Toolbox
Economic Impact Analysis
Toolbox Themes
- Urban Nature
- Sustainable Urban Mobility
- Urban Finance
Objectives
To analyse and assess how the expected project-related investments in certain economic sectors can ripple throughout other sectors, providing a comprehensive understanding of potential direct, indirect, and induced effects in the city’s economy.
Results
A comprehensive report detailing the potential economic impacts of a project or initiative included in the plan
Identification of key sectors that might be most affected
Projection of employment and output effects related to the project
Description
The Economic Impact Analysis (EIA) leverages the intricacies of the input-output tables that national authorities, bureaus and institutes of statistics tend to conduct regularly, revealing interrelationships within the national economy. It examines how activities in one sector affect other sectors, both as suppliers (input) and consumers (output). Given the interrelated nature of economic affairs, an injection (or withdrawal) of capital in, let’s say, the construction sector will also impact directly (hiring employees and buying materials) and indirectly (generating income in its suppliers) other sectors such as financial and insurance activities, information and communication, or electricity, gas, steam and air conditioning supply. Therefore, this tool will assist municipalities in understanding the broader implications of the implementation of the strategic projects and initiatives included in the plan, providing them with data-driven insights to make informed decisions.
The process encompasses the use of various matrices such as the Intermediate demand matrix, Final demand matrix, Value-added matrix, and Production matrix. It also utilises foundational elements like the Leontief and Identity matrices to derive the Leontief inverse, which then helps in calculating the multipliers, the coefficients that capture the impact an investment will have in the overall economy. The purpose of this process is to understand how the investment on the strategic project and initiatives can bring economic benefits to other sectors as well, creating an economic ripple effect.
By understanding these interrelationships and the potential multipliers, city planners and decision-makers can anticipate how projects may stimulate (or detract from) local economic activity, guiding them in making more strategically sound decisions, and preparing them better to present compelling project proposals to higher-level authorities or to potential donors and partners.
Note: The tools for this activity are currently under development and will include a comprehensive template and advanced analytical tools to facilitate a more user-friendly and efficient economic impact analysis process.
Steps
- Gather and analyse the existing input-output table (suppliers (input) and consumers (output)) for the relevant region or municipality.
- Define the project or initiative's economic input (e.g., the amount of investment or withdrawal).
- Utilise the Leontief Matrix to determine direct proportional relationships among various sectors.
- Apply the Identity Matrix and calculate the Leontief inverse to understand the cumulative effects.
- Derive multipliers to estimate the broader economic impact of the proposed change in spending or investment.
- Interpret the results and draft a comprehensive EIA report, detailing potential economic benefits, job creation, and other relevant impacts from the plan's implementation
- Present findings to stakeholders and incorporate feedback.
Resources
- Input-Output Analysis: Foundations and Extensions
- Encyclopedia of Social Measurement
- A Primer in Economic Multipliers and Impact Analysis Using Input-Output Models
- Supply, Use and Input-Output Tables
- A Guide to Input-Output Model Multipliers (Part 1)
- Handbook on Supply and Use Tables and Input Output-Tables with Extensions and Applications
- Guidelines on Impact Assessment for EU Lamfalussy Level 3
- Economic Impact Assessment: An Overview
- An Introduction to Economic Impact Assessment
- Saudi Vision 2030 Dynamic Input-Output Table: A Tool for Quantifying the Sustainable Development Targets of Saudi Arabia
Sustainable Urban Mobility
Sustainable urban mobility projects usually tend to have ripple effects that extend far beyond transport. For instance, an investment in BRT infrastructure can stimulate construction, boost retail around stations, and improve productivity by cutting travel time. Active transport projects, meanwhile, can increase foot traffic to small businesses, reduce household spending on transport, and improve public health. For road safety investments, economic impact assessments should calculate not only direct job creation but avoided costs, i.e., crash prevention, healthcare savings, and reduced lost productivity. Nature-based solutions such as green corridors along walking and cycling paths also contribute to economic resilience through flood protection and temperature regulation, benefits that should be captured in the analysis. For a full picture of benefits, sustainable urban mobility-related inputs such as infrastructure, modal shift and safety impact should be integrated into the Leontief matrix.
Urban Nature
When integrating NbS into an economic impact analysis using the Leontief Matrix, consider reviewing the results of the T75 Ecosystem Services Assessment to evaluate the ecosystem services provided, such as carbon sequestration, temperature regulation, and flood prevention. Use its findings to define relevant economic sectors and estimate changes in input-output relationships. Incorporate these adjustments into the Leontief Matrix to reflect how NbS influence productivity, risk reduction, and economic resilience. This approach ensures a more accurate representation of both direct and indirect economic benefits of NBS investments.
Additional Resources:
Measuring, Modeling and Valuing Ecosystem Services
Assessing the Benefits and Costs of Nature-Based Solutions for Climate Resilience: A Guideline for Project Developers (World Bank)
Nature-based Solutions Valuation Report (UNDP)
Nature-based Solutions Installation and Maintenance Costs