REGIONAL MULTIPLIERS - Bureau Of Economic Analysis

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REGIONAL MULTIPLIERSA User Handbook for the Regional Input-Output Modeling System (RIMS II)Third EditionMarch 1997U.S. DEPARTMENT OF COMMERCEWilliam M. Daley, SecretaryECONOMICS AND STATISTICS ADMINISTRATIONEverett M. Ehrlich, Under Secretary for Economic AffairsU.S. DEPARTMENT OF COMMERCEBUREAU OF ECONOMIC ANALYSISBUREAU OF ECONOMIC ANALYSISJ. Steven Landefeld, DirectorBetty L. Barker, Deputy DirectorFor sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402

IntroductionEffective planning for public- and private-sector projectsand programs at the State and local levels requires a systematic analysis of the economic impacts of the projectsand programs on affected regions. In turn, systematicanalysis of economic impacts must account for the interindustry relationships within regions because theserelationships largely determine how regional economiesare likely to respond to project and program changes.Thus, regional input-output (I-O) multipliers, which account for interindustry relationships within regions, areuseful tools for regional economic impact analysis.In the 1970’s, the Bureau of Economic Analysis (BEA)developed a method for estimating regional I-O multipliers known as RIMS (Regional Industrial MultiplierSystem), which was based on the work of Garnick andDrake.1 In the 1980’s, BEA completed an enhancement ofRIMS, known as RIMS II (Regional Input-Output Modeling System), and published a handbook for RIMS IIusers.2 In 1992, BEA published a second edition of thehandbook, in which the multipliers were based on morerecent data and improved methodology. Now, BEA ismaking available a third edition of the handbook, in response to requests by users for additional discussion ofthe data that they must provide in order to use RIMS IIand of the data sources and methods used for multiplierestimation. The multipliers in the third edition reflect I-Odata for 1987, the most recent benchmark year for whichBEA’s national I-O data are available.RIMS II is based on an accounting framework calledan I-O table. For each industry, an I-O table shows thedistribution of the inputs purchased and the outputs sold.A typical I-O table in RIMS II is derived mainly from twodata sources: BEA’s national I-O table, which shows theinput and output structure of nearly 500 U.S. industries,and BEA’s regional economic accounts, which are used to1. See Daniel H. Garnick, “Differential Regional Multiplier Models,” Journal of Regional Science 10 (February 1970): 35–47 ; and Ronald L. Drake, “AShort-Cut to Estimates of Regional Input-Output Multipliers,” InternationalRegional Science Review 1 (Fall 1976): 1–17.2. See U.S. Department of Commerce, Bureau of Economic Analysis,Regional Input-Output Modeling System (RIMS II): Estimation, Evaluation,and Application of a Disaggregated Regional Impact Model(Washington, DC:U.S. Government Printing Office, 1981); and U.S. Department of Commerce,Bureau of Economic Analysis, Regional Multipliers: A User Handbook forthe Regional Input-Output Modeling System (RIMS II)(Washington, DC: U.S.Government Printing Office, 1986).adjust the national I-O table in order to reflect a region’sindustrial structure and trading patterns.3Using RIMS II for impact analyses has several advantages.4 RIMS II multipliers can be estimated for anyregion composed of one or more counties and for anyindustry or group of industries in the national I-O table.The cost of estimating regional multipliers is relativelylow because of the accessibility of the main data sourcesfor RIMS II. According to empirical tests, the estimatesbased on RIMS II are similar in magnitude to the estimatesbased on relatively expensive surveys.5To effectively use the multipliers for impact analysis, users must provide geographically and industriallydetailed information on the initial changes in output,earnings, or employment that are associated with the projector program under study. The multipliers can then be usedto estimate the total impact of the project or program onregional output, earnings, or employment.RIMS II is widely used in both the public and privatesector. In the public sector, for example, the Departmentof Defense uses RIMS II to estimate the regional impactsof military base closings, and State departments of transportation use RIMS II to estimate the regional impacts ofairport construction and expansion. In the private sector,analysts, consultants, and economic development practitioners use RIMS II to estimate the regional impacts ofa variety of projects, such as the development of themeparks and shopping malls.This handbook comprises three additional sections oftext and five appendixes. In the second section, the typesof RIMS II multipliers are discussed, and examples oftheir use are presented. In the third section, the information that users of RIMS II must provide and the properuse of RIMS II multipliers are discussed. In the fourth3. See U.S. Department of Commerce, Bureau of Economic Analysis,Benchmark Input-Output Accounts of the United States, 1987(Washington,DC: U.S. Government Printing Office, 1994); and U.S. Department of Commerce, Bureau of Economic Analysis, Local Area Personal Income, 1969–92(Washington, DC: U.S. Government Printing Office, 1994).4. For a discussion of the limitations of using I-O models in impact analysis,see Daniel M. Otto and Thomas G. Johnson, Microcomputer-Based InputOutput Modeling(Boulder, CO: Westview Press, 1993), 28–46.5. See Regional Input-Output Modeling System (RIMS II), 39–57 ; andSharon M. Brucker, Steven E. Hastings, and William R. Latham III, “TheVariation of Estimated Impacts from Five Regional Input-Output Models,”International Regional Science Review 13 (1990): 119–39.1

2REGIONAL MULTIPLIERSsection, four hypothetical case studies that illustrate useof the multipliers are presented; the case studies focus onestimating the regional economic impacts of constructing and operating a sports facility, closing and convertinga military base, closing a motor vehicle manufacturing plant, and opening a glass-container manufacturingplant.In appendix A, the data sources and methodsused in estimating the RIMS II multipliers are discussed, and a list of suggestions for further reading ispresented.Appendix B presents a list of the detailed industries forwhich multipliers are available, and appendix C presentsa list of the industry aggregations for which multipliersare available.Appendix D presents a sample of one of the fourdetailed-industry tables that are available from RIMS II,and it presents a sample of one of the four aggregateindustry tables that are available. Appendix E presentsinformation on BEA economic areas, which can helpRIMS II users in their choice of regions for impactanalysis.Availability of Regional I-O Multipliers From RIMS IIFor any region composed of one or more counties, RIMS II can provide two series of tables of I-O multipliers: Series 1 is for detailedindustries, and series 2 is for industry aggregations. Each series consists of four tables: (1) Output multipliers, (2) earnings multipliers, (3)employment multipliers, and (4) total final-demand multipliers for output, earnings, and employment and total direct-effect multipliers forearnings and 2.4.Type of multiplierFinal-demand output multipliers .Final-demand earnings multipliers .Final-demand employment multipliers .Total final-demand output, earnings, and employmentmultipliers and total direct-effect earnings and employment multipliers.Final-demand output multipliers .Final-demand earnings multipliers .Final-demand employment multipliers .Total final-demand output, earnings, and employmentmultipliers and total direct-effect earnings and employment multipliers.Industry composition38 row industries and 471 column industries38 row industries and 471 column industries38 row industries and 471 column industriesTotals of 471 row industries38 row industries and 38 column industries38 row industries and 38 column industries38 row industries and 38 column industriesTotals of 38 row industriesThe prices of the tables (two series per region) are on a descending scale, starting at 1,500 per region for the first region ordered. For furtherinformation or to place an order, e-mail [email protected], call (202) 606–5343, or write to Regional Economic Analysis Division,BE-61, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230.

RIMS II Multipliers for Output, Earnings,and EmploymentRIMS II provides users with five types of multipliers:Final-demand multipliers for output, for earnings, andfor employment and direct-effect multipliers for earningsand for employment. These multipliers measure the economic impact of a change in final demand, in earnings,or in employment on a region’s economy.6 This sectiondefines the RIMS II multipliers and gives brief examplesof their use. (For a detailed discussion of the sourcedata and methods used in the derivation of the RIMS IImultipliers, see appendix A.)Final-Demand Multipliers for OutputThe final-demand multipliers for output are the basic multipliers from which all the other RIMS II multipliers arederived. They are presented in the final-demand outputmultiplier table. (For a sample of this table, designatedas table 1.1, see appendix D.) In this table, each columnentry indicates the change in output in each row industry that results from a 1 change in final demand in thecolumn industry. The impact on each row industry iscalculated by multiplying the final-demand change in thecolumn industry by the multiplier for each row. The totalimpact on regional output is calculated by multiplying thefinal-demand change in the column industry by the sumof all the multipliers for each row except the householdrow.7For example, suppose that final demand in the foodproducts machinery industry in the Kansas City BEA economic area (hereafter called the Kansas City economicarea) increases by 1 million.8 The effect of this increasein output on output in each industry in the economic6. The term “change in final demand,” rather than the “change in outputdelivered to final users,” is used in this handbook because of its widespread usein regional impact analysis.The impact of an increase in final demand, earnings, or employment differsfrom that of a decline only by the sign of the impact.7. The household row is excluded to avoid double counting, because eachof the other row entries already includes earnings paid to households.8. For a listing of the 1721A BEA economicareas and associated metropolitan areas, see appendix E . For a discussion of the procedure used to definethe BEA economic areas, see Kenneth P. Johnson, “Redefinition of the BEAEconomic Areas,” SURVEY OF CURRENT BUSINESS 75 (February 1995): 75–81.area is calculated from the column of final-demand output multipliers for the food products machinery industry(summarized in column 1 in table A ).9 According to thesecalculations, the output of the farm products and agricultural, forestry, and fishing services industry increasesby 15,000 (0.0150 times 1 million); the output of theindustrial machinery and equipment industry, which includes the food products machinery industry, increasesby 1.0393 million (1.0393 times 1 million); and totaloutput in the economic area increases by 2.0655 million(2.0655 times 1 million).Table A.—Final-Demand Multipliers for the Food Products Machinery Industry, Kansas City, MO-KS Economic AreaOutput(dollars)Earnings(dollars)Employment 1(jobs)(1)(2)(3)Farm products and agricultural, forestry, andfishing services .Industrial machinery and equipment .All other industries 1743Total .2.0655.609124.3332Industry1. The employment multiplier is measured on the basis of a 1 million change in outputdelivered to final demand.Multipliers for EarningsRIMS II provides two types of multipliers for estimatingthe impacts of changes on earnings: Final-demand multipliers and direct-effect multipliers. These multipliers arederived from the table of final-demand output multipliers.The final-demand multipliers for earnings can be usedif data on final-demand changes are available. In thefinal-demand earnings multiplier table, each column entryindicates the change in earnings in each row industry thatresults from a 1 change in final demand in the columnindustry. The impact on each row industry is calculatedby multiplying the final-demand change in the columnindustry by the multiplier for each row. The total impact9. For the complete final-demand output multiplier table for this economicarea, see RIMS table 1.1 in appendix D.3

4REGIONAL MULTIPLIERSon regional earnings is calculated by multiplying the finaldemand change in the column industry by the sum of themultipliers for each row.For example, the effect of a 1 million increase infinal demand in the food products machinery industry onearnings in each industry in the Kansas City economicarea is calculated from the multipliers for earnings incolumn 2 in table A . According to these calculations,earnings in the farm products and agricultural, forestry,and fishing services industry increases by 3,600 (0.0036times 1 million); earnings in the industrial machineryand equipment industry increases by 307,200 (0.3072times 1 million); and total earnings in the economic areaincreases by 609,100 (0.6091 times 1 million).The direct-effect multipliers for earnings can be usedif data on the initial changes in earnings by industry areavailable. In the direct-effect earnings multiplier table,each entry indicates the total change in earnings in theregion that results from a 1 change in earnings in therow industry. The total impact on regional earnings iscalculated by multiplying the initial change in earningsin the row industry by the multiplier for the row.For example, suppose that output in the food productsmachinery industry in the Kansas City economic area increases so that workers in the industry will have additionalannual earnings of 1 million. The effect of this increaseon total earnings in the economic area is calculated bymultiplying the initial change in earnings of 1 million bythe multiplier in the row for the food products machineryindustry in the direct-effect earnings multiplier table. Themultiplier is 2.0829, so the total impact on the economicarea is an earnings increase of 2.0829 million (2.0829times 1 million).10Multipliers for EmploymentRIMS II provides two types of multipliers for estimatingthe impacts of changes on employment: Final-demandmultipliers and direct-effect multipliers. These multipliers are derived from the table of final-demand outputmultipliers.The final-demand multipliers for employment can beused if data on final-demand changes are available. Inthe final-demand employment multiplier table, each column entry indicates the change in employment in eachrow industry that results from a 1 million change in finaldemand in the column industry. The impact on each rowindustry is calculated by multiplying the final-demandchange in the column industry by the multiplier for each10. The multiplier is from RIMS table 1.4, which is not included in thishandbook.row. The total impact on regional employment is calculated by multiplying the final-demand change in thecolumn industry by the sum of the multipliers for eachrow.For example, the effect of a 1 million increase in finaldemand in the food products machinery industry on employment in each industry in the Kansas City economicarea is calculated from the multipliers for employmentin column 3 in table A . According to these calculations, employment in the farm products and agricultural,forestry, and fishing services industry increases by 0.2846jobs (0.2846 times 1 for each 1 million change in final demand); employment in the industrial machineryand equipment industry increases by 9.8743 jobs (9.8743times 1); and total employment in the economic areaincreases by 24.3332 jobs (24.3332 times 1).The direct-effect multipliers for employment can beused if data on the initial changes in employment byindustry are available. In the direct-effect employmentmultiplier table, each entry indicates the total changein employment in the region that results from a changeof one job in the row industry. The total impact onregional employment is calculated by multiplying the initial change in employment in the row industry by themultiplier for the row.For example, suppose that output in the food productsmachinery industry in the Kansas City economic areaincreases so that 1,000 new jobs in the industry are created. The effect of this increase on total employment inthe economic area is calculated by multiplying the initialchange in employment of 1,000 jobs by the multiplier inthe row for the food products machinery industry in thedirect-effect employment multiplier table. The multiplieris 2.601, so the total impact on the economic area is 2,601new jobs (2.601 times 1,000).11Choosing a MultiplierThe choice of multiplier for estimating the impact of aproject on output, earnings, and employment depends onthe availability of estimates of the initial changes in finaldemand, earnings, and employment. If the estimates ofthe initial changes in all three measures are available, theRIMS II user can select any of the RIMS II multipliers. Toassess the reasonableness of the impact estimates basedon the multiplier selected, the user can compare these estimates with the estimates based on the other multipliers.In theory, all the impact estimates should be consistent.1211. The multiplier is from RIMS table 1.4, which is not included in thishandbook.12. The impact estimates based on the product of the initial change in finaldemand and the final-demand multiplier for earnings (or employment) reflect

REGIONAL MULTIPLIERSIn theory, all the impact estimates should be consistent.12If the available estimates are limited to initial changes infinal demand, the user can select a final-demand multiplier for impact estimation. If the available estimates arelimited to initial changes in earnings or employment, theuser can select a direct-effect multiplier.1312. The impact estimates based on the product of the initial change in finaldemand and the final-demand multiplier for earnings (or employment) reflectnational average relationships between output and earnings (or employment).In contrast, the impact estimates based on the product of the initial changein earnings (or employment) and the direct-effect multiplier for earnings (oremployment) reflect regional relationships between output and earnings (or employment). If the regional relationships differ from the national relationships,the two sets of estimates will differ and the estimates based on the direct-effectmultipliers are preferable.13. In this instance, the user typically estimates earnings or employmentimpacts. However, by converting the initial changes in earnings or employment5In some instances, such as estimating the impact ofshutting down an industry in a region, the user must selectthe output-driven multiplier for impact estimation.14 Theoutput-driven multiplier measures the change in output ineach row industry that results from a 1 change in totalindustry output in the column industry under study. Usingthe output-driven multiplier instead of the final-demandoutput multiplier ensures that the impact of the industry’sshutdown on its own output will not exceed that output.into final-demand changes, the us

Thus, regional input-output (I-O) multipliers, which ac-count for interindustry relationships within regions, are useful tools for regional economic impact analysis. In the1970’s, theBureau of EconomicAnalysis(BEA) developed a method for estimating regional I-O multi-pliers known as RIMS (Regional Industrial Multiplier