Economic impacts are the effects a project or policy has on the economy of a designated project area, measured in terms of the change in business sales, jobs, value added, income,or tax revenue. These effects are sometimes referred to as "economic development impacts". Whereas Benefit-Cost Analysis is an exercise to determine an action's social welfare effects (compared to costs), Economic Impact Analysis is an exercise to determine how a project or policy affects the amount and type of economic activity in a region.
Economic impacts can result from various sources, including time savings to businesses, household and business vehicle operating cost savings, the strengthening of local and regional market connectivity, induced land development, or increased tourism. In all cases, economic impacts arise because a transportation investment causes a change in prices, a change in household behavior, or a change in business behavior that improves business investment, attraction, expansion, retention, or competitiveness in the study area (when impacts are positive - of course, they can be negative as well).
Economic impacts are not included in benefit-cost analysis (with the exception of productivity impacts, discussed below). Economic development impacts occur as the end result of direct impacts of a transportation project on travelers and non-travelers. A transportation project may improve local business competitiveness (and hence economic growth) by reducing existing transportation costs (for employees and freight), expanding markets for business sales and services (providing more revenue with economies of scale in operations), and expanding labor market access (providing access to a broader job base). A transportation project may also affect economic growth by saving money for area residents (increasing available income to spend elsewhere in the economy) or by improving the attractiveness of the area as a place for people to live and locate their business activities.
Because the practices address different questions, they can frequently be used in a complementary way to describe a broad set of outcomes from a project or policy. In particular, there are many times when the societal and local economic perspective are both relevant for planning purposes. Further, Transportation planning agencies are often interested in assessing economic impacts because they can indicate how well a project addresses three types of societal goals:
P. Chapman and J. Stephens. The Economic Impacts of Transport Projects: Developing Guidence in the UK, UK Dept. of the Environment, Transport and the Regions. Available at: www.marshall.edu/ati/tech/PortlandConference/updatedPDFs/Portland_Chapman.pdf.
CTE (Center for Transportation and the Environment) (2008), Improved Methods For Assessing Social, Cultural, And Economic Effects Of Transportation Projects, NCHRP Project 08-36, Task 66, TRB (www.trb.org) and the American Association of State Highway and Transportation Officials (AASHTO). Available at: www.statewideplanning.org/_resources/234_NCHRP-8-36-66.pdf.
DFID (2003), Social Benefits in Transport Planning, UK Department for International Development (www.transport-links.org). Available at: www.transport-links.org/transport_links/projects/projects_document_page.asp?projectid=322).
DfT (2006), Transport Analysis Guidance, Integrated Transport Economics and Appraisal, UK Department for Transport (www.webtag.org.uk/index.htm).
Economic Development Research Group (no date), Transportation and Economic Development. Available at: www.edrgroup.com/edr1/library/lib_trans.
FHWA, Toolbox for Regional Policy Analysis Website (www.fhwa.dot.gov/planning/toolbox/index.htm) describes analytical methods for evaluating regional economic, social and environmental impacts of transportation and land use policies.
David Forkenbrock and Glen Weisbrod (2001), Guidebook for Assessing the Social and Economic Effects of Transportation Projects, Transportation Research Board NCHRP Report 456, Washington, D.C., National Academy Press. Available at: http://gulliver.trb.org/publications/nchrp/nchrp_rpt_456-a.pdf and http://gulliver.trb.org/publications/nchrp/nchrp_rpt_456-b.pdf
GTKP (2011), Economic Analysis for Multilateral Development Banks, Global Transport Knowledge Partnership (www.gtkp.com). Available at: www.gtkp.com/theme.php?themepgid=121.
D. Simmonds (1999), Analysis of Transport Schemes: Economic Impact Studies. UK Dept. of the Environment, Transport and the Regions. Standing Advisory Committee on Trunk Road Assessment. Available at: www.dft.gov.uk/stellent/groups/dft_transstrat/documents/page/dft_transstrat_504939.pdf
TRISP (2005), Economic Evaluation Notes, UK Department for International Development and the World Bank (www.worldbank.org). Available at: http://go.worldbank.org/ME49C4XOH0.
Glen Weisbrod (2000), Current Practice for Assessing Economic Development Impacts from Transportation Projects. Transportation Research Board NCHRP Synthesis Report 290, National Academy Press, Washington, DC. Available at: www.edrgroup.com/edr1/library/lib_trans_general/P038-synthesis-highway-econ.shtml
Glen Weisbrod and M. Grovak (1998),"Comparing Approaches for Valuing Economic Development Benefits of Transportation Projects," Transportation Research Record 1649 Journal of the Transportation Research Board. (Updated version presented at Transport Association of Canada Benefit-Cost Symposium, 2001.) Available at: http://www.edrgroup.com/pages/pdf/Comparing-Approaches.pdf
C. Wornum, et al. (1998), Economic Impact Analysis of Transit Investments: Guidebook for Practitioners. Transportation Research Board TCRP Report 35, National Academy Press, Washington D.C. Available at: http://gulliver.trb.org/publications/tcrp/tcrp_rpt_35.pdf