The impact of local industries buying goods and services from other local industries. These purchases are also known as intermediate expenditures. The cycle of spending works its way backward through the supply chain until all money leaks from the local economy, either through imports or by payments to value added. The impacts are calculated by applying Direct Effects to the Type I Multipliers.
For example, if the direct impact is the construction of a building, the first round of indirect effects will include a purchase of ready-mix concrete. This purchase of ready-mix concrete spurs the ready-mix concrete manufacturing industry to in turn purchase more sand and gravel. This purchase of sand and gravel is part of the second round of indirect effects. This cycle of spending continues to work its way backward through the supply chain, with each round of impacts getting smaller and smaller until all money leaks from the local economy by way of imports, taxes, and profits, which do not generate additional impacts locally.
IMPLAN does not assume that all input purchases are made from local businesses; the proportion of local vs. non-local purchases varies by commodity and is built into the IMPLAN system.