San José State University
Department of Economics

A Regional/Subregional Model of Economic Impacts

The Many Impacts of a Project

A project has a variety of economic impacts, some more relevant than others. It has those impacts at the regional as well as at the local (city) level. Consider a project which is a stadium for sporting and other entertainment events. At one level it provides the opportunity for local and regional residents to experience entertainments that otherwise would not be available locally. This is an important benefit to those residents and they demonstrate that the experiences provided are more valuable to them than the price of admission. The people who attend the events may also enhance their experience by purchasing refreshments at the event or meals at restaurants before or after the event.

In providing the entertainment and the other products and services associated with it the providers purchase locally goods and services, of if not locally at least regionally. All of the services and at least some of the goods are produced locally or regionally. That production leads to higher incomes for local and regional workers and business owners. And ultimately it leads to higher tax revenues for local governments.

The economic impacts relevant for local government decision-making are those that involve the stakeholders in the local economy. This of course includes the residents, but also would include business and property owners who might not be local residents. It would also include among the people who work in the local economy some who do not live locally. The different stakeholder groups would not be of equal importance for local government decision-making. Altogether the stakeholders encompass the local taxpayers as well as the residents.

Thus the economic impacts of a project would be a matrix of impacts as displayed below:

Direct Sales  
Direct and
Indirect Sales
Increase in
Increase in
Increase in
Increase in
Tax Revenues

Although the various economic impacts are related, one impact is not the same in magnitude or nature as the others. For public decision-making concerning a project the relevant impact is the change in local incomes. There would be no increase in local incomes if there were not an increase in local sales, but the increase in local sales is not the same as an increase in local income. Treating one economic impact as though it is another, related economic impact is an error.

The Importance of a Regional Perspective

Although the local impacts are the relevant ones the region cannot be left out of the picture. The indirect sales and the employment impacts are determinable regionally but not necessarily locally. The purchases of goods and services are presumed from regional suppliers without any preference for suppliers in the immediate local area. The local suppliers however get their share of the regional market. Thus a regional impact will encompass a local impact. The same applies for the jobs created by a project. The local labor market provides the labor force and that of course includes a share for the local labor force.

Proximity of suppliers may be an advantage but it is virtually impossible to get such detailed data and such patterns may change frequently and abruptly. The procedure is then to estimate the indirect regional impact of the direct local impact and then obtain the local impact as a share of the regional impact.

Illustration of the Model

Consider the Silicon Valley economy. San Jose and Silicon Valley constitute one of mere score of economic regions that are widely known throughout the world. Silicon Valley has been such a fountainhead of technical innovation in computer technology, both software and hardware, that it seems as though the rest of the world is standing still waiting for what it needs to be developed in the San Jose area.

The Silicon Valley essentially means Santa Clara County. The City of San Jose, which can be considered the capital of Silicon Valley, is a subregion of the Silicon Valley region. For an illustration of the regional/subregional model let us consider a conference that draws 1000 visitors. Conferences in San Jose have a strong and far-reaching drawing power. The numbers presented in this illustration are for a hypothetical conference but they are based upon information presented in The Economic Impact of Visitors to San Jose prepared for the San Jose Convention and Visitors Bureau by the Survey and Policy Research Institute at San Jose State University (November 2004).

Of the thousand visitors which the conference draws 300 will stay in San Jose hotels and motels. The other 700 will be guests in San Jose homes. The 300 guests in San Jose hotels and motels will stay on average 3.5 nights whereas the 700 guests in homes stay an average of 10.56 days. The hotel and motel guests spend $140.88 per person per day whereas the private home guests spend only $26.22 per person per day. The two groups of visitors generate a bit over $342 thousand dollars of direct sales. That includes the expenditures on meals in restaurants, entertainment and other purchases of goods and services. Those expenditures support employment and business income in the region and the recipients of that income spend it largely in the region and induce an increase in local production of goods and services of a bit over $156 thousand. Altogether the impact of the conference is an increase in production of almost a half million dollars in the region, Santa Clara County, of which about $354 thousand takes place in the city of San Jose. The Visitor's Study was done in 2004, so all amounts are effectively in 2004 value dollars. The figures are tabuled below.

Impacts of a Conference Drawing 1000 Visitors
 Guests of San Jose Hotels & Motels Guests of San Jose Households Totals
Number of People 300 700 1,000
Number of People-Nights of Stay 1,054 7,389 8,443
Direct Impact on Sales in San Jose $148,488 $193,707 $342,196
Induced Impact on Value Added Production in Santa Clara Co. $63,239 $92,965 $156,204
Total Impact, Direct, Indirect & Induced on Production in Santa Clara Co. $211,727 $286,672 $498,399
Total Impact, Direct, Indirect & Induced, on Production in San Jose $152,175 $201,595 $353,770

Although about $354 thousand of increased production of goods and services occurs in the city of San Jose not all of that goes to San Jose residents. A substantial fraction of the job in San Jose are held by people who live outside of the city. Even for Santa Clara County this is true. The 2000 Census indicates that about 22 percent of the jobs in Santa Clara County are held by residents of other counties.

(To be continued.)

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