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A consumer's guide to regional economic multipliers

  • Economics


A consumer's Guide to Regional Economic Multipliers I Cletus C. Coughlin and Thomas B. Mandelbaum Cletus C. Coughlin is a research officer and Thomas B. Mandelbaum is an economist at the Federal Reserve Bank of St Louis. Thomas A. Pollmann provided research assistance. A Consumer’s Guide to Regional Economic Multipliers ROPONENTS of major construction projects, such as a stadium) airport or convention center, point to their potentially large and widespread benefits. Since these projects are costly and may require public funds, estimates of their economic benefits are used by the community to assess their desirability. Similarly, the closing of a ma- jor manufacturing facility—or a large cutback in its production—is of interest throughout the community because of its anticipated adverse consequences. In a hypothetical, but realistic, example discussed later in this paper, a $50 million decline in aircraft sales by a St. Louis manufacturer is estimated to cause a $132 mil- lion reduction in output in the St. Louis economy and the elimination of 1,130 jobs. Upon hearing such a prediction, some basic questions come to mind. Where do numbers such as these come from? How accurate are they likely to be? Often, such numbers are obtained using “re- gional economic multipliers,” which is a stan- dard way to identify the potential effects of a major change in a region’s economy. These mea- sures estimate the changes in output, income and employment resulting from an initial change in spending. In this article, we provide an ‘See Miller and Blair (1985) for a technical discussion of input-output models. elementary discussion of regional multipliers and explain why they should be viewed with both caution and skepticism. Our consumer’s guide begins by discussing the basics of an input-output model; such a model identifies the relationships among different sec- tors in an economy and, thus, is used to calcu- late regional multipliers. We then describe dif- ferent kinds of regional multip

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