Regional economic accounting methods

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Regional economic accounting methodologies may be useful and complementary tools to cost benefit analysis (CBA) for assessing socioeconomic impact of environmental measures or environmental degradations when their indirect impacts may be of such significance and magnitude that important regional income multiplier effects may be generated.

When to use regional economic accounting methodologies?

Assessing the economic impact of environmental measures or environmental degradations may be done through cost benefit analysis (CBA). However, indirect impacts on other sectors (sectors not directly targeted by the measure or not directly impacted by the degradation) often should be excluded from the analysis. When such indirect impacts are important enough to affect the economy of a region (i.e. direct economic benefits or costs result in additional or reduced economic activities in the region), regional accounting methods may be suitable and complementary to CBA. They might be applied for instance for the estimation of the indirect benefits resulting from the restoration of fish yield by reducing suspended sediment concentration in waters of a given coastal area.

The resulting regional income/employment effects may be quantified through the use of input-output matrix (I-O), supply chain analysis, computable general equilibrium (CGE) or accounts environmentally adjusted. It is important to mention the fact that none of these four accounting methodologies mentioned above is perfect since each present advantages and disadvantages as presented further. For instance, supply chain analysis has the disadvantage of taking into account fewer indirect impacts than I-O tables. I-O tables assume linear relations between inputs and outputs from different sectors as well as linear relations between outputs and final demand, which does not always correspond to reality. However, some have validated their input-output model with historical data and obtained some simulated results quite close to historical data (see Idenburg and Wilting, 2000[1]). CGE models are complex to implement and their results are highly dependents on key economic parameters on which remain uncertainties. In addition, those models are expensive and time consuming (it takes months to years to build a CGE model).

For more details on regional accounting, follow these links :

References

  1. Idenburg A. M., Wilting H.C., 2000. DIMITRI : a dynamic Input-output Model to study the Impacts of technology Related Innovations. Paper to be presented at the WIII International Conference on Input-Output techniques, University of Macerata, Italy, August 21-25th 2000. Available on Internet : http://www.iioa.org/pdf/13th%20conf/Idenburg&Wilting_DMITRI.pdf
The main authors of this article are Mateo Cordier and Walter Hecq
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