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Economic impact analysis (EIA) examines the effect of a policy, program, project, activity or event on the economy in a given area. The area can range from a neighborhood to the entire globe. Economic impact is usually measured in terms of changes in economic growth (output or value added) and associated changes in jobs (employment) and income (wages).
The analysis typically measures or estimates the level of economic activity occurring at a given time with the project or policy occurring, and calculating the difference from what would otherwise be expected if the project or policy did not occur (which is referred to as the counterfactual case). This analysis can be done either before or after the fact (ex ante or ex post). The term economic impact can be applied to analysis of the economic contribution of a given activity or industry to the existing local economy.
EIA is one element of an environmental impact assessment, which is required to examine impacts of proposed development projects. It is also commonly conducted when there is public concern about potential economic impacts of a proposed project or policy.
EIA differs from Cost-benefit analysis(CBA) In one sense, EIA is broader in that it counts business relocation and resulting spending multiplier impacts on a given area, while CBA is usually not constrained to any specific study area and thus ignores effects of business activity shifts among locations. On the other hand, CBA is broader in that it also counts non-economic benefits that have a value to people though they do not directly affect the flow of money in the economy (such as the value of effects on personal travel time savings, safety, security and quality of life improvements).
There is a well-developed literature on EIA for transportation planning. The most commonly used EIA tools for transportation studies are Transportation Economic Development Impact System (TREDIS) and TranSight. Tools and techniques include:
EIA is also applied for analyzing the impact of projects or actions impacting economic development, and during corporate site selection projects. Examples include real estate development, business openings and closures, site selection projects, tourism, arts and recreation facilities, arts activities, individual industries and agricultural activities. The most commonly used tools for these studies are forms of Input-output analysis such as IMPLAN, RIMS-II, Economic Modeling Specialists, Inc. (EMSI) and REMI. The EIA is used by site selection consultants to increase community support for projects and in some cases to negotiate for tax incentives.
An EIA is commonly developed in conjunction with proposed legislation or regulatory changes. Many times the EIA is developed by the party lobbying for the legislative or regulatory change. The EIA is driven by a need to fully understand the impact of government action on the economy and impacted industries, as well as a desire to communicate the merits or detraction of the proposed action in a manner easily understood by outside parties. In addition to developing an understanding of the economic impact, an EIA is also used for lobbying, media relations, and community communication. The United States Department of Energy energy economic impact model is one example of regulatory use of an EIA.
Economic impact analysis for specific policies and industries and other changes: