GUIDE TO PRODUCING A TRADITIONAL
ECONOMIC IMPACT ANALYSIS
FOR A UNIVERSITY
A Report from the Office of the University Economist
May 2009
Timothy D. Hogan, Ph.D.
Professor Emeritus, Department of Economics,
and Research Associate, Center for Competitiveness and Prosperity Research
Center for Competitiveness and Prosperity Research
L. William Seidman Research Institute
W. P. Carey School of Business
Arizona State University
Box 874011
Tempe, Arizona 85287-4011
(480) 965-5362
FAX: (480) 965-5458
EMAIL: Tim.Hogan@asu.edu
www.wpcarey.asu.edu/seid/
GUIDE TO PRODUCING A TRADITIONAL ECONOMIC IMPACT
ANALYSIS FOR A UNIVERSITY
A university affects its regional economy in at least three ways: (1) the institution’s operations
contribute to the region’s economic activity; (2) the university’s educational and training
activities augment the region’s stock of human capital, benefitting both individuals and society;
and (3) the research activities of the institution expand the knowledge base and enhance regional
economic development. This discussion focuses on the first of these contributions — what might
be termed the “traditional” definition of a university economic impact study — the measurement
of the economic impacts resulting from expenditures by the university and its employees,
students, and visitors.
This guide first discusses some points to be considered so that the analysis provides accurate
estimates of the economic impact of the university and conforms to the accepted theory and
practice of regional economics. The second part of this guide addresses the practical issues of the
kinds of data that are needed for the analysis and the steps that are involved in preparing an
economic impact analysis.
METHODOLOGICAL ISSUES
Overall Versus Incremental Economic Activity
The contribution of a university to the regional economy sometimes has been defined broadly in
terms of overall economic activity associated with university operations. This approach is
appropriate for some uses in that it provides an overall measure of the size of the enterprise and
is consistent with analyses that look at the overall economic activity associated with a particular
industry, such as biotech.
However, regional economists conventionally define economic impact in a narrower sense. This
approach defines the economic impact of a university as the incremental economic activity in the
region due to the existence of the institution — versus the level if the university did not exist.
Usually this definition is simplified to include only those activities that are (1) funded by sources
from outside the region, or (2) would occur outside the region if the university did not exist.
Even with this simplified approach, it is difficult to calculate the incremental economic activity
associated with university operations.
Defining the Study Area
Defining the study area is one of the fundamental steps in an economic impact analysis. The
choice is usually governed by both economic and policy factors. From purely an economic point
of view, the study area should be defined as the functional economic area in which the university
is located. Normally this is a recognized economic region, such as a metropolitan area, for which
economic data are reported. In some instances, however, it may be necessary for policy reasons
to define a study area that does not match the university’s functional economic region, which
likely will affect the results of the impact analysis.
For example, if a smaller geographic area, such as a city within a metro area, is chosen, the
measured economic impact will be relatively small since much of the spending and income
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related to university operations spill outside the study area. Conversely, state-funded institutions
may have good reason to define the study area as the entire state, since the study’s primary
audience may be seen as the state’s legislators and the businesses and residents who pay taxes to
support the institution. Choice of an area larger than the true economic region is likely to have
mixed effects on the impact analysis. Use of a broader region captures more of the university
suppliers and employees, reducing spending and income leakages out of the region and thereby
increasing the size of multiplier effects. On the other hand, a bigger region implies that a smaller
proportion of students, visitors, and other funding sources come to the university from outside
the study area, reducing the measured economic impact.
Direct Versus Total Impacts
In economic impact analysis, there is a fundamental distinction between the direct economic
effects of university operations and the total economic impact of a university on its region. The
direct impacts are the university expenditures for goods and services, the wages and salaries paid
by the university, the jobs it provides to area residents, and taxes and other payments to area
governments. The total economic impact is a measure of the changes in economic activity after
all the secondary and indirect effects caused by the stimulus of the direct impacts have worked
their way through the economy.
Estimates of the direct effects and the total impact are produced by very different methods. The
information used to calculate the direct impacts is normally collected from a combination of
university records and surveys of various groups within the university community. Researchers,
however, often have to fill in gaps in the data from secondary sources. Although other methods
have been used in the past, the prevailing current practice is to use a regional economic impact
model to obtain estimates of the total economic impact.
If some type of computer model of regional economic impact is not already available to the
researcher, one of the three most commonly used regional models — IMPLAN, REMI, and
RIMS II — can be purchased. A ready-to-run version of these models specifically developed for
the study area can be obtained from the following suppliers:
IMPLAN from the Minnesota IMPLAN Group Inc. (implan.com)
REMI from Regional Economic Models Inc. (www.remi.com)
RIMS II from the U. S. Bureau of Economic Analysis (www.bea.gov)
In these regional economic impact models, the estimates of the direct university impacts are used
as the inputs to the estimation process, and the computer model generates detailed estimates of
the total economic impact of the university. (RIMS II is actually a detailed set of multipliers
rather than a complete model, so some additional steps are necessary compared to the other two
models.)
CALCULATING THE DIRECT ECONOMIC IMPACTS
The following subsections discuss the practical issues of the kinds of data that are needed and the
steps involved in calculating each of the components of the direct impacts. First, however, a few
general comments apply throughout the process:
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1. Obtaining all of the data in the form necessary to accurately calculate the incremental
economic impact of a university would be an extremely arduous, if not impossible, task.
In practice, many simplifying assumptions and estimation procedures will likely be
necessary. The typical approach includes only those activities that are (a) funded by
sources from outside the region, or (b) would occur outside the region if the university
did not exist. Activities falling under (a) can generally be quantified; those in group (b)
are much more difficult to deal with. In many cases, they are either ignored or estimated
on an ad hoc basis.
2. To facilitate the process of estimating the incremental impacts, data should be segregated
by funding source to the extent possible, for example, state government appropriations,
federal research funds, and private grants. Where the explicit funding source is
ambiguous, it is desirable to categorize the funding as coming from a local source or from
outside the region.
3. To the extent possible, the data should be disaggregated by types of goods and services
that match the spending categories/industry sectors used by the particular regional
economic impact model that will be used for the analysis.
4. Ideally, the data should relate only to goods and services purchased from suppliers within
the study area. This requirement obviously makes the data collection process much more
complicated. Modern regional economic impact models, such as IMPLAN and REMI,
include procedures to produce estimates of within-region expenditures, but the figures
derived from actual university purchasing records would of course produce a more
accurate measure than the estimated values produced by the computer model.
5. Usually, there are multiple ways that direct impacts of the university can be specified as
inputs in the regional economic impact models, such as expenditures, employment, or
income payments. Care must be taken not to specify two variables that are actually
measuring the same direct impact, for example, the number of employees and the
compensation paid to those employees. For the discussion that follows, the approach is to
specify the direct impacts in terms of expenditures.
Institutional Expenditures
Direct purchases of goods and services by the university from vendors in the region are one of
the major components of the direct impacts. Publicly available data sources, such as annual
reports or websites, cannot be counted on to provide the detailed data needed for the analysis. In
most cases, data collection efforts will involve special data requests to the appropriate university
offices, and often surveys of individual units within the university.
Data relating to all university-related expenditures should be included, not just those associated
with the main university budget. This may encompass a wide variety of university-related
activities, including summer school and training programs, conferences and entertainment
events, athletic departments, research and grants, university foundations, and auxiliary
enterprises, such as student living and dining facilities. A complete accounting of the annual
economic impact of a university should also include construction expenditures.
As suggested above, to the extent possible, the data should be collected in a way that provides
figures for detailed expenditure categories for each funding source. Having the data organized in
this manner will make it easier to calculate the incremental impact.
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Once all of the expenditure data have been collected, a set of figures representing total university
spending for each type of good/service from each funding category should be prepared. If an
estimate of the overall economic impact of university operations is desired, this set of spending
figures can be aggregated to produce figures on the total direct university expenditures to be
reported as such and to be used as inputs to the regional economic impact model.
To develop estimates of the university’s direct impacts based on the incremental definition of its
economic impact requires more work. To the extent that the data allow, expenditures funded by
identifiable “outside” sources can be tabulated directly. In the other instances, however, it may
be impossible to identify whether expenditures were funded by nonlocal sources. In these cases,
estimation procedures will have to be developed based upon the available information. For
example, the share of funding for instructional programs that comes from tuition payments from
out-of-region students plus other nonlocal sources could be used to estimate the proportion of
instructional-related expenditures that should be designated as part of the incremental impacts.
Other Institutional Data
In addition to the expenditure data, certain other information relating to university operations are
also necessary inputs to an economic impact analysis.
Employment
Providing jobs to area residents is one of the direct economic contributions of the university to
the region, but based on the expenditure-based methodology described in this paper, employment
numbers do not serve as a measure of direct impacts for the estimation process. However,
information relating to university employment is needed to develop estimates of another major
component of university-related expenditures: spending by faculty and staff. Job numbers by
type of employee — faculty, staff, graduate assistants, student workers, etc. — are usually
readily available from university sources. In addition, the number of jobs created and supported
in the regional economy is of interest to the audience of an economic impact analysis and is
usually reported as one aspect of the economic impact of a university. The popular regional
economic impact models produce detailed estimates of the total number of jobs created and
supported in the region as one of the outputs of the exercise.
Again, there are two important caveats relating to this information. First, job figures should be
collected for those employed on all university-related activities, including auxiliary enterprises,
the athletic department, etc. Second, if possible, it is desirable to collect the employment data
separately by type of employee and by funding source to facilitate estimation of incremental
impact measures.
Wages and Salaries
While income payments to area residents are certainly a positive contribution to the regional
economy, the wages and salaries paid to university employees do not constitute a direct
economic impact in the expenditure-based methodology presented here. The direct impact comes
when university employees spend this income. However, the wage and salary figures are an
important input for estimating employee expenditures (this process will be discussed in the next
subsection). Data on wage and salary payments by type of employee should be available from
university records.
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The information should be collected for those employed on all university-related activities, and,
if possible, it is desirable to collect the data separately by funding source to facilitate estimation
of incremental impact measures.
Enrollment
Information on the number of students attending the university is a key ingredient for preparing
estimates of student spending. Separate enrollment figures are usually available for the separate
school terms: semesters or quarters, summer school sessions, etc. It is desirable to collect
separate information for each term as enrollment figures can vary widely. The data should also
be collected on a head-count basis not in terms of FTE. If the university has multiple campuses,
care should be taken to avoid double-counting.
To the extent possible, the enrollment figures should be split into “within region” and “out-of-
region” groups. It is desirable to collect separate counts for undergraduate versus graduate status,
since spending levels and patterns are likely to differ.
Faculty and Staff Expenditures
Spending by its employees for goods and services supplied by vendors in the region make up
another component of the direct economic impacts of a university.
If resources permit, the preferred approach to obtain information on employee spending is
through an employee survey. This data collection effort could be part of a broader survey
program, but for the economic impact study, the primary purpose of the survey is to provide
statistically valid estimates of household income and spending of employee households by type
of product and service. Given probable different spending patterns between faculty, staff, and
student employees, the survey should be constructed to provide separate spending data for each
group.
If it is not possible to obtain survey information, an alternative approach is to prepare the
expenditure estimates based on household spending information from the Consumer Expenditure
Survey, produced by the U.S. Bureau of Labor Statistics. Detailed information on spending
patterns of U. S. households categorized by income, age, region of residence, and other
characteristics are available from the BLS website (www.bls.gov/cex/).
Only spending funded by university-related income should be included. An efficient way to do
this is to convert the employee spending information into measures of spending per dollar of
income and then multiply these spending factors by the aggregate wage and salary figures from
university records.
To obtain an estimate of amount of employee expenditures that should be included in the
economic impact analysis based on the incremental approach, an estimate of the proportion of
total employee wages and salaries that were funded from sources consistent with that definition
would be needed.
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Student Expenditures
Student expenditures are another important component of the direct impact of university
operations. Again, the preferred method to obtain spending information is through a survey of
students at the university. To provide information based on the incremental impact approach, the
survey should divide students into three groups: students from outside the region, students from
inside the region who would have gone elsewhere to school if the university did not exist, and
students who would have stayed in the region if the university did not exist. For estimates based
on the incremental approach, only spending information from the first two groups should be
included, and the proportion of the number of students in the first two groups to the total number
of students surveyed should be recorded. If the overall economic impact of university operations
is desired, then spending information should be collected that is representative of the entire
student population.
Detailed issues relating to the proper design of the questionnaire are outside the scope of this
discussion, but certain issues must be addressed:
Payments for products and services provided by the university, such as tuition and dorm
fees, should not be included to avoid double-counting.
Only purchases of goods and services from local suppliers should be included.
Information on university employment status should be obtained to avoid double-
counting in the student and employee spending categories.
If it is not possible to conduct a student survey, alternative sources of valid data on student
spending are limited. The household spending information from the U. S. Consumer Expenditure
Survey does not provide a reasonable substitute as it did for employee expenditures since student
spending patterns are much different than those of typical households. Probably the best
approach is to use information on student spending from another university economic impact
study, with appropriate adjustments to make the information fit the situation as nearly as
possible, for example applying inflation rates to account for differences in timing.
Once measures of per student expenditures have been developed, estimates of total student
expenditures can be prepared using university headcount enrollment figures. Estimates of the
direct impact of student expenditures based on the incremental definition of economic impact
also require an estimate of the total number of students in the region because of the existence of
the university. A student survey would provide information to produce this estimate. Without
survey information, information relating to the proportion of the student body from the local area
may be available from university sources. If not, an estimate could be developed from
information on students’ permanent addresses from university records or possibly other ad hoc
sources.
Visitor Expenditures
Spending by university-related visitors is another major component of the direct impacts of a
university on the regional economy. Collecting information relating to expenditures by
university-related visitors can be very time consuming. A list of the different types of university-
related visits include, for example, friends and family, attendees of athletic and other university-
related events, attendees at university-related conferences, and other visitors coming for a wide
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variety of purposes, including faculty recruitment, visiting scholars, prospective students, and
family members on campus visits.
The process of data collection usually involves contacting a variety of university offices for
information relating to each type of visitor. For some types of visits, this may require either a
formal or informal survey of each college and/or individual university unit.
Obtaining actual data relating to the types and amounts of spending by visitors is problematic. It
is generally not within the scope of a university economic impact study to conduct a visitor
survey. In some cases, units whose activities generate large numbers of visitors, such as the
athletic department or the university conference center, may conduct attendee surveys that can
provide the information. Lacking that sort of information, it is often possible to obtain
information on spending by business travelers and/or tourists to the region from local visitor and
convention bureaus that can be employed to develop reasonable estimates of university visitor
spending.
For an estimate of visitor expenditures based on the incremental approach, information on the
proportion of visitors from outside the region is also needed. Since this proportion could be
expected to vary widely among different types of visitors, obtaining this proportion for each
visitor group included in the calculations is desirable. The usual source for this information is the
specific university units involved.
Payments to Regional Governments
The final component of the direct impacts of university operations is taxes and other payments to
governmental units in the region.
Assuming the university itself is a non-profit institution, taxes paid may be limited, but the
university likely pays some amount of sales taxes, fees, and perhaps in-lieu payments to local
governments. These payments should be captured by the university’s accounting system and
retrievable during the process of collecting university expenditure data.
Some data on local taxes paid by the university and its employees could be obtained as a
component of the information collected from surveys. For the most part, however, estimates of
local taxes paid have to developed by the researchers. For example, estimates of sales taxes
could be derived from the available expenditure data.
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