A Method for Improving Economic Contribution Studies for Regional Analysis

Abstract

Abstract. Economic contribution studies are full of challenging theoretical and methodological issues. The economic export base method for conducting contribution analysis presented addresses the challenge of double counting while increasing an analyst's insight into a regional economy. Using data from regional social accounts, an economic export base model is presented that simultaneously separates export base contributions for each sector as a row of column vector sums. The export base measures of economic activity by sector serve as an internally consistent and externally correspondent measure of any given sector's ex post regional economic contribution. The sum total of the export base and original gross measures of economic activity across sectors are equal for the economy but are almost always unequal by sector. These base measures are also valuable by themselves and as inputs into further analyses into questions regarding competitive advantage, diversity, resilience, dependency, typology, and growth.(ProQuest: ... denotes formulae omitted.)1. IntroductionWhen considering issues of economic development, people often wonder about the current status of the local economy and the extent to which different sectors or events drive the economic activity in the region (Green, 2001; Vollet, Callois, and Roussel, 2005). Likewise, for monitoring and planning purposes, it is common to conduct an economic contribution or impact study of a specific sector of the regional economy to establish a baseline from which to compare future conditions (Miller and Sabbarese, 2012; Connaughton and Madsen, 2012). There are countless studies conducted each year on the economic impact or contribution of an array of industries or sectors. Criticism of these studies focuses on the perverse incentive for publicity and advocacy purposes to double count the contribution of a given sector by making its direct, indirect, or induced effects appear responsible for a larger share of the economy than the observed data can support (Crompton, 1993; Hudson, 2001; Crompton, 2006).For the purposes of this analysis, the primary focus will be on economic contribution analysis rather than economic impact analysis. Economic contribution analysis is generally regarded as referring to the ex post effects on economic activity in a region from the exogenous sales of a given sector in a previous time period. Conversely, economic impact analysis represents a projection of an ex ante change in economic activity within a region's economy due to a change in the exogenous sales of a given sector. More discussion of impacts and benefits is presented in Watson et al. (2007), and we consider the discussion of economic contribution presented here to be a clarification and expansion of that previous elaboration of economic contributions. For the purposes of standard ex post economic contribution analysis, we feel that the methodology presented here is conceptually the most appropriate approach. Furthermore, we acknowledge that exports are not the only driver of a regional economy. Along with increasing regional exports, import substitution, capital investment, and innovation are all drivers of a regional economy. However, for small regions (i.e., single counties) exports and the associated new dollars brought into the region are often thought to be the major contributor to the region's economic engine. At larger scales, however, the primacy of exports certainly breaks down. For further discussion of these issues see Kilkenny and Partridge (2009), Cooke and Watson (2011), and Tiebout (1956).A solution to the ubiquitous double-counting problem in economic contribution analysis is to conduct a comprehensive economic contribution study for all sectors of a region's economy simultaneously by using social accounting data within an economic base framework. This approach prevents the sum of the parts from being greater than the whole-no double counting allowed. …