• Economic Modelling - BDO EconSearch

Economic Modelling

For almost 15 years EconSearch has been involved in the development and application of state and regional economic impact models. We have developed models for each of Australia's states and territories and for many regions in most states.

The types of economic impact models developed and used by EconSearch include:

  • Regional input-output models
  • Multi-region computable general equilibrium (CGE) models
  • Demographic-economic (DECON) models
  • Environmental-economic models (water, energy and greenhouse gas).

Regional Input-Output Models

I-O analysis provides a comprehensive economic framework that is extremely useful in the resource planning process, particularly at the state and sub-state levels. Broadly, there are two ways in which the standard input-output method can be used.

  • Input-Output Table: provides a numerical picture of the size and shape of the economy and its essential features. The input-output transactions table can be used to describe some of the important features of an economy, the interrelationships between sectors, and the relative importance of the individual industries.
  • Input-Output Model: provides a standard approach for the estimation of the economic impact of a particular activity. The input-output model is used to calculate industry multipliers that can then be applied to various development scenarios.

Multi-Region CGE Models

Economic impact analysis based on the input-output approach takes into account the direct impact of the project on regional economic activity, and some of the downstream effects of the induced demand for goods and services elsewhere in the economy. But it does not take into account structural adjustments brought about by large infrastructure and industry development projects. Computable General Equilibrium (CGE) modelling is generally appropriate in these types of analyses, particularly where the focus is on impacts at a state or national level.

The multi-region CGE model used by EconSearch recognises:

  • Producers classified by industry and domestic region
  • Investors similarly classified
  • Multiple region-specific household sectors
  • Aggregate foreign purchaser of the domestic economy’s exports.

The model contains explicit representation of intraregional and interregional trade flows based on the EconSearch in-house input-output database. As each region has been modelled separately, the model captures the changes in economic activity resulting from the impact event (improvement in productivity, infrastructure investment, etc) . Second and subsequent round effects are captured via the model’s input-output linkages and account for economy-wide and international constraints.

The core input-output database of the CGE model is based on the Monash MRF model (MMRF), a multi-region model of the Australian economy.

Demo-Economic (DECON) Models

Based on work undertaken by Mangan and Phibbs (1989), I-O models can be extended as demographic-economic (DECON) models. The two key characteristics of the DECON model, when compared with a standard economic model, are as follows.

  1. The introduction of a population ‘sector’ (or row and column in the model) makes it possible to estimate the impact on local population levels of employment growth or decline.
  2. The introduction of an unemployed ‘sector’ makes it possible to account for the consumption-induced impact of the unemployed in response to economic growth or decline. 

The Population Sector

The introduction of a population ‘sector’ to the standard I-O model allows for the calculation of population multipliers. These multipliers measure the flow-on population impact resulting from an initial population change attributable to employment growth or decline in a particular sector of the regional economy. 

The Unemployed Sector 

The introduction of an unemployed ‘sector’ to the standard I-O model makes it possible to more accurately account for the consumption-induced impact of the unemployed in response to economic growth or decline.

Through the inclusion of an unemployed row and column in the 'closed' direct coefficients matrix of the standard I-O model it is possible to calculate Type IV multipliers (for output, GSP, household income and employment). 

In situations where at least some of the unemployed remain in a region after losing their job (negative employment impact) or some of the new jobs in a region are filled by previously unemployed locals (positive employment impact), Type IV multipliers will be smaller than the more frequently used Type II multipliers.

Environmental-Economic Models

Environmental-economic models provide a comprehensive economic framework that is extremely useful in assessing environmental impacts associated with changes in economic activity.

Several extensions to the standard I-O model are included in the environmental-economic models developed by EconSearch, namely:

  • Water consumption
  • Net energy consumption
  • Net greenhouse gas (GHG) emissions.

Water

The 18 sector versions of the I-O models for SA and the SA Government regions have been extended to include estimates of water consumption. Water consumption is a measure of gross water consumption by industry sector and households. Estimates include all sources of water (i.e. self-extracted groundwater and surface water, distributed water, re-use, etc.), except direct water extraction by commercial forestry. Calculation of water consumption multipliers is made possible by the inclusion of a water consumption row (specified in gigalitres) in the I-O transactions table. 

Energy 

The 18 sector versions of the I-O models for SA and the SA Government regions have been extended to include estimates of net energy consumption. Net energy consumption or energy balance is a measure of consumption of energy minus production of energy by industry sector and households. Estimates include all forms of energy (i.e. electricity, coal, gas, petroleum, etc.). Calculation of net energy consumption multipliers is made possible by the inclusion of an energy balance row (specified in peta joules) in the I-O transactions table.

Greenhouse Gas

The 18 sector versions of the I-O models for SA and the SA Government regions have been extended to include estimates of net greenhouse gas (GHG) emissions. Net GHG emissions are a measure of GHG sources by energy end user (industry sector and households) minus GHG sinks. Calculation of net GHG emissions multipliers is made possible by the inclusion of a net GHG emissions row (specified in gigagrams (‘000 tonnes)) in the I-O transactions table.

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