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REVENUE IN THE REGION
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By Bryan Bezold
RCGA Director of Research and Chief Economist
In recent months, the RCGA has completed economic impact estimates for several high profile events, including the Final Four and the Cardinals 2005 regular season. Economic impact analysis is a tool we use a lot at the RCGA, and sometimes when you use something a lot you can forget that to some people it’s unfamiliar. So it’s worth a look at what we mean when we say “economic impact.”
In a conceptual sense, we are trying to explain, in dollars or jobs, the value that an event or business has in the St. Louis region. We do that by first estimating the value of that business’ revenue or the number of full-time equivalent jobs it supports. The revenue is just that, a gross measure of value rather than a net measure like value added or contribution to GDP. We need to use a gross measure rather than a net measure, because that’s how we estimate the second part of an event’s economic impact, which is the
indirect impact.
If the direct part of the economic impact is the revenue associated with the activity, then the indirect impact of the activity is the amount of that revenue that is spent again in the St. Louis region. If we’re talking about the indirect impact of, say, Boeing, some of that indirect impact would be the portion of their revenue from St. Louis produced products that is spent at local suppliers, such as GKN Aerospace. The second way that Boeing produces indirect activity is through its payroll. The people who work at Boeing spend their hard–earned salaries at a variety of local business, ranging from purchases of groceries at Schnucks to clothing at Famous Barr. That household spending also adds to the indirect economic impact.
The size of the indirect economic impact depends on the mix of industries in St. Louis. For the economic impact of the Final Four, for example, part of the direct impact is revenue at local bars, restaurants, and hotels due to spending by people in town for the Final Four. The indirect impact of that spending would have to do in part with how much of the restaurants production input can be purchased locally. It’s easy to imagine that their spending on beer might turn up in St. Louis, while we’d also suspect that some of the restaurants’ spending on, say, shrimp or salmon, might end up taking place outside the region. In this example, we’d assume that much of the restaurants’ purchases of beer would come from local breweries, and thus occur in the region and add to the indirect economic impact, while the purchase of salmon or shrimp would probably not.
One implication of this process is that the economic impact of two similar events or businesses might be different if they occur in different geographic areas, based on the industry composition of those areas. That’s one reason why people commonly perceive the indirect economic impact of a job in the auto industry is higher in Detroit, for example, than in other areas.
The industry composition data for the region is captured in a PC-based economic impact model called IMPLAN. There are a few different types of these models, which economists call input/output models. The one the RCGA uses is sold commercially by a company in Minnesota, but was originally developed by government and academic researchers. The model itself isn’t that interesting, but what makes it interesting is that each year we update it with benchmarked employment and income data for the 16 counties of the St. Louis MSA, broken down into about 500 industry groupings. That detailed economic profile of the region is what allows us to use it to measure the indirect impact of events and businesses.
So when we say total economic impact, we’re counting a flow of dollars twice. We count it first when it flows through the organization or event in question, and count it again when it flows through other businesses in the St. Louis region.
If we go back to the example of the Final Four, we estimated that by first estimating the likely number of out of town visitors, and then the amount and composition of their spending in St. Louis. Luckily for us, the
St. Louis Convention Visitors Commission releases survey results of visitors spending in their annual report each year. To estimate the amount and composition of spending, we used the average amount of spending in
St. Louis by convention delegates as a guide, adjusted slightly for length of stay. The product of estimated visitors and average spending by convention delegates, with a few adjustments to reflect the unique nature of the Final Four, came to $36 million. Then using the IMPLAN model I mentioned earlier, I estimated the amount of that $36.2 million spent at local bars, restaurants, hotels, merchants that would be re-spent by business or wage earners in the St. Louis region. That figure came to approximately $25.9 million. So I had a direct economic estimate of $36.2 million, and an indirect impact of $25.9 million, for a total estimated economic impact of $62.1 million.
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