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What Is Economic Impact Analysis?

K.C. Bruning
K.C. Bruning

An economic impact analysis is the study of several factors related to a new venture in order to determine how it will affect a region. This can include an area such as a neighborhood, city, county, or state. There are several kinds of ventures which can be analyzed in this manner, including new businesses, new locations for existing organizations, and significant facilities that tend to change a region, such as hospitals.

Some of the things that may be considered in an economic impact analysis include employment, taxes, and population changes. An analysis can also estimate how much money will come into and flow out of the region due to the new venture. Researchers may use surveys to gauge how the new development might be received by the surrounding population and what potential problems it may cause with the public as well.

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Businessman giving a thumbs-up

When making an economic impact analysis, researchers will usually attempt to forecast both the direct and indirect impact of the new venture. Direct effects may include income generated via taxes or new jobs created. Indirect effects could include increased spending due to a rise in employment or the development of new businesses to serve the venture.

Another important factor of an economic impact analysis is to forecast the long-term effect of the venture. A project that could give a boost to the economy in the short-term may not have the resources to last long enough to justify the investment. It may also need start-up resources, such as a larger operational staff, only in the early days of the venture, thus causing a dip in the local economy as it transitions into a long-term model.

When analyzing economic impact, a researcher may also consider statistics that relate to the new venture. For example, if a new stadium is being planned, the local government will want to know if the fan base for sports events is substantial enough to justify the cost. Other statistics can include past reaction to projects of a similar size and figures about the sorts of problems associated with a like venture in another region.

Another important part of economic impact analysis is counterfactual analysis. This method provides an opposing perspective on the impact of the venture. It consists of envisioning the area in question as if the new development never existed. By forecasting what a region would be like without the venture, researchers can make an estimate as to what problems and perks there would be if the project were not pursued.

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