Methodology and data utilized for the estimation of the economic impact of the UMass system
The economic impact of the University of Massachusetts system was estimated using IMPLAN (IMpact Analysis for PLANing), an econometric modeling system developed by applied economists at the University of Minnesota and the U.S. Forest Service. The IMPLAN modeling system has been in use since 1979 and is currently used by over 500 private consulting firms, university research centers, and government agencies.
The IMPLAN modeling system combines the U.S. Bureau of Economic Analysis' Input-Output Benchmarks with other data to construct quantitative models of trade flow relationships between businesses and between businesses and final consumers. From this data, one can examine the effects of a change in one or several economic activities to predict its effect on a specific state, regional, or local economy (impact analysis). The IMPLAN input-output accounts capture all monetary market transactions for consumption in a given time period. The IMPLAN input-output accounts are based on industry survey data collected periodically by the U.S. Bureau of Economic Analysis and follow a balanced account format recommended by the United Nations.
IMPLAN's Regional Economic Accounts and the Social Accounting Matrices were used to construct state-level multipliers which describe the response of the state economy to a change in demand or production as a result of the activities and expenditures of the University of Massachusetts system. Each industry that produces goods or services generates demand for other goods and services and this demand is multiplied through a particular economy until it dissipates through "leakage" to economies outside the specified area. IMPLAN models discern and calculate leakage from local, regional, and state economic areas based on workforce configuration, the inputs required by specific types of businesses, and the availability of both inputs in the economic area. Consequently, economic impacts that accrue to other regions or states as a consequence of a change in demand are not counted as impacts within the economic area.
The model accounts for substitution and displacement effects by deflating industry-specific multipliers to levels well below those recommended by the U.S. Bureau of Economic Analysis. In addition, multipliers are applied only to personal disposable income to obtain a more realistic estimate of the multiplier effects from increased demand. Importantly, IMPLAN's Regional Economic Accounts exclude imports to an economic area so the calculation of economic impacts identifies only those impacts specific to the economic impact area, in this case the Commonwealth of Massachusetts.
IMPLAN calculates this distinction by applying Regional Purchase Coefficients (RPC) to predict regional purchases based on an economic area's particular characteristics. The Regional Purchase Coefficient represents the proportion of goods and services that will be purchased regionally under normal circumstances, based on the area's economic characteristics described in terms of actual trade flows within the area.
Model Inputs and Data Sources
Model inputs included actual FY05 expenditures provided by the University Comptroller's Office for each of the five UMass campuses, UMassOnline and the UMass President's Office. Student spending was estimated using average student budget figures provided by the Institutional Research staff of the UMass President's Office.
Detailed non-payroll expenditures were allocated to IMPlan's 528 industry sectors by UMass Donahue Institute staff. Staff payroll and student expenditures were deflated to using a "disposable income factor" and subsequently input into IMPlan's household spending model which was used to estimate the local economic impact of the payroll spending of the employees and students of the University of Massachusetts system.
For more information please contact:
Michael D. Goodman, Ph.D.
Director of Economic and Public Policy Research
Office of the President, UMass Donahue Institute