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How to Use GRP, Exports, and Multipliers to Find High Impact Industries

When we look at how to develop an economy, it’s important to consider the basics: What industries will bring high paying jobs to my region? How large is a certain sector? Are my driver industries growing or shrinking?

Beyond the basics there are other elements we can view: What industries are stimulating the economy by bringing in outside money? Which industries should we grow for maximum impact on the economy? Using the I-O model we can start to identify industries that go beyond size and salary, and create positive ripples in the economy.

In a nutshell here are the three elements we’ll look at:

  • Gross Regional Product (GRP)  This looks at the value-add a particular industry brings. A basic example of value-add would be a petroleum refinery that turns crude oil into gasoline. Through the unique work and value that industry brings, the gasoline they produce is worth more than just the sum of the oil and other ingredients used to make it. If you’re only going to use one metric for measuring economic impact, GRP is the one. It includes earnings, profits generated, and tax revenue generated. While not always associated with high export industries, businesses that are capital intensive nearly ALWAYS produce high GRP. Because capital intensive usually means a large physical footprint, this will typically generate sizable property taxes, an important part of measuring and industry’s local impact.
  • Exports –  Exports are measured at the regional level, not the national. For example, if we select the Detroit, MI metropolitan area for our region and looked at the exports for automobile manufacturing, we’ll see data on exports going anywhere outside of Detroit. That could be California or it could be Ecuador. The region selected defines what counts as an export. Exports are important to count because they measure money coming into the region from outside, as opposed to money circulating within the economy. Every economy experiences leakage through having to import, so bringing new money in through exports is a good practice.
  • Multipliers – Multipliers help us understand which industries would impact the economy most by their growth or decline. If your target industry has a job multiplier of 2.0, that means that for every 1 job added to the industry, another job is created elsewhere in the economy. The higher the multiplier, the higher the impact. When deciding where to allocate resources for growth, or attempts to retain businesses, it’s important to understand which industries will rock the boat most.

Let’s look at an example. We’re going to find industries with a high impact on the Houston, TX economy using GRP, Exports, and Multipliers. The workflow is simple, we just rank industries based on these three metrics and look for those that show up high on all three. To do this we’ll go to the Input-Output Model section of Analyst.

  1. Click The Input-Output Model from the home page
  2. Click Gross Regional Product
  3. Under “Select a Region” enter the region you’d like to view GRP for (the Houston-The Woodlands-Sugar Land, TX  MSA in this case)
  4. Click Run
  5. In the table, click the GRP column header to rank by GRP

Here are the top 5 GRP producing industries in Houston:

Next, let’s look at which industries are bringing the most money into the region through exports.

  1. Within “The Input-Output Model” section, click Exports Table
  2. Under “Select a Region” enter your region, and click Run

Here are the top 5 industries by exports:

Lastly, let’s look for the industries with the highest jobs multipliers. These are the industries that, when grown, create the most overall jobs in the economy.

  1. Within “The Input-Output Model” click Regional Multipliers
  2. Under “Select a Region” enter your region, and click Run
  3. In the table that loads scroll to the far right and click the Total Jobs column header

Here are the top 10 industries, ranked by the highest jobs multipliers.

Not surprisingly for Houston, Petroleum Refineries show up strongly in all three tables. What we might not have expected is that there’s a sizable presence in Petrochemical Manufacturing as well. This industry has a respectable jobs multiplier of 12.1, which means that for every one job added there, another 11 jobs appear elsewhere in the economy. Coupled with high exports and GRP, this industry looks to be a major contributor to the Houston economy, something we might not have known had we only looked at job counts and wages.

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Let us know what specific questions we can help you with (we may even add your question to our knowledge base).