Economic Impact
Tools
Economic Impact: Vocabulary for Byways
Economic impact refers to the effects on spending, saving, investment, and asset value (e.g., property value) of any action whether it is a change in regulation, marketing activity, new business development, or new infrastructure. Measuring economic impact requires a baseline measure taken before the activity occurs and a second, comparable measure, taken after.
Measuring the economic impact of byways presents challenges. First, the roadways and their features were largely in existence before byways designation. Therefore, only some portion of the economic activity within the byway corridor can legitimately be attributed to byway designation. Second, byways come in all shapes and sizes. Some are quite small in terms of the length of the roadway itself and the corridor around it while others cover parts of several States. Third, byway corridors do not generally match a political boundary which makes it difficult to use information collected on the basis of those boundaries. Finally, the groups that manage byways vary in their structure and capacity from all volunteer organizations to organizations with professional staff.
There are two basic methods that are in widespread use in efforts to measure economic impacts in general and the economic impacts of byways. The first are various econometric models including Regional Economic Models, Inc. (REMI), the Bureau of Economic Analysis’s RIMS, the National Park Service’s Money Generation Model (MGM2), and IMPLAN. These models have three fundamental weaknesses with respect to byways. First, they do not yield meaningful results at the sub-county level which is where many byways operate. Second, they rely on production relationships that may no longer be valid. For example, the economic impact of adding a call center to a local business will be very different if the call center function is out-sourced than if it is local. A model based on local impacts will not accurately reflect impacts of out-sourcing. Finally, econometric models are, by their very nature, based on complex mathematical formulas that are difficult for most people to understand, let alone explain to others. Therefore, local decision-makers are generally unable to question the assumptions behind the model or recalculate results based on local knowledge.
The second method often used to measure economic impacts is visitor surveys. Visitor surveys are expensive to conduct and are well-known to have multiple weaknesses. Many visitor surveys do not account for seasonality, do not make a clear distinction between spending that may be related to the byway versus general spending, rely on visitor recall and willingness to report, and are not repeated at regular intervals to allow impact to be measured consistently over time. Visitor surveys do not take into account the cost of providing visitor services. For example, when a visitor pays to stay overnight at a bed and breakfast, the owner of the bed and breakfast must pay for food, laundry, cleaning service, shampoo, insurance, etc. to make that visit possible. Most of the owner’s money is spent on goods and services brought in from outside the byway corridor. Therefore, the net impact on the economy of the visitor’s spending is substantially less than the amount they pay for lodging.
This vocabulary sheet introduces key concepts related to the study of economic impacts in general and the economic impacts of byways in particular.
Economics: the study of how we allocate resources to meet human wants.
Resources: those materials and functions we recognize as being useful in meeting human wants. Not everything is a resource. If we don’t recognize it as being useful in meeting human wants or if we don’t know how to use it to meet human wants it isn’t a resource.
Economic activity: importing and exporting goods and services. Exporting goods and services increases the revenue available for spending, saving, and investment in a region, while importing decreases it. To the extent that businesses must import more goods and services to meet the needs of travelers attracted through designation, positive economic impact is reduced.
Economic impacts: the effects on the level and type of economic activity in a given area produced through byway designation. Measuring the impact of designation requires information about conditions prior to designation. Economic impact studies have a before and after and include losses as well as gains.
Economic significance: the portion of existing economic activity that can be attributed to byway designation. Economic significance can be measured at a single point in time.
Areas of possible economic impact or significance
Fiscal impacts: the effects on public sector costs and revenues of byways designation. Fiscal impacts can only be measured for units of government, such as towns, counties or districts that may or may not coincide with byways boundaries.
Economic effects: often consider the number and types of employment, wages, benefits, goods and services produced and consumed, savings, value of real estate, business profitability and sales, capital investment, diversification, and more. Economic effects measured through investment may include investments in individual capital (health, education, skills), natural capital, social capital, built capital, intellectual capital, and accumulation of financial capital (savings).
Investment in intrinsic qualities: every byway has at least one or two intrinsic qualities that support its designation. The six intrinsic qualities are:
Scenic: heightened visual experience derived from the view of the natural and manmade elements of the visual environment of the scenic byway corridor - distinct, pleasing, memorable, harmonious.
Archaeological: physical evidence of historic or prehistoric human life having scientific significance and capable of being inventoried and interpreted.
Cultural: evidence and expressions of customs or traditions of a distinct group of people.
Historic: legacies of the past that are distinctly associated with physical elements of the landscape, whether natural or manmade, that are such that they educate the viewer and stir an appreciation for the past.
Natural: natural features in a relatively undisturbed state that predate the arrival of human populations. For the purposes of the economic impact tool, we have broadened the definition of “natural” to include all natural resources, not only those that predate the arrival of human populations.
Recreational: outdoor recreational activities directly associated with and dependent on the natural and cultural elements of the corridor’s landscape.
Multipliers: come in many flavors. For example, an income multiplier is the additional spending (or earning) that occurs when income earned by direct employment in a project is respent within a given area. An employment multiplier estimates the additional jobs created through the spending associated with new jobs. High multipliers occur when 1) raw materials are purchased locally; 2) many local people that would not otherwise be employed are employed directly; 3) production activity is supported through purchase of lots of local goods and services. Multipliers are often misused to inflate economic impacts. Direct effects (original spending) do not include multipliers. Indirect effects are brought about through the purchase of intermediate goods and services required to provide final goods and services, for example, the purchase of food products by a bed and breakfast. Induced effects are brought about through the proportion of income earned as a result of a new economic activity that is spent locally.
Stages in the Life of a Byway
Anticipation: the period of planning and preparing an application that precedes designation. Investment may occur during the anticipation stage.
Designation: the period from the official conferring of designated status to actual changes on the ground resulting from designation.
Implementation: the period during which resources are directed toward physical changes on the ground.
Maturation: the period after implementation related to designation is largely completed.
Geographic Frame
Corridor boundaries: the boundaries of byways as designated in corridor management plans. These do not necessarily coincide with political units or trade areas.
Trade area: the geography from which a byway draws a significant proportion of its users.
Methods
Baseline: the level of economic activity preceding the action or intervention whose impact you are trying to determine. This may be national designation, state designation, or other designation, or it may be investments that precede designation.
Primary data: information collected directly from the source through observation, conversation, and/or participation. The degree of reliability, validity, and precision required depends on how you intend to use the information. Visitor response to surveys is one example of primary data.
Secondary data: information collected by others such as government agencies and/or nonprofits that pertains to your area of interest. The degree of reliability, validity, and precision in secondary data depends on how it was collected and interpreted. Census data is one example of secondary data.
Reliability: the consistency of a set of measurements or measuring instrument. Reliability does not imply validity. That is, a reliable measure is measuring something consistently, but not necessarily what it is supposed to be measuring.
Accuracy: the degree of to which a measured or calculated quantity matches its actual (true) value.
Validity: refers to getting results that accurately reflect the concept being measured. A valid measure must be reliable, but a reliable measure need not be valid.
Sharing Results
Decision-makers: people that control the allocation of resources in or to a byway.
Presentation: refers to the form in which the results of an economic study are shared with decision-makers. The type of presentation may vary by audience.