Large Projects in Hinterland Regions: A Dynamic Multiregional Input‐Output Model for Assessing the Economic Impacts

Abstract

Interregional spillovers and the expansion of capacity in hinterland sectors represent two types of economic impact associated with large capital projects in hinterland regions. The simultaneous treatment of these within an input‐output (I‐O) framework is the subject of this paper. A dynamic multiregional I‐O (DMRIO) model is derived and applied to a scenario of oil development in Canada's Northwest Territories (NWT). A comparision of output profiles generated by the DMRIO model and a static MRIO model shows that the DMRIO formulation has merit. Specifically, in years where capacity adjustments are called for in the hinterland region, the static MRIO model is unable to capture the intraregional and interregional economic implications of this activity. In a year of particularly large‐capacity shortfalls in several NWT sectors a static MRIO model underestimates the Canada‐wide total impact of the project by more than one billion 1984 dollars.