Local Purchase Percentage (LPP) and Regional Purchase Coefficients (RPC) are two of the most frequently misused and misunderstood values in IMPLAN. This article describes what these concepts mean and when they should be changed from the default settings.
LPP indicates to the software what portion of the Event Value affects the local Region and should be applied to the Multipliers.
LPP cannot be edited in an Industry Event and is assumed to 100%. If a Region has been properly defined then in most circumstances the business or Industry you are analyzing is local because the operations are based in the Selected Region and thus LPP should be 100%. Employment in IMPLAN is based place of work, so Employment and Labor Income should be considered local for employees working for a local business even if they do not live there.
IMPLAN will estimate what portion of the Industry's Intermediate Inputs will be purchased outside of the Region by setting each Intermediate Input Commodity's LPP to the RPC for the given Commodity. How much of the Employee Compensation portion of Labor Income is earned by non-residents is based on the in-commuting rate for the Region. IMPLAN also estimates local employees' purchases that will be made outside of the Region based on the RPCs for all of the Household Spending. Hence, the RPC for each Commodity in a Region in IMPLAN is an Average RPC; regardless of the purchaser, the RPC is the same rate. When LPP cannot be edited or seen it is set to the RPC for Commodity purchases.
In some situations you may want to set LPP to 100% because you know a purchase will be local. LPP can be edited in the following Event Types as detailed below, followed by an example and further explanation of RPCs.
LPP IN COMMODITY OUTPUT EVENTS:
LPP in Commodity Output Events is by default 100%. Local Purchasing Percentages (LPP) indicate to the software how much the Event impact affects the local Region and should be applied to the Multipliers. The key thing to remember when considering Local Purchase Percentage is that the LPP modifies only the Event values, and it does this before those values are applied to the Multipliers. When LPP is less than 100%, the remaining portion (or 1-LPP) is then assumed to be effecting a different Region. The portion happening outside the Region of your analysis does not create any local effect.
Commodity Output Events are typically used to model a purchase or purchases of a certain Commodity. When the Commodity is known to be produced locally in the Region, leaving LPP at 100% is appropriate. It is common that the location of production of a purchased Commodity is unknown, in which case you can let IMPLAN determine what portion of the production may affect the local Region by selecting the SAM Checkbox next to the LPP field in the Advanced Menu. Checking the SAM Checkbox sets the LPP to the RPC for the given Commodity.
ABP: Bill of Goods Using Commodity or Industry Events is a means of entering an Industry's purchases as individual Events instead of letting IMPLAN estimate the purchases via a standard Industry Event.
LPP IN SPENDING PATTERN EVENTS:
LPPs in Industry and Institutional Spending Pattern Events are by default set "SAM", each Commodity's RPC. These Event Types start the analysis, not from the standpoint of the sales or Employment of the Industry or Institution, but instead from the budgetary purchases made by the local organization. Performing an ABP: Using an Industry Spending Pattern is a means of customizing an Industry's purchases instead of letting IMPLAN estimate the purchases via a standard Industry Event.
LPP in an Industry or Institutional Spending Pattern tells the software what portion of the line item Commodity was purchased locally and therefore affects the local Region. When LPP is less than 100%, the remaining portion (or 1-LPP) is then assumed to be effecting a different Region. The portion happening outside the Region of your analysis does not create any local effect.
Unlike the Industry or Institution itself, we typically cannot say where the production, transport, and wholesaling of the items purchased by our target organization was sourced, and we would not want to assume that these are local purchases. Since this methodology, unlike a Commodity Event, starts not from the Commodity itself, but from the first round of Intermediate Expenditures, the LPP on these purchases needs to reflect local availability. Thus the LPP is by default set to the SAM Model Value. With the SAM Checkbox checked, the LPP is set to the RPC for the given Commodity. You would only want to change the LPP on the Commodities within a Spending Pattern if you had information on where the Commodity was produced.
To help envision this more clearly, we can take a look at a quick example to see how the software uses Local Purchase Percentages.
A Commodity Event for Sector 3002 Grain Farming has a value of $1,000,00. If Local Purchase Percentage is set to 50% then the Direct Effects will be $500,000 of Output. Why?
- To calculate, the software first multiplies the Value by the Local Purchase Percentage ($1,000,000 * 0.50 = $500,000)
- Deflators are applied to adjust the entered value down to the year of the data set. This makes the dollar values used to calculate the Multipliers equivalent to the entered dollar values.
- The resultant value is applied to the Multipliers to determine the Indirect and Induced Effects.
- Thus, the LPP does not provide any information about any of the items purchased by the Commodity in the Event field. Regional availability of Intermediate Inputs and Indirect Effects are determined by the Regional Purchasing Coefficient.
A Regional Purchasing Coefficient (RPC) is the percent of Total Demand that is met by Local Supply. The RPC is the value used when LPP is set to the SAM Model Value. In more detail, it is the proportion of the Total Gross Demand for a Commodity, by all users in the Region, that is supplied by producers located within the Region.
For example, if the RPC for the Commodity fish is 0.8, then 80% of the demand by local fish processors, fish wholesalers, and other fish consumers are met by local fish producers, also known as the Local Use of Local Supply. Conversely, the remaining 20% (1.0-RPC) of demand for fish is satisfied by imports.
The RPC value is derived from the Trade Flow Model that looks at the movement of Commodities domestically and known rates, by Commodity, for foreign trade. The RPC value tells us, for every Commodity we purchase, how much of our total requirement for that Commodity is obtained from local sources according to the Region and Data Year. This value is built into the Multipliers, so you never need to make any adjustments to your Event to account for locality of the goods and services required for your production.
The RPC does not assume that all local production goes to local demand (i.e., Regional Supply Coefficient (RSC) may not be 100%).
Values for the RPC are between 0 and 1. RPC values in the SAM cannot be changed in app.implan.com. However, RPC values can be modified by a user at the Event level.
Written August 23, 2019
Updated May 20, 2022