Adding an Industry that Doesn’t Exist Yet

INTRODUCTION:

Sometimes the Industry that we want to examine does not exist in our study Region. The Industry might be new to the area.  It also might be a new Industry altogether. It also might be an industry that only recently became legal. This article outlines the best way to model these new Industries in IMPLAN.  

DETAILS:

The economy is always changing and Industries come and go.  Federal data follows these changes by adjusting the North American Industry Classification System (NAICS) codes.  IMPLAN follows suit, so when the NAICS codes change, so do IMPLAN Sectors.

There are two ways to create a new Industry depending on what you want to accomplish.  Both methods are outlined below.  

INDUSTRY THAT EXISTS IN THE US:

If you have a Region that will be gaining an Industry that does exist somewhere in the US, you can follow the steps outlined in the article Adding an Industry by Customizing a Region.

BRAND NEW INDUSTRY:

Federal data lags in categorizing these new Industries, which can pose a problem for researchers.  When the newest widget is invented, it is usually categorized under with a similar product or under one of the catch-all codes like “all other…”  One interesting case is that of the legalization of cannabis production and sales. Canada has already outlined the NAICS codes for the entirety of the cannabis Industry: Classifying Cannabis in the Canadian Statistical System.  

Depending on what part of the supply chain we want to examine, we find the most similar NAICS or IMPLAN code and edit the Industry Spending Pattern for that Industry.  In the cannabis example, we may want to model the agricultural impact using one of these Industries: 2 - Grain farming; 6 - Greenhouse, nursery, and floriculture production; or 7 - Tobacco farming.  The manufacturing might fall under Sectors 111 - Tobacco product manufacturing or 173 - Medicinal and botanical manufacturing. Finally, the retail component will fall under 406 - Retail - Miscellaneous store retailers.  

Let’s say we want to examine the effect of a $100M in cannabis agricultural production in Ohio and we know that a full $5M of that will be spent on legal fees. We also know there will be 25 employees each making $50,000.

First we have to decide what Sector we want to use.  In this case knowing the climate in Ohio, we make the assumption that the agriculture will be most closely related to IMPLAN Sector 6 - Greenhouse, nursery, and floriculture production.  

Create an Industry Spending Pattern Event for $100M in Sector 6.  If we know more details about the spending of cannabis growers as compared to other greenhouse products, we can edit the spending pattern to further reflect this new Industry.  Remember in this example we know that $5M will be spent on legal fees specifically. To model this, we click the Advanced button to open the details of the Industry Spending Pattern and scroll down to Commodity 3447 - Legal Services.  Next, we override the value with 5%; the dark blue color shows the edited Commodity. If any further information is known including Sectors that could be deleted entirely from the Spending Pattern, that can be done at this point as well. More details on this can be found in the articles Editing Industry Spending Pattern Events or Editing Institutional Spending Pattern Events.  

You’ll notice that the Sum of Percentages at the bottom is now 104.9%.  

To fix this and return to 100%, click on the Advanced button and choose Normalize.

Now, a full 5% will be spent on legal fees.  Make sure to choose Total Output (instead of Intermediate Expenditures). Remember: Output = Intermediate Expenditures + Value Added.

Next, we create a second Event for our Labor Income (25 employees x $50,000 = $1,125,000).  We can then add them to our Group and Run our economic impact.

Notice that there are no Direct Effects in our Results so we will need to add those back in manually.  We know our total Output is $100M and our Labor Income is $1,125,000 with 25 employees. Now we need to navigate back to our Regions screen and click 

Study Area Data > 
     Regions Industry Summary

Here we can find IMPLAN’s known totals for Sector 6 - Greenhouse, nursery, and floriculture production. Calculating the ratio of the overall Value Added to the overall Output shows that VA is, on average, 65% of the total Output.  Therefore, we multiply $100M in Output by 65% to yield a Direct Value Added for this project of $65,620,927. The template for these calculations is here.

RELATED TOPICS:

Adding an Industry by Customizing a Region

Editing Industry Spending Pattern Events

Editing Institutional Spending Pattern Events

Written September 10, 2019