Economic Impact Calculations: Key Concepts and Definitions

Economic impact models estimate the total economic activity that results from a new source of economic influence. The new economic influence is often referred to as an economic stimulus. Consider as an example an existing regional economy operating at normal levels when a new economic influence is injected into the economy in the form of demand for a new home. The development of the new home serves as a regional economic stimulus, and the total economic activity that results from home construction likely exceeds the value of the new home. New home construction may require purchases from local lumberyards. The lumberyard, in turn, requires additional labor hours to fill the new order. The lumberyard requires, as well, new purchases from their wholesale provider to maintain inventory levels, which in turn require a trucking or distribution service to make the lumber delivery to the lumberyard. At each layer of activity, new income is generated as workers work extra hours to accommodate the new order, wholesale purchase and delivery. A portion of the extra income will be spent locally on restaurant meals, entertainment, clothing, health care and other industries. The spending starts a second wave of economic activity as these providers respond much as the lumberyard did to meet the new demand. By the end of the process, the total new production in the local economy and the total new employment and income generated in the local economy exceed that which was required simply to build the new home. The difference between the new economic influence and the total economic influence is referred to as the economic multiplier, or economic spillover effect.

Estimating the total economic impact of the Cherokee Nation involves building models of the 14 counties operating at normal levels. Cherokee Nation purchases from local vendors in those counties serve as an economic stimulus in those counties, just as the original purchase from the lumberyard did in the illustration above. A second source of economic impacts stems from the change in local income as Cherokee Nation employees carry their paychecks home to their home counties to be spent in the local economy.

The process begins by identifying the Cherokee Nation direct economic footprint in each county. The direct impact to output (local production), employment and income was summarized and presented previously. The table below reviews and defines the components of the Cherokee Nation direct economic footprint as defined in this report.

 

SOURCES OF DIRECT ECONOMIC FOOTPRINT
Direct Output CN and/or CNB production of goods and services: For CNB entities, total revenue serves as the measure of production; for CN operations, budget allocations serve as a proxy for production.

Direct Labor Income Measure of labor compensation, including salary and benefits paid to Cherokee Nation employees; direct labor income is reported by the county in which the job is located.

Direct Employment CN and/or CNB employees, both full- and part-time; direct employment is reported by the county in which the job is located.

Direct Vendor Purchases First-line purchases of inputs by CN and CNB operations; reported in this document as a source of direct output.


The Cherokee Nation’s direct economic footprint and total economic impact are reported for three broad measures of local economic activity. They are output (or local production of goods and services), employment (includes both full- and part-time employment) and labor income (includes the total value of compensation, including wage payments and benefits). The measures of economic activity are summarized and defined below, with all dollar measures reported in 2016 values.

 

ECONOMIC IMPACT CONCEPTS
Output The value of all goods and services produced in the local economy.

Employment The number of jobs supported in the local economy; includes both full- and part-time employment and may represent either a new job or expansion of hours from an existing job.

Income The value of compensation, including wages, salaries and benefits.


The economic impact concepts and sources of direct economic footprint are defined exactly as in previous reports. However, the impact methodology has changed considerably for the FY 2016 report, necessitating a brief overview of the process and the impact reported.

Previous impact reports were estimated in a single-region framework. In this approach, a county’s economy was stimulated by an initial bundle of vendor purchases and/or an initial increase in household income from Cherokee Nation labor payments. The impacts include all spillover, or multiplier activity, that stayed within the county. The impacts reported in previous studies omitted important spillovers that occurred outside the original county but within the Cherokee Nation jurisdiction. The impacts also omitted all feedback effects from spillovers back into the original county. These omitted impacts are estimated and reported for the first time in this study.

To capture these previously omitted impacts, multiregional input-output models were developed for each county, explicitly linking via estimated trade flows the economy of one county with that of every other Cherokee Nation county. Consider as an example the relationship between Cherokee County and Rogers County in a simple two-region model. Cherokee Nation vendor purchases from vendors in Rogers County serves as a source of direct economic influence in Rogers County. As vendors respond to this new demand, additional economic activity is realized. A portion of this new economic activity will occur outside of Rogers County, with some of the activity realized in Cherokee County. These spillover impacts into Cherokee County are now estimated, recorded and reported with the impact estimates in Cherokee County. This newly captured activity may induce feedback effects supporting additional economic activity in Rogers County. These feedback effects are now estimated, recorded and reported with the Rogers County impacts. Thus, for both vendor purchases and household spending, there are two new sources of impacts captured – feedback impacts and county spillover impacts – that were not available using the single region models in previous reports.

The multiregional modeling approach brings to light economic impacts that were known to exist but were unaccounted for in previous reports. This methodological innovation advances the understanding of the importance of Cherokee Nation activity on the regional economy.

 

ALL SOURCES OF ECONOMIC ACTIVITY
CN Direct Contribution Direct economic impact from operations; specifically includes production from internal operations, employment at the location of the job and income at the location of the job.

CN Vendor Purchases Value of the goods and services purchased by a CN/CNB entity from a local vendor; measured at the location of the vendor.

CN Vendor Response and Feedback Impacts Measures indirect economic activity resulting from the change in activity by the vendor, including feedback effects; measured and reported for the county in which the vendor is located.

CN Spillover Impacts from Outside County Vendor Purchases Measures indirect economic activity in the reported county resulting from a vendor purchase in another CN county; measured and reported at the impact county.

CN Employee & Vendor Spending and Feedback Impacts Measures the economic activity generated by households as they spend a portion of their income locally; measured at the county of residence of the employee.

CN Spillover Impacts from Outside County Employee and Vendor Income Spend Measures the economic activity generated in the reported county from household spending originating in another CN county; measured and reported at the impact county.


Total economic impacts are estimated and reported for each source of economic activity above. While the multiregional approach employed in this report disproportionately benefits counties that serve as regional trade hubs, all counties benefit from this more complete capture of economic activity.