54 14. F i r e 1.69 15. Health & Welfare 1.64 16. Education 1.68 17. Business Services 1.67 18. Other Services 1.61 Interindustry employment m u l t i p l i e r s were derived by converting d o l l a r s of sales to units of employment. The model assumes that the r a t i o of employment per d o l l a r of sales for each sector remains constant. Despite the li m i t a t i o n s of the input-output model, i t s a b i l i t y to analyse in-depth the economic structure of the region gives a contextual value to a study such as the PNE Complex analysis. The interdependence of the Complex i t s e l f , combined with a desire to re l a t e i t s impact to s p e c i f i c sectors i n terms of both income and employment, made the exis t i n g model a useful tool of analysis. Although the model was developed on the basis of 1971 data, i t was f e l t , as Richardson has pointed out, that the assumption of the production function i s not unacceptable when money values are used as a measure of physical purchases i n r e a l terms, - 104 -since r e l a t i v e price, changes do not d i s t o r t too much the input purchase patterns per unit of output. The employment m u l t i p l i e r s were adjusted to r e f l e c t 1977 conditions as w i l l be explained i n the methodology section. Since the data gathered was.all done through personal interviews or a review of company accounts by the writer, i t was f e l t that the data would be a reasonably accurate representation of the interindustry transactions of the PNE Complex i n the lower mainland. IV. METHODOLOGY DEVELOPED TO ANALYSE THE REGIONAL ECONOMIC IMPACT OF THE PNE COMPLEX ON THE ECONOMY OF THE LOWER MAINLAND  The study methodology consists of developing a data base that accurately r e f l e c t s the employment, pay r o l l s and sales by sector d i r e c t l y a t t r i b u t a b l e to the various components of the PNE Complex - the d i r e c t impacts. The d i r e c t impacts then provided the input for the ca l c u l a t i o n of those i n d i r e c t sales, payrolls and employment generated i n other parts of the regional economy because of the presence of the Complex <- the in d i r e c t impacts. Analysis of the i n d i r e c t impacts was undertaken through the use of the input-output model described above. The t o t a l impact of the Complex was derived from a synthesis of the d i r e c t and i n d i r e c t impacts. Also, from the d i r e c t and i n d i r e c t impacts, i t was possible to indicate which sectors benefit - 105 -most from the presence of the PNE Complex and the type of employment generated, both d i r e c t l y and i n d i r e c t l y , as a r e s u l t of PNE a c t i v i t i e s . . There has been no estimate of forward linkages i n t h i s analysis, although the impact of such linkages as radio and t e l e v i s i o n advertising and sales generated in trade and consumer shows has a considerable impact on the regional economy. It should be assumed that forward linkages would considerably increase the i n d i r e c t impact t o t a l . On t h i s basis, the study may be seen to be conservative i n nature. A. The Data Base The following approach was taken to develop the data base: 1. The PNE Complex was divided into f i v e components defined primarily by a c t i v i t y type. Support a c t i v i t i e s (e.g. ca f e t e r i a s , feed supply store) were seen as an i n t e g r a l part of each component. 2. Agencies within each component were i d e n t i f i e d 8 for the purpose of requesting data. 3. Each agency was contacted and the appropriate contact person interviewed. 8. See Appendix A. 4. Sales/purchase data were gathered, either d i r e c t l y through a review of invoicing for the year 1977, or through a series of interviews with the various contact persons. Only a few of the smaller trade shows were not included i n the data, primarily due to time constraints. 5. Payrolls and employment data were also gathered from the various agencies. 6. Purchasing data were subdivided and grouped by major industry c l a s s i f i c a t i o n derived from the Standard Industrial C l a s s i f i c a t i o n Code and stored in a computer f i l e . 7. Employment data were translated into man-years then subdivided into f u l l - t i m e (.12 months) , seasonal (six months), part-time (four months) and casual (one month or l e s s ) . 8. A l l agency data were then aggregated into a single unit to fi n d t o t a l sales, payrolls and employment for the entire Complex. B. . Direct Impact From the aggregated data base the impacts of economic a c t i v i t i e s d i r e c t l y attributable to the PNE Complex were i d e n t i f i e d . Direct impacts were defined i n the following way: - 107 -1. A l l employment generated by agencies d i r e c t l y related to the PNE Complex. 2. A l l payrolls i n the form of wages and s a l a r i e s generated by the PNE Complex. 3. A l l sales generated within the PNE Complex, namely: t i c k e t s , programs, novelties, food, space rentals, radio and t e l e v i s i o n broadcasts. While the t o t a l numbers of persons employed by the entire PNE Complex reached 21,218 i n 1977, t h i s figure gives a very i n f l a t e d version of the employment base because many of these jobs are seasonal and part-time. A more r e a l i s t i c picture of employment would be the number of man-years generated by the PNE Complex on an annual basis. Employment was thus translated into man-years: Total persons employed 21,218 Total man-weeks worked 84,550 Total man-years 1,691 Payrolls were aggregated with the addition of 9 0% of the racetrack purse. Since 90% of the racetrack purse i s d i s t r i b u t e d i n the lower mainland, i t was determined to be a form of p a y r o l l d i s t r i b u t i o n . Disaggregated information on the d i s t r i b u t i o n of the purse was not available. Payrolls were thus the sum of: - 108 -Payrolls i n the Complex $16,264,277 and 90% of the purse $ 3,618,900 Total Payrolls $19,883,177 Sales revenues were categorized and aggregated i n the following: Ticket sales $14,369,847 Program sales $ 1,568,493 Novelties $ 2,975,612 Food $ 2,645,121 Rentals $10,086,695 Radio & TV Broadcasting $ 1,463,500 Total Sales Revenues $33,109,268 C. Indirect Impact The d i r e c t impacts then provided the input for the cal c u l a t i o n of i n d i r e c t impacts using input-output analysis. The purchases by the PNE Complex from l o c a l area industries are regarded by the model as a stimulus to the l o c a l economy which w i l l increase income, employment and expenditure i n the region by some multiple of the i n i t i a l stimulus. In other words, the PNE buys food, equipment, hardware, wood and other items to provide f a c i l i t i e s for other - 109 -components of the Complex, to maintain the buildings and the grounds, to provide concessions, and to produce various types of entertainment. The provision of these inputs requires, i n turn, a variety of items purchased by the various industries producing for the PNE Complex. Thus rounds of spending and respending are generated. A board, for example, purchased by the PNE from a l o c a l lumber yard, may have been purchased from a l o c a l sawmill. In t h i s case, the sales/purchase relationships r e f l e c t backward linkages. The input-output model assumes that an increase i n f i n a l and intermediate sales within the region promotes an increase i n employment and income. For instance, space rented for a trade show may stimulate employment in the promotion agency, caterers, advertising agencies, r e t a i l stores, rentals and others, because of the purchases required to i n i t i a t e and promote the show. The promotion agency then subcontracts to the special trades to set up the show's f a c i l i t i e s . The subcontracting may stimulate employment i n transportation, cartage and storage, signs and display companies, photographic services, auto and truck rentals, and others. The process of spending and respending which occurs as a r e s u l t of the a v a i l a b i l i t y of space within the - n o -Complex res u l t s i n increases i n personal income within the regional economy. Increases i n personal income related to employment increases results i n expanded household consumption within the region and thus, a further increase i n f i n a l sales which i n i t i a t e s successive rounds of increased economic a c t i v i t y i n the lower mainland. 1. Sales Generated Through Commodity Purchasing and Wage Payments. a. Commodity Purchasing The sales m u l t i p l i e r s of the Metropolitan Vancouver Input-Output Model were applied to determine sales generated through commodity purchasing. For example, sector 3 (Food and Beverage Industries), has a m u l t i p l i e r of 1.63 according to the input-output model. Direct purchases by the PNE Complex of food and beverages produced and/or processed i n the lower mainland economy, amounted to one m i l l i o n , three hundred and sixty-four, four hundred and sixty-two d o l l a r s ($1,364,462).. The i n d i r e c t purchasing amounts to the t o t a l d i r e c t purchases times the m u l t i p l i e r value: $1,364,462 x 1.63 = $2,224,073. The i n d i r e c t purchases by each industry mu l t i p l i e d by each sectoral m u l t i p l i e r value i s then aggregated to r e f l e c t t o t a l sales generated through commodity purchasing. Total i n d i r e c t purchases thus equals $17,741,337. - I l l -The following Table III l i s t s sectoral sales from the lower mainland economy to the PNE Complex through d i r e c t commodity purchasing. The impact of d i r e c t purchases on the rest of the regional economy through successive rounds of respending i s obtained by multiplying the d i r e c t sectoral purchases by the model's m u l t i p l i e r values to give t o t a l sectoral sales generated i n the regional economy due to the presence of the PNE Complex. These sectoral sales are then summed to give a figure for t o t a l sales generated through commodity purchasing by the PNE Complex, Table III Sales Generated Through the Commodity Purchasing by the PNE Complex, 1977 Sectoral Purchases 1-0 M u l t i p l i e r Total Sales Generated 1. $ 35,148' 1.61 $ 56,588 2. $1,327,014 1.68 $2, 229,384 3. $1, 364,462 1.63 $2, 224,073 4. $ 147,515 1.49 $ 219,797 5. $ 160,800 1.64 $ 263,712 6. $ 29,824 1.18 $ 35,192 7. $ 62,780 1.97 $ 123,676 8. $ 43,651 1.63 $ 71,161 9. $ 633,055 1.67 $1, 057,202 10. $ 617,585 1,50 $ 926,377 11. $ 951,544 1.69 $1, 608,109 12. $ 193,204 1.64 $ 316,855 13. $ 374,741 1.54 $ 577,101 - 112 -14. $ 380,794 1.69. $ 643,542 15. $ 363,827 1.64 $ 596,676 *16. 17. $2,374,119 1.67 $ 3,964,779 18. $1,755,971 1.61 $ 2,827,113 Total Sales $17,741,337 Source: Sectoral Purchases - Review of invoices of each agent i n the Complex for the year 1977. 1-0 M u l t i p l i e r s - The Metropolitan Vancouver Input-Output Model. * There were no purchases made i n the education sector, b. Wage Payments Total payrolls generated d i r e c t l y by the PNE Complex ($19,883,177). were mu l t i p l i e d by sectoral consumption c o e f f i c i e n t s and by the sectoral sales m u l t i p l i e r s to determine sales generated through wage payments. The sectoral consumption c o e f f i c i e n t s were taken from the input-output model. For example, sector 8 (Metal Fabricating Industries), has a sectoral consumption c o e f f i c i e n t of .0024 according to the ex i s t i n g model, and a sales m u l t i p l i e r of 1.63. Sales generated through wage payments i n t h i s sector are thus: $19,883,177 x .0024 x 1.63 = $77,873. The i n d i v i d u a l sectors aire then summed to f i n d the t o t a l sales generated through, wage payments -$18,446,339. - 113 -The following Table IV shows the sales generated through wage payments as a r e s u l t of the presence of the PNE Complex: Table IV Sales Generated Through Wage Payments, 1977 Sectoral Consumption Sales S a l e £ , G e n e r a t e d Total Payrolls x Coeff i c i e n t s x M u l t i p l i e r s = From Wage Payments 1. $19,883,177 .0033 1. 61 $ 105,639 2. $19,883,177 .0028 1.68 $ 93,530 3. $19,883,177 . 0670 l e 63 $ 2,171,442 4. $19,883,177 .0008 1,49 $ 23 ,701 5. $19,883,177 .0032 .164 $ 104,347 6. $19,883,177 . 0162 1.18 $ 380,087 7. $19,883,177 . 0003 1,97 $ 11,751 8. $19,883,177 .0024 1, 63 $ 77,783 9. $19,883,177 .0058 1.67 $ 192,588 10. $19,883,177 .0039 1.50 $ 116,317 11. $19,883,117 .1638 1.69 $ 5,504,101 12. $19,883,177 .0203 1.64 $ 661,951 13. $19,883,177 .0284 1.54 , $ 869,611 14. $19,883,177 .1216 1.69 $ 4,086,072 15. $19,883,177 .0256 1.64 $ 834,775 16. 17. $19,883,177 .0096 1.67 $ 318,767 18. $19,883,177 .0904 1.61 $ 2,893,877 Total Sales Generated from Wage Payments $18,446,339 Source: Total Payrolls = sum of payrolls reported i n Annual Fina n c i a l Reports of each agency i n the Complex. Sectoral Consumption C o e f f i c i e n t s : The Metropolitan Vancouver Input-Output Model. Sectoral Sales M u l t i p l i e r s : The Metropolitan Vancouver Input-Output Model. - 114 -Total sales generated are then calculated as; Sectoral sales generated through commodity purchases $17,741,337 Sectoral sales generated through wage payments $18,446,339 Total i n d i r e c t sales generated by the presence of the PNE Complex $36,187,676 2. Payrolls, : ... • Indirect sectoral payrolls were estimated by adding d i r e c t sales plus commodity purchases through wage payments divided by sales/pa y r o l l r a t i o s established i n the input-output model. For example, sector 4 (Wood Industries) sold d i r e c t l y to the PNE commodities amounting to $219,797. Sales generated from wage payments amounted to $23,701. The sal e s / p a y r o l l r a t i o for that sector derived from the 1-0 model was 2.9. Indirect payrolls for sector 4 are therefore: Direct Commodity Commodity Purchases Sales through Wage Payrolls . Sales/Payroll" T ,. . _ ,, • 5 - r, . • = Indirect Payrolls - Katios $219,797 + $23,701 -f 2.9 = $83,965. The following Table V shows the i n d i r e c t payrolls generated by the presence of the PNE Complex: T- 115 -Table V Indirect Payrolls Generated by the Presence of the PNE Complex, 197 7 Direct Sales + Indirect Sales -• Sales/Payroll = Indirect Ratio Payroll 1. $ 56,588 $ 105,639 7. 6 $ 21,346 2. $2,229,384 $ 93,530 1. 9 $1,222,586 3. $2,224,073 $2,171,442 5. 0 $ 879,103 4. $ 219,797 , $ 23,701 2. 9 $ 83,965 5. $ 263,712 $ 104,347 4. 2 $ 87,633 6. $ 35,192 $ 380,087 19. 4 $ 21,046 7. $ 123,676 $ 11,751 3. 5 $ 38,693 8. $ 71,161 $ 77,783 3. 5 $ 42,555 9. $1,057,202 $ 192,588 3. 1 $ 403,158 10. $ 926,377 $ 116,317 2. 9 $ 359,549 11. $1,608,109 $5,504,101 2. 1 $3,386,768 12. $ 316,855 $ 661,951 2. 4 $ 407,836 13. $ 577,101 $ 869,611 6. 2 $ 233,341 14. $ 643,542 $4,086,072 3. 6 $1,313,782 15. $ 596,676 $ 834,775 1. 8 $ 795,251 16. 17. $3,964,779 $ 318,767 2. 3 $1,862,411 18. $2,827,113 $2,893,877 2. 2 $2,600,450 Total Indirect Payrolls $13,759,832 Source: Direct Sales - see Table I I I , Indirect Sales - see Table IV, Sales/Payroll Ratios - taken from 1-0 Model. - 116 -Indirect sectoral payrolls generated by the presence of the PNE Complex were then summed to fi n d the t o t a l i n d i r e c t payrolls - $13,759,832. 3. Employment Indirect employment was derived by di v i d i n g i n d i r e c t payrolls per sector by payroll/employment r a t i o s . The 9 ra t i o s were taken from S t a t i s t i c s Canada p a y r o l l / employment r a t i o s which were adjusted 1^ to r e f l e c t as c l o s e l y as possible 1977 conditions, and mul t i p l i e d by payroll/employment r a t i o s per sector which r e f l e c t the lower mainland conditions as i d e n t i f i e d i n the input-output model. For example, sector 12 (.Communications Industries). y i e l d s an i n d i r e c t employment of 38.84 derived from the following: Indirect Payroll/Employment Adjusted _ Indirect Payrolls ' Ratios from the "St a t i s t i c s Employment 1-0 Model Canada Ratios Thus, i n sector 12: 1978 weekly earnings _ 311,58 employment 17.2 1971 employment _ 10.331 weekly earnings 147.02 89 3 3 Payroll/employment r a t i o s from the 1-0 Model = ' QQQ" Indirect Payrolls i n sector 12 = $407,836 9. S t a t i s t i c s Canada, Summary S t a t i s t i c s pf Employment Payrolls and Average Weekly Earnings, 1971, 1978,, 10. S t a t i s t i c s Canada r a t i o s were adjusted by multiplying 1978 weekly earnings by 1971 employment = adjusted ratio, employment weekly earnings - 1 1 7 -Indirect employment i s therefore: Arsn o o c 8 9 . 3 3 3 1 1 . 5 8 1 0 . 3 3 1 Q O Q . 4 0 7 - 8 3 6 + irj^oo x -rn^KTTT702 = 3 8 - 8 4 ' The assumptions implied by the adjustment are that employment i s not r i s i n g as quickly as wages and sa l a r i e s and that the adjustment would prevent an over-estimation of the i n d i r e c t employment impact. Indirect employment was then aggregated by summing each sector. The following Table VI indicates the i n d i r e c t employment i n man-years generated by the PNE Complex: Table VI Indirect Employment Generated by the PNE Complex, 1 9 7 7 Indirect Payrolls Adjusted Pa y r o l l _ Indirect Employment ( $ 0 0 0 ) ' Employment Ratios i n Man-Years 1 . * $ 2 1 . 3 4 6 . 1 . 8 2 1 1 . 7 3 .2. $ 1 , 2 2 2 . 5 8 6 2 3 . 0 3 5 3 . 0 9 3 . $ 8 7 9 . 1 0 3 1 3 . 8 6 6 3 . 4 2 4 . $ 8 3 . 9 6 5 2 0 . 4 3 4 . 1 1 5 . $ 8 7 . 6 3 3 1 7 . 8 2 4 . 9 2 6 . * $ 2 1 . 4 0 6 1 8 . 6 9 1 . 1 5 7 . * $ 3 8 . 6 9 3 1 7 . 7 7 2 . 1 8 8 . $ 4 2 . 5 5 5 1 8 . 0 4 2 . 3 6 9 . * $ 4 0 3 . 1 5 8 1 4 , 6 9 2 7 . 4 4 - 118 -10.* $ 359,549 14.69 24.48 11.* $3,386,767 14.48 233.89 12. $ 407.836 10.50 38.84 13. $ 233.341 17.52 13.32 14. $1,313,782 12.98 101.22 15. $ 795.251 10.83 73.43 16. $ 17. $1,862,411 14.26 130.60 18.* $2,600,450 7.88 330.01 Total 1,116.11 *1. Assumed r a t i o of 2. *6,7. Figures for Durable Manufacturing used. *9,10. Figures for Non-durable Manufacturing used. *11. Derived for the Trade and Transport sector. *18. Derived for Business and Personal services. Source: Indirect Payrolls - see Table V. Adjusted Payroll/Employment Ratios - Csee Footnote 10).. mul t i p l i e d by* the .1-0 model payroll/Employment ratios.. Indirect employment was thus aggregated and rounded to a t o t a l of 1,116 man-years of employment. D. Other Indicators Other indicators which r e f l e c t the impact of the PNE Complex on the greater Vancouver area are the types of employment generated i n selected sectors of the economy and the demographic c h a r a c t e r i s t i c s of the persons employed as a r e s u l t of the presence of the PNE Complex. Table VII below gives the actual breakdown of the types of d i r e c t employment provided by the PNE Complex. - 119 -As this table indicates, a major portion of the employment base i n the Complex i s seasonal, part-time and casual. It should be recognized that much of t h i s employment base consists of un s k i l l e d and semi-skilled jobs which are allocated to that part of the work force often most d i f f i c u l t to employ: females, older persons and students. Table VII indicates the types of employment generated within the PNE Complex i t s e l f : Table VII Types of Employment within the PNE Complex, 1977 Type of Employment No. of Employees Man-Years Year-round (12 months) 378 378 Seasonal (6 months) 691 345 Part-Time (4 months) 586 188 Casual (1 month) 1,421 57 Sub-Total 3,076 968 Fair-Time Only 15,143 723 Total Man-Years of l g Employment ' 1,691 Source: Employment information was taken by reviewing the 1977 pa y r o l l sheets i n each agency within the PNE Complex. One man-year = 5 0 weeks of employment. In order to get a clearer picture of t h i s employment pattern, the PNE component of the study may be i s o l a t e d - 120 -and more c l o s e l y s c r u t i n i z e d . E x c l u d i n g t h e a c t u a l F a i r - T i m e e m p l o y m e n t , t h e PNE e m p l o y s 1,739 p e r s o n s . 168 o f t h e s e p e r s o n s a r e e m p l o y e d f u l l t i m e ; 800 a r e e m p l o y e d p a r t - t i m e b u t on a y e a r - r o u n d b a s i s ; a n d 771 p e r s o n s w o r k a t c a s u a l j o b s l a s t i n g no l o n g e r t h a n one month. Of t h e t o t a l PNE employment b a s e , 15%, o r 450 p e r s o n s e m p l o y e d a r e f e m a l e . A s a m p l e o f 200 p e r s o n s i l l u s t r a t e s t h e age r a n g e s o f t h o s e p e r s o n s e m p l o y e d by t h e PNE., e i t h e r on a f u l l - t i m e , p a r t - t i m e o r s e a s o n a l b a s i s . As T a b l e VIII i n d i c a t e s , 17% o f t h e employment i s a l l o c a t e d t o p e r s o n s u n d e r 25 y e a r s o f a g e , and a n o t h e r 15.50% i s a l l o c a t e d t o p e r s o n s o v e r 60 y e a r s o f a g e : T a b l e VIII Age Ranges o f P e r s o n s E m p l o y e d b y PNE, 197 7 Age Ranges % o f E m p l o y e d 0 - 25 17.0 26-49 45.0 50-59 22.50 + 60 15.50 T o t a l 100.00% S o u r c e : R e v i e w o f PNE P a y r o l l R e c e i p t s f o r 1977. - 121 -During the annual 17-day Fa i r sponsored by the PNE Society, casual employment increases by f i v e times the normal employment base, and much of t h i s employment i s allocated to students seeking summer employment only. The input-output analysis demonstrated i n d i r e c t employment generated by the Complex. This employment was aggregated into sectors of the economy: primary (1-0 Model-1), secondary (1-0 Model 2-10), and t e r t i a r y (1-0 Model 11-18 i n c l u s i v e ) . The i n d i r e c t employment generation tends to be concentrated i n service and a l l i e d sections of the t e r t i a r y sector of the economy. Sales and payrolls could also be categorized according to the three main sectors above, and r e f l e c t the same concentration as employment as the following Table IX indicates: Table IX Breakdown of PNE Complex Sales, Payrolls and Employment by Three Main Sectors of the Economy, 1977 Sector % of Sales % of Payrolls % of Employment Primary .57 .16 .88 Secondary 25.37 27.46 34.51 Tert i a r y 74.06 72.38 64.61 Total 100.00 100.00 100.00 Source: % breakdowns were calculated from summing by sector the i n d i r e c t impacts i n each of the three categories l i s t e d 1 . Each category then represents a % of the t o t a l i n d i r e c t impact. - 122 -Of the employment generated i n the t e r t i a r y sector, 35% occurs i n hotels, motels, restaurants and other service industries. These jobs are similar to the PNE Complex jobs i n that they tend to be un s k i l l e d or semi-skilled and employ a high percentage of women. E. Total Impact The t o t a l impact of the PNE Complex was derived from the sum of the d i r e c t and i n d i r e c t impacts. Table X summarizes the t o t a l impact of the Complex: Table X Direct and Indirect Impact of the PNE Complex, 1977 Impact Direct Indirect Total Employment* 1 1,691 1,116 2,808 Payrol l s * * $19,883,177 $13,759,832 $33,643,009 Sales $33,109,268 $36,187,676 $69,296,944 * Employment i n man-years ** Payrolls i n $. Source: Direct employment - man-years generated by PNE Complex i n 1977. Indirect Employment - see Table VI. Direct Payrolls = sum of a l l payrolls i n the Complex plus 9 0% of the racetrack purse. Indirect Payrolls - see Table V. Direct Sales - t o t a l sales revenues of the Complex gathered by interview. Indirect Sales - see Table IV. The table can b r i e f l y be summarized thus; 1. The PNE Complex generated approximately 3,000 man-years of employment i n 1977; 1,691 man-years are d i r e c t l y related to the Complex ( i . e . about 6 0% - 123 -was d i r e c t l y attributable to the Complex).,. 2. This employment generated payrolls of $33,643,009 (.33.6 m i l l i o n dollars), i n 1977, with over half (.19.8 million), d i r e c t l y related to the Complex. 3. Sales and revenues generated by the PNE Complex in 1977 t o t a t l e d $69,386,944 (.69.3 m i l l i o n d o l l a r s ) . Direct sales amounted to $33,109,268 (.33.1 m i l l i o n d o l l a r s ) . It should be noted that i n determining the sales/ purchase relationships between the PNE Complex and the greater Vancouver area, only those goods produced and/or processed i n the region were i n c l u d e d . 1 1 A l l sales of items produced and/or processed from outside the region were excluded, e.g. only 13% of a l l food purchases are r e f l e c t e d i n the above figures since only 13% of the food purchased was produced i n the region. Tobacco products are wholly excluded, but 8 5% of a l l lumber products are included. The m u l t i p l i e r s for the above employment and payrolls are 1.66 and 1.69 respectively. The m u l t i p l i e r s are 11. The Metropolitan Vancouver Input-Output Model contains c o e f f i c i e n t s which account for wholesale handling and d i s t r i b u t i o n of goods within the region. The wholesale trade sector has thus been b u i l t into the sales m u l t i p l i e r s used i n the analysis. - 124 -derived by dividing d i r e c t employment and payrolls into the t o t a l employment and payrolls for the entire Complex. The m u l t i p l i e r s indicate that: 1. for every man-year of employment i n the PNE Complex ...66 man-years of employment are generated in the greater Vancouver area; 2. for every $1 of income earned i n the Complex, 69 cents of sales are generated i n the greater Vancouver area. Again i t should be emphasized that the t o t a l sales impacts presented here measure both sales to f i n a l consumption and sales of commodities which w i l l undergo further processing within the region. V. CONCLUSION The objective of th i s case study was to arr i v e at quantitative indicators which would accurately estimate the impact of the PNE Complex on the greater Vancouver area. To analyse the impact of the PNE Complex on the regional economy, the d i r e c t and i n d i r e c t impact of sales, payrolls and man-years of employment were i s o l a t e d . Further indicators i s o l a t e d p a r t i c u l a r types of employment generated and s p e c i f i c sectors of the l o c a l economy which were es p e c i a l l y affected by the d i r e c t and i n d i r e c t impacts. The study dealt only with those impacts generated i n the l o c a l economy which would remain within the l o c a l economy. Certain leakages, however, such as those incurred by hotels, motels and restaurants owned and operated from outside the region were not documented. Furthermore, the study dealt only with backward linkages, i . e . those linkages which e x i s t i n order that the PNE function i n i t s various capacities. Recognizing the l i m i t a t i o n s of the data, i . e . that i t could not incorporate forward linkages and that i t was not t o t a l l y comprehensive, and recognizing the s t a b i l i t y assumption i n applying a model developed i n 1971 to 1977 data, i t i s maintained the results from the above study are a reasonable in d i c a t i o n of the impact of the PNE Complex on the lower mainland economy. Payroll/employment r a t i o s were adjusted to r e f l e c t 1977 conditions; sales/purchase data were c o l l e c t e d in actual 1977 d o l l a r values. Changes i n the c o e f f i c i e n t s of the impact model applied due to changes i n technology, import substitution, product mix and the location of new firms within the l o c a l economy, were simply outside the scope of the study. - 126 -CHAPTER FIVE  CONCLUSION I. INTRODUCTION Regional economic impact analysis has been defined i n t h i s thesis as a quantitative approach used to measure the impact of changes^ i n the economy. I t has been stressed i n the thesis that the value of regional economic impact analysis i s the information which i t generates and that t h i s information must be presented with a clear understanding of i t s meaning and i t s l i m i t a t i o n s . The usefulness of t h i s type of analysis cannot be f u l l y assessed, however, u n t i l i t i s placed i n the context of regional planning and po l i c y formulation. The following chapter considers the role of regional economic impact analysis i n the regional planning and development processes. I I . REGIONAL ECONOMIC IMPACT ANALYSIS AND REGIONAL PLANNING  The case study presented i n t h i s thesis i l l u s t r a t e s the relationship between a complex i n s t i t u t i o n and the regional economy. The influence of such an i n s t i t u t i o n , or indeed any major project extends, as the case study demonstrates, much further than the mere d i r e c t employment offered by i t to the l o c a l labour market. Because these projects do have a s i g n i f i c a n t influence in the regional economy, they must be seen as an in t e g r a l part of the development process of a region. As such, they are of concern to regional planners. - 127. -An important stage i n the regional planning process i s evaluation. Evaluation i s "a procedure by means of which the pros and cons of alternative projects are described i n a l o g i c a l framework so as to assess t h e i r various net benefits"."'' Evaluation studies take place within the context of quite e x p l i c i t planning objectives and p o l i c i e s . Through evaluation studies, options are explored, alternatives considered, and proposals tested against e x i s t i n g objectives. Evaluation methodologies are dependent upon s c i e n t i f i c types of information which range from intangible s o c i a l conceptions to e x p l i c i t l y i s o l a t e d " f a c t s " . The importance of impact analysis i s i t s a b i l i t y to provide some of t h i s information. An impact study i s a useful source of information necessary to plan, to adjust or accommodate for the inevitable impact of s o c i a l , physical and economic change in the region. As such, impact analysis i s e s s e n t i a l l y a descriptive approach to analysis. That these studies can be predictive does not a l t e r the fact that they are descriptive rather than 2 evaluative i n nature. 1. P. Nijkamp and A. Van D e l f t , M u l t i - C r i t e r i a Analysis  and Regional Decision Making (Leiden, H. E. Stenfert Kroese B.V.,:1977), p.6.. 2. W. G. Waters II , "Impact Studies and the Evaluation of Public Projects", The Annals of Regional Science, March 1976, p.100. - 128 -An impact study i s a c a r e f u l documentation which attempts to u s e f u l l y describe exi s t i n g r e l a t i o n s and to measure change by organizing and abstracting from empirical evidence and applying both technical s k i l l s and l o g i c a l , a n a l y t i c a l thought. The impact studies may be s o c i a l , physical (environmental) and economic, or a combination thereof. The "facts" presented i n an impact analysis do not speak for themselves - they have to be interpreted. Since these facts are not pure, they do not suggest unqualified p o l i c y implications. Their value i s conceptual, i . e . within an e x i s t i n g planning framework. The "facts" presented i n an impact study must be c a r e f u l l y s crutinized. Regional economic impact analysis, which has been the focus of t h i s thesis, can be used to consider the following areas: 1. The repercussions of changes i n one sector of the economy on other sectors. 2. Linkages among sectors of the economy. 3. The magnitude of i n i t i a l economic impacts plus the economic reverberations which accompany development projects. 4. Leakages from the regional economy. 5. Industrial and demographic trends. - 129 -At present t h i s information i s used as an educative tool to gain an understanding of the economic relationships at work i n the region, and as a component i n cost-benefit, cost-effectiveness and other technical frameworks presented for use by regional decision-makers. I I I . THE CONTEXT OF THE PNE CASE STUDY . The PNE case study i s i l l u s t r a t i v e of the a b i l i t y of the input-output model to answer s p e c i f i c impact questions, despite the p r a c t i c a l and t h e o r e t i c a l constraints under which the analyst worked. The study was to demonstrate the significance of the PNE Complex in the lower mainland by i s o l a t i n g income, employment and expenditure impacts generated i n the regional economy due to the presence of that Complex. Given the nature of the regional economy, an ex i s t i n g model, the Metropolitan Vancouver Input-Output Model, was chosen by the analyst. The most serious constraints i n the study were time and data a v a i l a b i l i t y . The study had to be completed i n f i v e weeks. 1977 was chosen as the base year because h i s t o r i c a l data could be gathered for that year from company records. I t i s argued i n Chapter IV that the study methodology developed by the analyst and the use of an ex i s t i n g model answers with reasonable accuracy the study questions, despite recognized p r a c t i c a l and th e o r e t i c a l constraints. - 130 -The PNE regional economic impact analysis i s also a p r a c t i c a l and useful source of information i n the evaluative stages of the planning process. Clearly the study has given the PNE Society c r e d i b i l i t y i n i t s claim that the influence of the Complex in the region extends considerably further than the mere d i r e c t employment offered by the Complex to the l o c a l labour market. Regional decision-makers are able to incorporate the study into evaluative frameworks which weigh the benefits of the e x i s t i n g PNE Complex to the regional economy i n terms of income and employment against the costs to the region i n the provision of services to the PNE Complex and the surrounding area. From the cost-benefit scenario, regional planners can project a possible framework should the Multiplex proposal mentioned i n Chapter I go ahead. The analysis provides regional planners with information with which to examine the presence and impacts of large-scale non-profit i n s t i t u t i o n s such as the PNE Complex against established.,developmental goals for the region. I t may also be used to compare the impacts of t h i s type of project with the impacts of other types of development projects, such as a trade and/or - 131 -convention centre. The contextual value of the study i s therefore evaluative. IV. SOME PROBLEMS ASSOCIATED WITH THE USE OF REGIONAL ECONOMIC IMPACT ANALYSIS There are problems associated with the use of regional economic impact analysis. One problem i s that the t h e o r e t i c a l constraints and l i m i t a t i o n s of the models used to derive m u l t i p l i e r values are often forgotten. These constraints and l i m i t a t i o n s must be acknowledged as sources of inaccuracy i n the model estimates and the information i n the studies must be considered i n l i g h t of these possible inaccuracies. A second problem i s the i m p l i c i t assumption i n the presentation and use of the information i n impact studies that, should the studied project cease to e x i s t , the employment, income and expenditure generated by the project would also cease to e x i s t . The above i s u n l i k e l y , but i n many cases time, budget and data constraints prevent the consideration of opportunities foregone i n the impact studies. This l i m i t a t i o n must be acknowledged when the study information i s incorporated into an evaluation framework. A t h i r d problem i s that without knowledge of the l o c a l economy, i t becomes d i f f i c u l t to assess whether i n t e r n a l - 132 -forces and the studied project are complementary or competing sources of growth. A changing i n d u s t r i a l structure, changing propensities to import, changes in productivity and technology, might well disturb various s t a b i l i t y assumptions i n the models. A study of regional economic impact should present the actual impact analysis of the project within the context of the l o c a l economy. The study presentation should therefore have two parts: 1. The Project - The project i t s e l f must be studied to determine i t s e x i s t i n g and/or potential impacts in such areas as employment, income and expenditure. Chapter IV of t h i s thesis i s a good example of th i s part of the study. 2. The Local Economy -r .A b r i e f analysis of the l o c a l economy should be presented so that decision-makers can more e a s i l y assess the influence of the impacts of the project studied on an i n d u s t r i a l structure which i s continually changing. This section of the study should include a b r i e f analysis of the regional economic system, including such aspects as i n d u s t r i a l structure and growth trends, trends in the population of the study area, and the state of the labour market. Brownrigg's study of the University of S t i r l i n g i s an example of t h i s type of analysis. - 133 -In the case of the PNE Complex study, three comments should be made about the use of t h i s study. The f i r s t i s that the study i s educative i n the sense that i t i s a study of a large-scale non-profit i n s t i t u t i o n and, as such, represents an area l i t t l e studied but widely recognized to be a s i g n i f i c a n t influence on the regional economy. Secondly, the study could be considered to be incomplete. An economic impact study i s a very singular source of information from a planning point of view. This study could be a component of a study which also considers the s o c i a l and physical impacts of the PNE Complex. Thirdly, the study should be supplemented by a section such as mentioned above on the l o c a l economy, which w i l l a s s i s t decision-makers i n t h e i r assessment and evaluation of the project i n the c-ntext of the region-as a whole. V. CONCLUSION This thesis i s a study of regional economic impact analysis as applied to a large-scale non-profit i n s t i t u t i o n . The case study i s an i l l u s t r a t i v e approach to the selection of an appropriate impact methodology and i t s subsequent application. I t i s a valuable example of the way i n which a complex i n s t i t u t i o n interacts i n a regional economy and consequently af f e c t s the economic well-being of the study area. - 134 -APPENDIX A The PNE Complex: 1. The P a c i f i c National Exhibition and Independents 2. The Racetrack a. The Jockey Club b. Toncessionaire Company c. The B.C. Racing Commission d. H.B.P.A. e. The B.C. Thoroughbred Breeders Association 3. The Midway and Independents a. Burrard Amusements b. Oaks Park Amusements Ltd. c. Sky Glider Recreations Ltd. d. Plus forty-two rides, shows, concessions. 4. Sports a. The B.C. Lions b. The Vancouver Canucks c. The Vancouver Whitecaps d. Other sports a c t i v i t i e s 5. Trade/Consumer and other shows* a. Rock Concerts (twenty-nine) b. Religious Assembly (four). c. Dog Shows (four). d. Northwest International Horseshow e. Arabian Horse Show - 135 -f. The Home Show g. The G i f t Show h. Recreational Vehicles Show i . The Boat Show j . Link Hardware k. F e s t i v a l of Forestry 1. Motorama m. Speed Sport Show n. Western Construction Time constraints prevented the inclu s i o n approximately f i v e of the smaller shows. - 136 -SELECTED BIBLIOGRAPHY Andrews, R.B., "Mechanics of Urban Economic Base; H i s t o r i c a l Development of the Base Concept", Land  Economics, May 19-53: 161-167, Archer, B.H., "The Anatomy of a Mu 11ip 1 i.er!!," Regional Studies,, Vol.10, 1976: 71-77. * Archer, B.H. and Owen, Christine, B, , "Toward a Touri.s;t Regional Mu 11 ip 1 i.e r" , Regional Studies;,. Vol. 5 f 1971: 224-294. Archibald, G.C. , ."Regional M u l t i p l i e r E f f e c t s i n the U,K,", Oxford Economic Papers, March., 19.6.7: 22-45., Bendavid, Avrom, Regional Economic Analysis for Practitioners., (New York: N.Y,: Praeger Publishers Inc,, 1974), B i l l i n g s , R.B. "The Mathematical Identity of the M u l t i p l i e r s Derived from the Economic Base Model and the Input Output Model", Journal pf Regional Studies, Vol. 9.., 1969: 471-478. 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Manning, Sherry, and Viscek, David, "Measuring the Economic Impact of a Community College System", Growth and Change, 1976: 112-119. Mathur, V.K. and Rosen, H.S. "Regional Employment M u l t i p l i e r : A New Approach", Land Economics, 50:1, 1974: 93-96. Miernyk, William, H., The Elements of Input-Output Analysis, (New York, Random House: 1965). Moore, Craig, L. and Sufrin, Sidney, C., "The Impact of Non-Profit In s t i t u t i o n s on Regional Income", Growth  and Change, January 1974: 36-40. Oakland, William, H. et a l . , "Ghetto M u l t i p l i e r s : A Large Study of Hough", Journal of Regional Science, Vol.11, No. 3: 1971. Polenske, K.R. and Skolka, J.V., Advances i n Input-Output  Analysis, (Cambridge, Mass.: Ballinger Publishing Company, 1976_. Richardson, Harry, H. Elements of Regional Economics, (Middlesex, England: C. Nicholls & Co. Ltd., 1969). Richardson, H.W., Input-Output and Regional Economics, (Towbridge, W i l t s h i r e : Redwood Press Ltd.: 1972). 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Tiebout, Charles., M. , The Community Economic Base Study, Supplementary Paper No. 16, New York Committee • j . . for Economic Development, 1962. Te i t z , Michael, B., "Toward a Theory of Urban Public F a c i l i t y Location" Papers of the Regional Science  Association, Vol.XXI, 1968: 33-51. Weiss, S.J. and Gooding, E.C.,. "Estimation of D i f f e r e n t i a l Employment M u l t i p l i e r s i n a Small Regional Economy", Land Economics, 1968: 235-244. Wilson, J. Holton, and Moore, Craig, L. and Sufrin, Sidney, "The Impact of a Non-Profit I n s t i t u t i o n on Regional Income: A Discussion", Growth and Change, July 1975: 45-48. Wilson, J. Holton, "Impact Analysis and M u l t i p l i e r S p e c i f i c a t i o n s " , Growth and Change, July 1977: 42-46. Wilson, J. Holton, "The Impact of a Non-Profit I n s t i t u t i o n on Regional Income: A Discussion", Growth and Change, July 1975: 45-46. Wilson, J. 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