# Constructioon Project Indirect and Induced Effect calculations

We are evaluating a construction project that is primarily residential with some retail (10000 sq.ft). We want to model the one-time economic impacts across two year period (eg. 2025-2027) generated due to this project, and ongoing impact in the economy resulting out of the retail employment. I am having trouble modelling the impact of construction.

The region is custom combined region made of ZIP Codes for Newton, MA. Data year is 2020. Dollar year is set to 2027. I have taken out the acquisition costs, developer fee and overheads, and Capitalized reserves/contingency funds, and modelled the rest by splitting them into the following categories.

The dollar cost is input as the event value under Industry Output. Based on the results we are seeing very little indirect or induced impact on any other industry, which seems an issue since we expected a significant secondary spending or economic impact especially in retail and restaurant spending.

The output total is equivalent to the project cost, whereas ti should be larger as far as I understamd.

I think my mistake is inputting the dollar (project) cost as industry output. Can you help me model this correctly?

Best Regards,

Anjali

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### Comments

5 comments

• Official comment

Hello Anjali!

So a couple of things here, first on the distribution of your costs across Industries: In the Industry Spending Pattern for the two construction Industries you listed (58 & 56), things such as monetary authorities, insurance agencies, legal services, and architectural fees, are already accounted for. With that being said, you should include these values in the Event Value for the construction Events, instead of separating them out to more specific Industries. This is because what you are actually modeling is the construction Industry purchasing goods/services (Intermediate Inputs) from these Industries for construction production, not production in these individual Industries. If you feel that the weight of these purchases relative to total Output are not accurately represented within the Industry Spending Pattern, you can utilize the Industry Impact Analysis Event Type to edit the Spending Pattern for the associated construction Industries.

This will likely increase the magnitude of the Indirect Effects, as Indirect Effects stem from the business to business, or intermediate, purchases. However, being that you are working with a sub-county level Region, it is likely that a high percentage of these Intermediate Input purchases are going to be sourced from outside of the Region, and thus will not create local effects (also known as a leakage). This is the most likely culprit for why your Indirect/ Induced Effects are so low, but without knowing the exact zip-codes you are using it is impossible to know for sure.

Best,

Michael Nealy

• Hi Michael,

The sub-county area is built of the following zip codes -

02468 (MA)
02458 (MA)
02466 (MA)
02459 (MA)
02462 (MA)
02460 (MA)
02461 (MA)
02467 (MA)
02465 (MA)
02464 (MA)

I am wondering if you can explain how choosing a sub-county area against a county makes a difference in results?

• Hello Anjali,

Well the difference is primarily where the purchases are going to be sourced, and in IMPLAN, only purchases from your Region are going to generate a local impact to that Region. The smaller the Region is, the higher likelihood that the inputs will be purchased from outside of the Region you are studying (imported), and thus would be effecting another Region.

Best,

Michael Nealy

• Thanks Michael,

I took another look at the data and IMPLAN Model. Even after putting these project costs as Industry Spending Pattern in insdustries 58 & 56, the results do not look right. The total employment numbers and output generated by the model as impact are now less than 1/10 of the values in my original post.

• Anjali,

If I am understanding correctly, you ran the above mentioned line items (monetary authorities, insurance agencies, legal services, and architectural fees), and their associated values, as an Industry Spending Pattern Event through the construction Industries?

Doing so would only produce Indirect/Induced Effects, as you are only modeling the effect of that Intermediate Input spending. Apologies for the confusion, but this is not exactly what I was recommending in my previous response. With an Industry Impact Analysis Event, you have the ability to specify the Spending Pattern(Intermediate Input Spending) for this Industry, as well as all other components of Output. If you find that the line items mentioned above are not accurately represented, as in their percentage of total input spending is not correct, you have the ability to edit those values with this Event Type. However, the values associated with this input spending should be included in the inputted Output for the IIA Event (if they are not already).

Circling back to the Region aspect of this: if the goods/services included in the Spending Pattern are sourced from outside of the Region, they will not create a local impact. In the case that you know these are all sourced locally, you can edit the Local Purchasing Percentage(LPP) within the IIA Spending Pattern as well to reflect 100%. However, being that this is a relatively small geography type, then I would recommend allowing IMPLAN to estimate these values if you do not know explicitly that these Intermediate Inputs are sourced 100% locally.

Best,

Michael Nealy

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