Research 350 - NZ Transport Agency

2. APPROACHES TO ASSESSING NATIONAL ECONOMIC BENEFITS
An indication of the size of the exaggerated benefits in an economy only slightly larger
than New Zealand’s is provided by Dwyer, Forsyth, Spurr and Ho’s (2004) modelling of
a major sports event in NSW (equivalent to the Melbourne Formula One Grand Prix). For
a $51.3 million injection of expenditure, I-O modelling suggests a $38.9 million
increase in GSP while CGE modelling suggests a $19.4 million rise, a difference of
around 100% (Dwyer, Forsyth and Spurr, 2005, pp. 354-355).
• A related point is that the lack of constraints within I-O models means that they ignore
some ‘displacement effects’ on labour and capital. These arise due to constraints in
government budgets and resources and are most apparent at the national level. In
reality, when more resources are dedicated to the project, they are drawn away, at
least in part, from other productive uses. This is often ignored by I-O analysis.
In contrast, the diversion of productive resources away from other sectors is allowed
for within SCBA as a matter of course though measuring project opportunity costs (e.g.
construction costs).
• Producing a set of input-output tables requires data from a large number of sources
(from national accounts to specific industry sources) and ensuring their consistency is
a lengthy process. Input-output tables therefore reflect a considerable time lag, up to
five years. Further, data for regional (and sub-regional) I-O tables is often extremely
sparse, which can lead to speculative multiplier values, as discussed below.
The BTE has been particularly critical of multiplier models for their lack of model constraints.
For example, I-O analysis of a project’s employment effects during the construction phase
can indicate the impact of project employment effects but give a misleading impression as to
the impact on national (or ‘aggregate’) employment, as it ignores displacement effects on
employment elsewhere in the economy, caused by the crowding out of other investment.
In addition, the positive impacts on consumption spending, suggested in the ‘project
construction phase scenario’, given above, may not materialise at the national level. For
example, if a project is tax financed then disposable income will be redistributed rather than
increased. Thus, the indirect employment effects resulting from induced consumption,
suggested in the example above, are unlikely to materialize 11 (BTE 1999, pp. 50-51).
Since I-O analysis is often ‘sold’ as providing information to policymakers on issues such as
employment outcomes, (and it is frequently argued that such analysis indicates that transport
investment has created jobs, both in the construction and post-construction phases) this is
an important point.
Thus, I-O analysis and SCBA essentially measure different things and cannot be directly
compared.
11 BTE does point out that I-O analysis may be more appropriate on a regional level as the ignored
constraints, such as those on labour availability and mobility, may matter less and it is also conceivable
that induced consumption may create further employment (BTE 1999, p. 50). Of course, the ring-fencing
of the regional economy may also be kept in mind. For example, assume the national government uses
tax financing for transport in a ‘depressed’ region which makes little contribution to the national tax
base. In such a scenario, regional employment could conceivably be stimulated by induced consumption
effects, as the negative impacts of higher taxation are more then offset by the positive ones of higher
incomes associated with employment. Conversely, the national employment impacts would be quite
different, as noted above. Similar issues are further examined below.
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