Economic Impact Assessment

In Economic Analysis Team

Economic impact assessment / economic impact analysis (EIA) conducted by EY EAT is a formalised analysis of the overall economic impact of a single firm, investment project or sector on the national and/or local economy.

Related topics Economic Analysis Team Consulting Data and decision intelligence Supply chain Global trade Nonfinancial reporting Climate change and sustainability

The team

Marek Rozkrut

Marek Rozkrut

EY EU & CESA Chief Economist; EMEIA Economists Unit Head

What EY can do for you

Economic impact assessment (EIA) conducted by EY EAT is a formalised analysis of the overall economic impact of a single firm, investment project or sector on the national and/or local economy.

This impact consists not only of the goods or services produced, jobs generated or taxes paid by the company/investment/sector itself. In fact, it is much wider and includes the generation of additional production in the economy: by the suppliers, via spending of all employees in the supply chain and the analysed company/investment/sector itself (so-called “upstream” or “demand” effects), and sometimes also via effects on distribution/sales chains (so-called “downstram” or “supply” effects) and/or related to product’s characteristics (so-called “catalytic effects”). 

What distinguishes EY EAT from the competition is the development of the unique EY Spectrum model that allows EY EAT to conduct economic impact assessment analyses not only at the national but also at the local level (for example at the NUTS-3 level for any EU country, at counties level in the US).

  • What are the outcomes?

    Calculation of multiplier effects / quantitative assessment of how the company/investment/sector contributes – through direct, indirect and induced effects – to:

    • Gross value added
    • Number of persons employed
    • Households’ disposable income
    • Government revenues:
      • By sources: PIT, CIT, VAT, excise duties, social insurance contributions and other taxes
      • By subsectors: central government, local governments and social security funds

    Usually, EIA analyses present the impact on the national economies. EY EAT offers its Clients the possibility to extend this perspective by taking a look on the local economy. This is important since:

    • The impact of many enterprises/investments on the country level may appear relatively limited, while some of them still play a critical role for their own regions
    • The economic impact of a given company/investment is concentrated in certain regions – usually (but not necessarily) in its neighbourhood

    Company’s annual contribution to government revenues (example)

    Company’s annual contribution to government revenues

    Number of jobs in different sectors, supported annually as a result of the company’s activity (example)

    Company’s direct contribution to the number of jobs (example) 

    Company’s total (direct, indirect and induced) contribution to the number of jobs (example)

  • What purpose can it serve?

    • Results of EIA analysis grabs media’s attention. In this way it can enhance the communication process related to the Client’s business activity.
    • It can help to communicate to internal and external stakeholders about the Client’s actual contribution to the national and local economy.
    • It supports the Client in communication with central and local authorities (e.g. on how the Client’s planned investment translates into job creation, GDP growth and improvement in the public finance).
    • It can supplement CSR reports – providing the stakeholders with additional insights into the value that the Client delivers.

  • How does it work?

    In most cases, EIA distinguishes three types of effects:

    Direct effects

    • A contribution of the analysed company, investment project or sector itself to the economy (e.g. in terms of the firm/project/sector’s value added or the number of employees hired by the firm/sector).

    Indirect effects

    • In order to operate and “produce” direct effects, the analysed company/project/sector needs to cooperate with other firms/sectors from which it acquires goods and services. But those firms/sectors also have their suppliers. Those suppliers in turn cooperate with yet additional companies. Consequently, indirect effects are measured all along the whole supply chain.

    Induced effects

    • Each entity involved in the supply chain pays compensation to their employees. Those employees spend part of their salaries on goods and services. This contributes to additional demand in the economy which in turn generates yet additional production and – in effect – additional profits, value added, employment, taxes, etc.

    At EY, EIA analyses are conducted with the EY Spectrum model. It is a unique, extended version of the popular input-output model. Contrary to the standard input-output model, it allows us to analyse regional distribution of effects.

    All in all, the results are delivered in the following breakdown:

    Measures Sectors Regions Types of effects
    Value added/GDP ca. 70-80 sectors
    (depending on the country)    		 Country specific.
    For example:
    NUTS-3 level in the EU,
    counties in the US

    		 Direct
    Jobs created Indirect
    Central government revenues by types Induced
    Local government revenues by types Total

    EIA conducted by EY EAT can also include spill-over effects generated through downstream and catalytic effects. In this case, the approach is always tailored to the specific case. 

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