2022-11-14 GC Agenda - Item 4 - Attachment 2 - Appendix 13 to Attachment 1

NOOSA SHORT STAY ACCOMMODATION ECONOMIC & SOCIAL ASSESSMENT


MODEL DEVELOPMENT
Multipliers used in this assessment are derived from sub-regional transaction tables developed specifically for this
project. The process of developing a sub-regional transaction table involves developing regional estimates of gross
production and purchasing patterns based on a parent table, in this case, the 2018-19 Australian transaction table
(ABS, 2021a).

Estimates of gross production (by industry) in the study areas were developed based on the percent contribution
to employment (by place of work) of the study areas to the Australian economy (ABS, 2012; ABS, 2017a; ABS,
2021b; DoESE, 2021), and applied to Australian gross output identified in the 2018-19 Australian table.

Industry purchasing patterns within the study area were estimated using a Flegg Location Quotient approach, as
described in Flegg et al. (2021), with a fixed degree of convexity applied to the regional size scalar. Regional final
demand estimates (except exports) developed based on the regional inter-industry sales estimated using the Flegg
Location Quotient relative to national inter-industry sales and final demand estimates for each industry (noting
regional exports are assumed to reflect the remainder of total uses).

Employment estimates were rebased from 2018-19 (as used in the Australian national Input-Output transaction
tables) to current year values using the Wage Price Index (ABS, 2022a).


MODELLING ASSUMPTIONS
The key assumptions and limitations of Input-Output analysis include:

•   Lack of supply-side constraints: The most significant limitation of economic impact analysis using Input-
    Output multipliers is the implicit assumption that the economy has no supply-side constraints so the supply of
    each good is perfectly elastic. That is, it is assumed that extra output can be produced in one area without
    taking resources away from other activities, thus overstating economic impacts. The actual impact is likely to
    be dependent on the extent to which the economy is operating at or near capacity.

•   Fixed prices: Constraints on the availability of inputs, such as skilled labour, require prices to act as a rationing
    device. In assessments using Input-Output multipliers, where factors of production are assumed to be limitless,
    this rationing response is assumed not to occur. The system is in equilibrium at given prices, and prices are
    assumed to be unaffected by policy and any crowding out effects are not captured. This is not the case in an
    economic system subject to external influences.

•   Fixed ratios for intermediate inputs and production (linear production function): Economic impact
    analysis using Input-Output multipliers implicitly assumes that there is a fixed input structure in each industry
    and fixed ratios for production. That is, the input function is generally assumed linear and homogenous of
    degree one (which implies constant returns to scale and no substitution between inputs). As such, impact
    analysis using Input-Output multipliers can be seen to describe average effects, not marginal effects. For
    example, increased demand for a product is assumed to imply an equal increase in production for that product.
    In reality, however, it may be more efficient to increase imports or divert some exports to local consumption
    rather than increasing local production by the full amount. Further, it is assumed each commodity (or group of
    commodities) is supplied by a single industry or sector of production. This implies there is only one method
    used to produce each commodity and that each sector has only one primary output.

•   No allowance for economies of scope: The total effect of carrying on several types of production is the sum
    of the separate effects. This rules out external economies and diseconomies and is known simply as the
    “additivity assumption”. This generally does not reflect real world operations.

•   No allowance for purchasers’ marginal responses to change: Economic impact analysis using multipliers
    assumes that households consume goods and services in exact proportions to their initial budget shares. For
    example, the household budget share of some goods might increase as household income increases. This
    equally applies to industrial consumption of intermediate inputs and factors of production.

•   Absence of budget constraints: Assessments of economic impacts using multipliers that consider
    consumption induced effects (type two multipliers) implicitly assume that household and government
    consumption is not subject to budget constraints.



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