What are the ultimate economic effects of a new museum, a new sports stadium, the expansion of a zoo, the building of a new store, or the development of a new airport? What are the contributions to the local economy from a university, a research and development center, a business incubator, a bookstore, a local attraction, a new mass transit system, or a library?

The term “economic impact analysis” refers to rigorous surveys, research, and modeling to estimate the direct and indirect economic effects of an entity or event on the local, county, state, or U.S. economy, as measured by employment, tax revenue, income, or gross product (overall economic output).

The impact of an economic event is the summation of direct effects and indirect effects. For example, when a hundred dollars is invested in building a new library in a city, that money (the stimulus) flows through the local economy multiple times as construction supplies are purchased, and as construction workers spend their paychecks at local supermarkets, restaurants, and other retailers, who in turn buy more inventory, and so on. That is, an initial stimulus triggers a chain of spending. This chain of spending is estimated via multipliers.

Multipliers are derived from input-output analysis of an economic system. Input-output analysis measures how all of the major variables in an economic system interact. Russian-born American economist Wassily Leontief is generally credited with the development of input-output analysis, although other economists played formative roles. Leontief envisioned an economic system as a matrix of inputs and outputs. One industry’s outputs are inputs to other industries, and vice versa. Input-output analysis measures all of the linkages and flows within the matrix (the economy). Based on these linkages and flows, the cumulative effect of any given stimulus (or change) can be derived. This is how multipliers are calculated.

The last concept is leakage, or erosion. A given stimulus to an economic system does not go on forever as a cumulative chain of spending because of leakage or erosion. Examples of erosion could include taxes, money spent outside of the local economy, and savings of any type (i.e., money not recycled).

When these variables are combined (stimulus, multipliers, and erosion), the economic impact of a given event, entity, or program can be estimated. One of the keys to accurate estimation is precise measurement of direct effects, and usually these direct effects (or spending patterns) must be determined by scientific surveys of the target population (i.e., visitors to a library or sports stadium). Optimize Data Analytics is one of the leading survey research firms in the world, and our survey expertise provides the precise spending measurements that underlie sound economic analysis.