Using IMPLAN as a Springboard for Complex Economic Impact Analysis: A Q&A with Pavel Darling

In this Q&A, Managing Principal Pavel Darling discusses the value in adding a qualitative context to outcomes from economic impact modeling using IMPLAN. According to Mr. Darling, applying a thoughtful lens to quantitative analysis can be more meaningful for retail siting, environmental policy, and much more.

Let’s start with the basics. What is IMPLAN used for?

Pavel Darling: Managing Principal, Analysis Group

IMPLAN is a modeling program that performs economic impact analysis for planning purposes. Say a real estate developer wants to figure out the economic impact a new apartment complex will have on the local economy. IMPLAN uses input-output analysis, which overlays different economic sectors and the economic relationships between them to show how they influence each other.

In the developer’s case, the inputs might relate to the construction industry, as well as an assessment of how much labor and materials are needed from other economic sectors to create the building. IMPLAN then helps calculate the outputs (i.e., the results): This apartment complex would create construction jobs (a direct impact), increase jobs and economic activity in manufacturing industries that create the construction materials (an indirect impact), and generate spending on local businesses as workers spend their income in the surrounding community (known as induced impacts).

Input-output modeling changed the entire field of economics when it was originally introduced decades ago, because it was based on the way economics works in the real world – it was built to account for the overlapping effects and interactions between different economic sectors and constituencies. It actually won [creator Wassily Leontief] the Nobel Prize in Economics. Now governments use it to assess GDP and to justify public projects, and businesses use it to figure out whether to build and where to site manufacturing plants, housing complexes, or new electricity generating facilities, for example.

A lot of small shops offer IMPLAN for pretty straightforward situations, where a client just needs to come out with a number. Here, we use it as a springboard for more complex analysis.

Why does a more complex analysis matter?

If you’re in a public policy setting, or a regulatory or litigation setting, a flashy number doesn’t tell the whole story. Our clients, whether they are government entities, public organizations, or private companies, need to go beyond just a number churned out of a machine. We provide that context for them, adding qualitative insights to show what the numbers mean.

For example, in our AEE [Advanced Energy Economy] reports, we analyzed the mix of energy-related industries, technologies, and policies in each of 15 different states. We also developed estimates for the level of pandemic stimulus funding that could potentially be available in each state, based on our analysis of previous and proposed stimulus packages.

The different states have very different policies about the appropriate level and form of investment in clean energy. Our research informed the inputs we relied on for the IMPLAN analysis we conducted, which we could then use to model the state-specific economic impact of investing stimulus dollars in advanced energy technologies such as electrified transport, wind and solar power, and energy efficiency programs. The results – that a certain level of investment in a particular state will yield new jobs, new tax dollars, and increased Gross State Product – can be used to inform and shape the policies needed to amplify the impact of an injection of stimulus funds.

So a lot more goes into this kind of analysis than just running some numbers through a model. For example, where are the surprising or hidden places money will flow into and leak out of a state? How does that differ from state to state? What sectors and industries benefit, and are there potential losers even if the overall impacts are positive?  This is the kind of nuance we add by understanding how the economics work, not just how the model works. These nuances ultimately impact policy, and so impact people’s lives as well.

Does IMPLAN have other applications?

Absolutely, we use IMPLAN across industries and the various types of work here at AG. In particular, we’ve used it in white papers for advocacy groups, regulators, and businesses that need a credible, independent analysis to support their position on an investment. For example, supporting filings for regulatory bodies such as those required for siting of new construction. Or to help companies answer questions about the relative benefits of building in one location versus another.

Another example where we’ve used it is when a public utility commission has to approve a merger. Or when a condition of the merger requires the client to quantify, on a factual basis, that there will be positive economic benefits flowing out of the merger.

Those uses can apply to any project where approval rests on an understanding of the economic tradeoffs – say, construction of a resort in a community. Will the resort boost spending and taxes sufficiently by bringing in tourists, or would it merely replace some alternative that would have had an equal effect? Will money pouring back into the economy pay for the increased wear and tear on the roads from tourist traffic?

There are also breach of contract cases, such as when someone was going to build but didn’t, and ended up getting sued for potential lost economic benefits. But it doesn’t necessarily have to involve a physical structure. Anytime an action or policy affects people, and there’s the question of either positive or negative macroeconomic impacts, we could use IMPLAN.

Have you seen any recent trends that might lend themselves to an IMPLAN analysis?

An interesting new application is for larger companies that are looking to add a higher level of transparency to their corporate sustainability reports. Our use of IMPLAN can put additional economic metrics behind, for instance, corporate responsibility investments in social justice or climate initiatives. And as companies consider ways to reduce their carbon footprints, incremental spending can and will have positive economic benefits that can be quantified and highlighted. The added context can demonstrate whether the company’s decisions were meaningful, and so inform decision making going forward. Ultimately, these analyses build trust that the numbers being put forth are rooted in rigorous analysis and thoughtful consideration.

Separately, across settings from litigation to the court of public opinion, there has been a movement to leverage the data that is now commonplace in any industry. As the volume of data has increased, courts, institutions, government agencies, and even the general public have begun to demand that available information be used rather than simply collected. Our approach to these analyses and our use of the IMPLAN platform combine to offer the rigorous and data-driven analysis that can be so powerful in these venues today. ■