Understand the Local Economy First

The essential starting point in developing an economic impact assessment is understanding the key concepts that are essential to the economic impact methodology. Just as you wouldn’t try and fix a computer without first understanding how it is put together, a film commissioner should have a basic understanding of how the local economy functions.

The economic base analysis is one of the best ways to develop this understanding of your local economy. With this tool, the key components of the economy can typically be broken down into two key sectors: basic and non-basic.

In other words, what determines the size and strength of a local economy? Jobs and wages are the best measures of local economic prosperity. We want to know the local unemployment rate, how many jobs have been created in the last year, or few years, and the average wages. Jobs in a community are based on consumer or business expenditures. If no money is spent, no jobs are created.

Expenditures come from two sources: local consumers and businesses, and outside consumers and businesses. A community’s economic growth is based on both of these sources. To understand the impact of a business or industry, it is essential to know which businesses obtain their revenue or funding from customers outside the community.

By conducting an EIA, it can be determined whether a new industry would primarily import new currency into the community or whether local existing currency would merely be re- circulated. Again, establishments that obtain their revenue from “customers” or sources outside of the local community are basic or base industries. The economic base of any community is determined by domestic and international exports. The film industry is an excellent model for demonstrating basic and non-basic elements.

A film crew shooting in a community brings in dollars from external sources. Dollars flow from the production company into the local economy through the actors, crew, talent, and extras hired, food bought, accommodations, car rentals, construction material and more. This type of basic activity ensures that a community receives the maximum impact with local income and shows how the film industry has an extremely positive economic impact and is positive for economic development.

When that same film is released, the economic model shifts to non-basic as the dollars spent at local theaters are, in part, sent to the owner and distributor of the film who are likely external to the community. Economic developers and, in many cases, the elected officials that they represent, have traditionally focused on attracting basic industries to their communities to create a greater level of income and, therefore, impact.

Basic and non-basic establishments are mutually dependent. The relationship between the two is important as basic jobs need to be developed to support additional non-basic employment. By examining a region’s economy, it is possible to estimate how many local, non-basic jobs are supported by the basic (export) based industries. This is the starting point for multiplier analysis, whereby one can measure how many non-basic jobs are supported by employment in basic industries.