Economic impact analysis is one of the most cited and least understood tools in public policy and business decision-making. Every major infrastructure project, development proposal, and public investment comes with an economic impact study attached — and most of the people reading those studies are working with the same set of deeply embedded misconceptions about what the numbers mean. Every major infrastructure project, development proposal, and public investment comes with an economic impact study attached — and most of the people reading those studies are working with misconceptions that lead directly to bad decisions.
At Stratford Analytics, we build independent economic impact analyses for clients ranging from energy developers to municipalities to major institutions. We also spend a significant portion of our time explaining why the studies others have commissioned are wrong. These are the misconceptions we encounter most often — and what accurate analysis looks like in their place.
Misconception 1: All Jobs in an Economic Impact Study Are Permanent, Direct Positions
The single most common misreading of economic impact studies is treating the total employment figure as a count of full-time, permanent, direct jobs. It is not. Economic impact employment numbers aggregate three distinct categories that behave very differently: direct jobs, indirect jobs, and induced jobs — and within direct jobs, temporary and permanent positions are frequently combined without distinction.
Direct jobs are positions created by the project itself — construction workers, operations staff, management. Indirect jobs are positions created in supplier industries that serve the project — equipment vendors, materials suppliers, professional services. Induced jobs are positions created when direct and indirect workers spend their wages in the local economy — retail, restaurants, healthcare, housing.
Each of these categories represents real economic activity, but they have very different implications for community planning. Construction jobs end when construction ends. Induced jobs are estimates derived from spending multipliers, not actual headcount commitments. A community that reads a “500 jobs” headline and plans its housing, school capacity, and infrastructure around that number is planning for an economy that will not materialize as described.
Misconception 2: The Economic Multiplier Effect Works the Same Way Everywhere
The economic multiplier effect is the mechanism by which initial spending generates additional rounds of economic activity as money circulates through the local economy. It is real, it is measurable, and it is one of the most misapplied concepts in economic impact analysis using properly calibrated regional multipliers.
The problem is that multipliers are highly specific to regional economies — and applying the wrong multiplier to a local analysis produces numbers that bear no relationship to what will actually happen. A spending multiplier calibrated for a large metropolitan area will dramatically overstate the impact of the same investment in a rural county, where the local economy lacks the depth of linkages to capture and recirculate spending locally. Published literature has documented cases where analysts used multipliers of 6 or higher for projects in small regional economies where a multiplier of 1.5 to 2 would be defensible — the resulting impact figures were three to four times larger than what independent analysis of the same project would generate.
Input-output analysis models — including IMPLAN and RIMS II, the two most widely used platforms — require careful regional calibration to produce defensible results. A national-average multiplier applied to a local economy is not conservative; it is wrong. We see this error in developer-commissioned studies regularly, because overestimated multipliers produce larger, more impressive-looking impact numbers.
Misconception 3: A Developer-Commissioned Economic Impact Study Is Objective
This is perhaps the most consequential misconception, and the one with the most direct implications for how communities and policymakers should approach the studies they receive. An economic impact study is an analytical document — but the conclusions it reaches are shaped significantly by the assumptions embedded in its methodology, and those assumptions are choices made by the analysts who built it.
When a developer commissions an economic impact study to support a permit application or a public subsidy request, the study is designed to produce a number that supports approval. That does not require fraud — it requires only optimistic assumptions at each decision point. High local hire rate estimates. National-average multipliers applied to small regional economies. Construction-phase employment counted alongside permanent operations staff. Tax incentive costs omitted from fiscal impact projections.
None of these individual choices is necessarily indefensible in isolation. Together, they reliably produce impact figures substantially larger than what independent analysis of the same project would generate. Communities that receive these studies should treat them the way they would treat a seller’s appraisal of a property they are about to purchase: as a starting point that requires independent verification, not a conclusion.
Our guide on how to read and interpret economic impact study results walks through exactly what to look for when evaluating a study’s credibility.
Misconception 4: Economic Impact and Economic Development Mean the Same Thing
These two terms are used interchangeably in policy discussions, but they describe fundamentally different things. Economic impact measures the total flow of economic activity associated with a project or institution — it is a gross accounting of spending, employment, and output. Economic development describes a process of structural change in a regional economy: the creation of new industries, the upgrading of workforce capabilities, the diversification of the tax base.
A project can generate significant economic impact while delivering zero economic development. A casino, for example, typically produces substantial gross economic impact — visitor spending, employment, facility investment — while often displacing existing entertainment spending, creating high-turnover employment, and generating social costs that offset a significant portion of the fiscal benefit. The economic impact number is real. The economic development contribution is debatable at best.
Understanding this distinction matters because economic development policy should be evaluated on development criteria — does this improve the structure and resilience of the regional economy over time — not just on impact criteria. A large gross impact number is not evidence of development value. Conflating the two is how communities end up approving projects that look impressive in the headline and disappoint in practice.
Misconception 5: Gross Economic Impact Equals Net Community Benefit
Economic impact studies measure gross economic activity — the total flow of spending and employment generated by a project. They almost never measure net economic activity — what that project delivers to the community after accounting for costs, displacement effects, and what would have happened anyway.
The substitution effect is the most significant source of this gap. When a new sports stadium generates $50 million in visitor spending, economic impact methodology typically treats that as $50 million of new economic activity. But a significant portion of that spending is dollars already circulating in the local economy — redirected from restaurants, theaters, and other entertainment venues that lose business on event nights. The net new spending is substantially smaller than the gross impact figure implies.
Similarly, tax incentive programs, infrastructure subsidies, and public financing contributions represent costs that belong on the other side of the ledger. An economic impact study that reports $200 million in total economic output from a project without noting that the public contributed $50 million in incentives to attract it is not giving decision-makers the information they need to evaluate whether the investment made sense. A rigorous cost-benefit analysis puts both sides of that equation on the table.
Misconception 6: A Bigger Economic Impact Number Means a Better Project
Economic impact methodology has an inherent inflationary tendency: larger projects generate larger numbers, more rounds of spending multiplication produce larger output figures, and longer time horizons accumulate larger totals. None of this makes the analysis wrong — but it means that comparing economic impact numbers across projects or regions without accounting for methodology differences is comparing apples to construction cranes.
A $1 billion impact figure from a study using national-average multipliers for a small regional economy is not comparable to a $400 million figure from a study using properly calibrated local multipliers. The smaller number likely reflects the actual economic reality more accurately. Ranking projects by their headline impact numbers and selecting the largest is not economic analysis; it is a competition to produce the most impressive-looking methodology.
The question that economic impact analysis should answer is not “how large is this number?” It is “does this investment deliver returns that justify the costs and risks the community is being asked to accept?” That is a different question, with a different analytical framework — and it requires independent feasibility studies built to answer it honestly.
What Rigorous Economic Impact Analysis Actually Looks Like
The common thread running through all six misconceptions is the same: economic impact analysis is being used as an advocacy tool rather than an analytical one. The remedy is not to stop doing economic impact analysis — it is to demand the kind of analysis that serves decision-making rather than predetermined conclusions.
Rigorous economic impact analysis:
- Separates direct, indirect, and induced employment and reports each category with duration and wage assumptions explicit
- Uses regionally calibrated multipliers appropriate to the specific local economy being modeled, not national averages
- Accounts for the substitution effect and displacement of existing economic activity where relevant
- Includes costs — tax incentives, infrastructure investment, public subsidies — on the same ledger as benefits
- Distinguishes between gross impact and net benefit, and is transparent about what the difference is
- Is commissioned by a neutral party or includes methodology documentation sufficient for independent review
The data centers, wind farms, solar developments, stadiums, and infrastructure investments that communities evaluate every year all deserve this standard of analysis. The decisions are too consequential and the commitments too long-term to be made on the basis of advocacy dressed as analysis.
At Stratford Analytics, our rigorous economic impact analysis follows every one of these standards — because defensible methodology is the only kind that holds up when stakeholders on every side of the table are scrutinizing the numbers.
Frequently Asked Questions
What is economic impact analysis and how is it used?
Economic impact analysis is a structured methodology for quantifying the total economic activity generated by a project, institution, or policy. It typically uses input-output modeling to trace how initial spending flows through a regional economy, generating direct employment and output, indirect effects in supplier industries, and induced effects from worker spending. It is used by developers, government agencies, and institutions to evaluate the economic case for proposed investments, policy changes, or public funding decisions.
How accurate are economic impact studies?
The accuracy of an economic impact study depends entirely on the quality of its assumptions and the rigor of its methodology. Studies commissioned by developers to support project approval are systematically optimistic — they use national-average multipliers where local multipliers are lower, combine temporary and permanent employment into single figures, and omit displacement effects and incentive costs. Independent studies using properly calibrated regional models and full cost accounting produce substantially different results. The methodology documentation in any study is the key to evaluating its credibility.
What is the economic multiplier effect in economic impact analysis?
The economic multiplier effect describes the process by which an initial dollar of spending generates additional rounds of economic activity as it circulates through the local economy. When a construction worker spends wages at a local restaurant, that restaurant uses revenue to pay staff, who spend wages locally, and so on. The multiplier captures this cascading effect. The critical detail is that multipliers are highly specific to regional economies — a multiplier calibrated for a large metropolitan area significantly overstates the same effect in a small rural economy.
What is the difference between economic impact and economic development?
Economic impact measures the gross flow of economic activity associated with a project or institution — spending, employment, and output. Economic development describes structural change in a regional economy: new industries, upgraded workforce skills, diversified tax base. A project can generate significant economic impact with no economic development contribution — for example, a facility that generates substantial spending but creates only high-turnover employment and displaces existing businesses rather than growing the overall economic base.
How do I know if an economic impact study is credible?
Evaluate the methodology documentation rather than the headline numbers. Key questions: Does it separate direct, indirect, and induced employment with explicit assumptions for each? Does it use regionally calibrated multipliers, not national averages? Does it account for displacement or substitution effects? Does it include incentive costs and public investment on the cost side? Who commissioned it, and was the commissioning party neutral? A study that cannot answer these questions affirmatively warrants independent verification before being used for decision-making.
The Bottom Line on Economic Impact Analysis
Economic impact analysis is a valuable tool for evaluating development proposals and investment decisions — when it is done rigorously and interpreted accurately. The six misconceptions described here are not obscure technical errors. They are the standard operating practice of most developer-commissioned studies, and they routinely lead communities to approve projects and allocate public resources based on numbers that bear little relationship to actual outcomes.
At Stratford Analytics, we build economic impact analyses that hold up under scrutiny because our methodology is transparent, our assumptions are defensible, and our reports are designed to answer the questions decision-makers actually need answered — not to produce the largest possible number. That distinction matters, and it is the foundation of every analysis we deliver.
Commission a rigorous economic impact analysis from Stratford Analytics — and get numbers you can actually use.
