Tools for Regional Economic Development: Regional I/O Models & Cluster Identification Brian Richard, PhD Center for Governmental Studies Northern Illinois University brichard@niu.edu
Outline Comparison of available I/O models Methods for identifying regional clusters Selecting important sectors Value chain Pitfalls
Modeling Software www.implan.com www.bea.gov www.economicmodeling.com www.remi.com
Modeling Software BEA RIMS II multipliers Regional Input Output Modeling System Multipliers are purchased from BEA (not a software package) Multipliers for all industries in a given region, $275 State level multipliers for a single industry, $75 BEA collects the data for the input output tables upon which other modeling software packages are based. Source: www.bea.gov
Modeling Software IMPLAN IMpact analysis for PLANning Helps address questions like How does the local economy function? What would the economic consequences of this project be? What would the effect of this company/base closure be? Source: www.implan.com
Modeling Software IMPLAN Multipliers Output multipliers based on inter industry transactions Income, employment and value added multipliers are based on output multipliers Source: www.implan.com
Modeling Software Source: www.implan.com
Modeling Software IMPLAN data Data must be purchased to perform impact analysis Single county, $390 State package (all counties in state) Illinois $3,850 Wisconsin $3,280 Source: www.implan.com
Modeling Software The REMI model incorporates aspects of four major modeling approaches: Input Output General Equilibrium Econometric Economic Geography Source: www.remi.com
Modeling Software PI+ (Policy Insight) generates realistic year by year estimates of the total regional effects of any specific policy initiative. A wide range of policy variables allows the user to represent the policy to be evaluated, while the explicit structure in the model helps the user to interpret the predicted economic and demographic effects. Source: www.remi.com
Modeling Software Source: www.remi.com
Modeling Software Source: www.remi.com
Modeling Software REMI pricing Illinois (all counties) Initial Annual maintenance Illinois (10 regions) Source: www.remi.com
Cluster Analysis Analytical tools explored Location Quotient Shift Share Analysis Input Output Models These tools can be used together to identify important clusters in a region
Cluster Analysis Clusters geographic concentrations of interconnected companies, specialized supplies, service providers, firms in related industries, and associated institutions (Porter, 2001, p.7). Firms in an industry cluster may interact through purchase sale relationships; interfirm collaboration in product development, marketing, or research; or a shared reliance on specialized services and labor markets (Barkley & Henry, 2005, p. 3).
Cluster Analysis Advantage of targeting industry clusters Clustering strengthens localization economies Specialized input suppliers, workers, infrastructure Interfirm technology transfer Clustering facilities industrial reorganization Adoption of new technologies easier Proximity of specialized suppliers and markets Pool of skilled labor Clustering encourages networking among firms Source: Barkley & Henry, 2005
Cluster Analysis Advantage of targeting industry clusters Clustering results in larger local economic impacts Higher multiplier effects Clustering facilitates entrepreneurial activity Clusters & entrepreneurial activity reinforce one another Especially important in small clusters or in declining industries Source: Barkley & Henry, 2005
Cluster Analysis Disadvantages of targeting industry clusters Difficulty in picking winners Industry targeting is not an exact science Source: Barkley & Henry, 2005
Cluster Analysis Approaches to identifying industry clusters using benchmarks Comprehensive benchmarks Applies industry groupings for a relevant reference area (i.e. nation) to regional data to identify potential clusters Focused benchmarks Applies industry groupings for a relevant reference area (i.e. nation) to selected industries within a region to identify potential clusters Source: Feser, Renski, & Koo
Cluster Analysis Approaches to identifying industry clusters Regional Cluster Analysis with Interindustry Benchmarks (Feser, Renski, & Koo) Comprehensive benchmarks Targeting Industry Clusters for Regional Economic Development (Barkley & Henry) Focused benchmarks
Cluster Analysis Regional Cluster Analysis with Interindustry Benchmarks Interindustry benchmarks Classifications of interrelated industries that have been developed from analyses of interindustry relationships undertaken for a region (or set of regions) other than the one under study (p. 3). Use national data as the basis for local analysis Source: Feser, Renski, & Koo
Cluster Analysis Regional Cluster Analysis with Interindustry Benchmarks National clusters serve as templates for regional analysis (comprehensive approach) By grouping those firms that are most likely to interact with each other, both directly and indirectly [using national input output data], the templates reveal relative specializations in the regional economy by exposing otherwise opaque extended product chains (p. 4). Source: Feser, Renski, & Koo
Cluster Analysis Regional Cluster Analysis with Interindustry Benchmarks Applies a clustering algorithm to national inputoutput data to identify groups of related industries Identifies potential location of clusters using employment location quotients and growth within each cluster Also employs a diversity index to determine similarity between regional and national clusters Source: Feser, Renski, & Koo
Cluster Analysis Regional Cluster Analysis with Interindustry Benchmarks May identify clusters that weren t obvious Professional services, administrative support, wholesale May misidentify clusters Largest component of arts & media cluster are durable & non durable goods wholesalers and professional, scientific, and technical services These sectors appear in many other clusters The core industries in this cluster are much smaller Source: Feser, Renski, & Koo
Cluster Analysis Targeting Industry Clusters for Regional Economic Development Identify industry concentrations with recent regional employment growth Construct value chains for the industries selected Rank selected industry clusters by expected economic impacts on the local economy Source: Barkley & Henry, 2005
Cluster Analysis Targeting Industry Clusters for Regional Economic Development Industry concentration screening criteria (manufacturing) Minimum number of establishments Minimum employment Employment growth LQ > 1 or LQ growth Positive industry competitiveness measure Regional Shift portion of shift share analysis Source: Barkley & Henry, 2005
Cluster Analysis Targeting Industry Clusters for Regional Economic Development Cluster value chains National IMPLAN (input output) data used to identify top 5 input suppliers and top 5 product markets for each industry cluster Manufacturing industries with 5 or more linkages to the industry clusters were identified as industries that might find the region attractive Source: Barkley & Henry, 2005
Cluster Analysis Targeting Industry Clusters for Regional Economic Development Cluster rankings National employment growth Average establishment size Average wages Fixed assets per employee Industry multipliers Import substitution Source: Barkley & Henry, 2005
Cluster Analysis These techniques provide guidance on where to look for regional clusters Provide no direct evidence of local interindustry ties Valuable as a tool for understanding a region s economic niches within a larger national economy A starting point for more in depth analysis of local linkages Source: Feser, Renski, & Koo
Cluster Analysis Based on these analysis, local officials might investigate why their region has developed some industries in a cluster and not others Sometimes this is related to policies Human capital Other time it is not Nearby natural resources Source: Feser, Renski, & Koo
Cluster Analysis Cluster analysis exercise: identifying clusters in the SOI region Data: Quarterly Census of Employment and Wages (QCEW)
Cluster Analysis Cluster analysis exercise: identifying clusters in the SOI region 4 digit NIACS sector screening criteria Manufacturing sector 2012 employment > 500 LQ > 1 Positive RS portion of shift share Exceptions Employment > 2000 LQ > 2
SOI Industry Clusters NAICS IMPLAN Industry SOI Employment 2012 Total 317,920 3327 195 Machine shops 6,158 3339 233 Fluid power process machinery 5,420 3335 220 Cutting tool and machine tool accessory manufacturing 3,059 3261 149 Other plastics product manufacturing 2,622 3363 283 Motor vehicle parts manufacturing 2,350 3329 202 Other fabricated metal manufacturing 1,677 3328 197 Coating, engraving, heat treating and allied activities 1,531 3119 65 Snack food manufacturing 1,437 3352 265 Other major household appliance manufacturing 1,349 3333 213 Other commercial and service industry machinery manufacturing 1,343 3336 225 Other engine equipment manufacturing 1,331 3323 186 Plate work and fabricated structural product manufacturing 1,326 3231 113 Printing 1,315 3345 250 Automatic environmental control manufacturing 1,166 3321 183 Crown and closure manufacturing and metal stamping 1,156 3391 306 Surgical appliance and supplies manufacturing 887 3315 179 Ferrous metal foundries 752 3262 152 Other rubber product manufacturing 618 Italics: Industries with negative RS shift share components
SOI Industry Clusters NAICS IMPLAN Industry US Growth 2012 National Annual Average Pay Income Multiplier SOI LQ 2012 Total 3119 65 Snack food manufacturing 14.6% $ 53,019 1.43 2.88 3231 113 Printing 31.7% $ 44,628 1.86 1.00 3261 149 Other plastics product manufacturing 19.2% $ 46,646 1.61 1.77 3262 152 Other rubber product manufacturing 26.8% $ 51,424 1.35 1.66 3315 179 Ferrous metal foundries 22.2% $ 50,970 1.71 2.04 3321 183 Crown and closure manufacturing and metal stamping 9.0% $ 55,346 1.46 4.09 3323 186 Plate work and fabricated structural product manufacturing 10.0% $ 48,160 1.39 1.35 3327 195 Machine shops 16.7% $ 49,755 2.16 5.95 3328 197 Coating, engraving, heat treating and allied activities 4.7% $ 44,779 1.51 3.93 3329 202 Other fabricated metal manufacturing 4.6% $ 57,358 1.61 2.17 3333 213 Other commercial and service industry machinery manufacturing 24.4% $ 66,681 1.54 5.23 3335 220 Cutting tool and machine tool accessory manufacturing 12.8% $ 55,589 1.43 6.00 3336 225 Other engine equipment manufacturing 8.3% $ 74,166 1.56 4.56 3339 233 Fluid power process machinery 4.5% $ 62,925 1.49 7.49 3345 250 Automatic environmental control manufacturing 7.1% $ 90,405 1.46 1.01 3352 265 Other major household appliance manufacturing 38.8% $ 55,673 1.53 8.28 3363 283 Motor vehicle parts manufacturing 30.9% $ 55,126 1.68 1.69 3391 306 Surgical appliance and supplies manufacturing 1.6% $ 64,457 1.81 1.00 Italics: Industries with negative RS shift share components
Cluster Analysis Value Chains for SOI clusters For each of the 18 cluster industries, IMPLAN data are used to identify The top five input supplier industries The top five product markets Source: Barkley & Henry, 2005
SOI Industry Clusters Suppliers of inputs IMPLAN Commodity Industry count 319 Wholesale trade distribution services 17 170 Iron and steel and ferroalloy products 12 381 Management of companies and enterprises 9 356 Securities, commodity contracts, investments, and related services 8 127 Plastics materials and resins 5 283 Motor vehicle parts 3 243 Semiconductor and related devices 2 171 Steel products from purchased steel 2 186 Plates and fabricated structural products 2 195 Machined products 2
SOI Industry Clusters Purchasers of production Code Industry Industry count 283 Motor vehicle parts manufacturing 13 36 Construction of other new nonresidential structures 7 38 Construction of other new residential structures 7 205 Construction machinery manufacturing 5 34 Construction of new nonresidential commercial and health care structures 4 276 Automobile manufacturing 4 206 Mining and oil and gas field machinery manufacturing 3 225 Other engine equipment manufacturing 3 243 Semiconductor and related device manufacturing 3 319 Wholesale trade businesses 3 397 Private hospitals 3
SOI Industry Clusters Linked Industries IMPLAN Commodity Inputs Markets 319 Wholesale trade businesses 17 3 283 Motor vehicle parts manufacturing 3 13 170 Iron and steel and ferroalloy products 12 381 Management of companies and enterprises 9 356 Securities, commodity contracts, investments, and related services 8 36 Construction of other new nonresidential structures 7 38 Construction of other new residential structures 7 127 Plastics materials and resins 5 205 Construction machinery manufacturing 5 243 Semiconductor and related device manufacturing 2 3 34 Construction of new nonresidential commercial and health care structures 4 195 Machine shops 2 2 276 Automobile manufacturing 4 206 Mining and oil and gas field machinery manufacturing 3 225 Other engine equipment manufacturing 3 397 Private hospitals 3 37 Construction of new residential permanent site single and multi family structures 2 171 Steel products from purchased steel 2 186 Plates and fabricated structural products 2 198 Valve and fittings other than plumbing manufacturing 2 203 Farm machinery and equipment manufacturing 2 278 Heavy duty truck manufacturing 2 413 Food services and drinking places 2
Methodology Pitfalls Measures are potentially too broad Market for 250 Automatic Environmental Controls Industry Description Inputs 0 Total Industry Demand 38 Construction of other new residential structures 22.7% 36 Construction of other new nonresidential structures 13.8% 34 Construction of new nonresidential commercial and health care 9.0% 283 Motor vehicle parts manufacturing 6.4% 265 Other major household appliance manufacturing 6.3% 58.2%
Methodology Pitfalls Measures are potentially too broad IMPLAN sector 319 = NAICS 42 NAICS Industry SOI LQ 2012 4231 Motor vehicle and parts merchant wholesalers 1.95 4232 Furniture and furnishing merchant wholesalers 0.04 4233 Lumber and const. supply merchant wholesalers 2.54 4234 Commercial equip. merchant wholesalers 0.46 4235 Metal and mineral merchant wholesalers 1.90 4236 Appliance and electric goods merchant whls. 0.83 4237 Hardware and plumbing merchant wholesalers 1.19 4238 Machinery and supply merchant wholesalers 1.12 4239 Misc. durable goods merchant wholesalers 1.26 4241 Paper and paper product merchant wholesalers 0.49 4242 Druggists' goods merchant wholesalers 0.19 4243 Apparel and piece goods merchant wholesalers 0.00 4244 Grocery and related product wholesalers 0.99 4245 Farm product raw material merch. whls. 0.00 4246 Chemical merchant wholesalers 1.27 4247 Petroleum merchant wholesalers 0.23 4248 Alcoholic beverage merchant wholesalers 0.44 4249 Misc. nondurable goods merchant wholesalers 1.45 42 Wholesalers 1.00
Methodology Pitfalls Measures are potentially too broad Impacts vary across the region NAICS Industry Winnebago Walworth Rock Racine Kenosha Boone SOI 42 Wholesalers 0.91 0.73 1.73 0.86 0.98 0.27 1.00
Methodology Pitfalls Measures are potentially too broad NAICS Industry Winnebago Walworth Rock Racine Kenosha Boone SOI 4231 Motor vehicle and parts merchant wholesalers 0.89 0.49 4.35 2.84 2.00 0.45 1.95 4232 Furniture and furnishing merchant wholesalers 0.12 0.00 0.00 0.00 0.00 0.00 0.04 4233 Lumber and const. supply merchant wholesalers 1.49 1.30 10.41 0.53 0.52 0.00 2.54 4234 Commercial equip. merchant wholesalers 0.36 0.45 0.00 0.65 1.13 0.00 0.46 4235 Metal and mineral merchant wholesalers 4.70 0.00 0.87 0.55 0.00 0.00 1.90 4236 Appliance and electric goods merchant whls. 1.25 0.38 0.65 0.45 1.10 0.00 0.83 4237 Hardware and plumbing merchant wholesalers 1.16 0.73 3.91 0.00 0.26 0.82 1.19 4238 Machinery and supply merchant wholesalers 1.40 1.11 1.38 0.92 0.53 0.85 1.12 4239 Misc. durable goods merchant wholesalers 1.42 1.24 2.73 0.36 0.58 0.90 1.26 4241 Paper and paper product merchant wholesalers 0.68 0.66 0.67 0.36 0.00 0.00 0.49 4242 Druggists' goods merchant wholesalers 0.56 0.00 0.00 0.00 0.00 0.00 0.19 4243 Apparel and piece goods merchant wholesalers 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4244 Grocery and related product wholesalers 0.53 1.04 0.39 1.04 3.04 0.00 0.99 4245 Farm product raw material merch. whls. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4246 Chemical merchant wholesalers 0.76 1.11 0.68 3.09 1.09 0.00 1.27 4247 Petroleum merchant wholesalers 0.44 0.00 0.47 0.00 0.00 0.00 0.23 4248 Alcoholic beverage merchant wholesalers 1.26 0.00 0.00 0.00 0.00 0.00 0.44 4249 Misc. nondurable goods merchant wholesalers 0.31 1.41 4.84 1.88 0.06 0.40 1.45 42 Wholesalers 0.91 0.73 1.73 0.86 0.98 0.27 1.00
Tools for Regional Economic Development: Regional I/O Models & Cluster Identification Brian Richard, PhD Center for Governmental Studies Northern Illinois University brichard@niu.edu