Download Cement Presentation 11-28-12 - Cape Fear Economic Development

The Impact of Cement Manufacturing
on Economic Growth in the Cape Fear
Region
Craig S. Galbraith, MBA, MSc., Ph.D. and Curt H. Stiles, MBA, Ph.D.

160 new jobs proposed by Titan would
pyramid into 720 new jobs within New
Hanover County, it would bring an
additional $235.7million dollars of
economic activity to the county, and it
would result in an additional $19.5million
of rental and dividend income to the
county.
Impact Study (4/16/2008) Presented
County Supervisors, Basis for
Incentives

Only used IMPLAN – computer modeling
◦ But used wrong assumptions about impacts or ability of
region to provide inputs to Titan

Performed on “possibly” wrong industry
◦ Cement mixing versus manufacturing
Didn’t look at any
dispersive” or negative effects
 ½ page report, with no due diligence on Titan
employment assumptions
 Didn’t pass the “sniff” test (firm with 160 employees
creates 720 new jobs in a small county?)

What was Wrong with the 2008
Study?

Economic Impact Analysis is Poorly
Understood
◦ Based upon the idea that jobs within a region
create other jobs within the region – the
MULTIPLIER effect

But
◦ Need to understand economic structure of region
◦ Need to understand that not all jobs create other
jobs, in fact most industry sectors are the result of
the economic system and do not create economic
growth
◦ Need to understand that most economic impact
studies are simply political in nature and vastly over
estimate the positive impacts
Most Reported Economic Impact
Studies Are Seriously Flawed



Does it increase “final”
demand in the Region
High value-added
activities

Purchase inputs regionally
◦ Dollars leaving region is called
“leakage”

Companies are locally owned
◦ Take inputs and make
◦ Profits also stay in region
them into something more
valuable
 Output is exported outside the
Pay good local wages
region
◦ Wages are then
◦ Dollars then flow to community
“multiplied” by spending in
the region
 Output plugs previous
“leakages”
Innovative high
 Activity is part of the strategy
technology industries,
R&D, financial services,
of sustainable community
many professional
Hospitality, light mfg, export
services, universities, etc.
products, and firms that
achieve the above factors.
What Creates Positive and Longterm Regional Economic Impacts?
Most industries are “embedded in
the economy” and do not
contribute significantly to
economic development – even if
they have significant employment
Would adding another gas station or food store or drug store
or hamburger restaurant or taxi cab firm increase the demand
for gas, groceries, Rx, hamburgers, in Wilmington? – No it
would most probably simply shift existing demand around
between the providers. Employment would not substantially
change, with no net economic impact – the “Sin of
Exaggerating Sectoral Impacts” - in fact, it may actually hurt
the regional economy

Does the activity create negative
Externalities that actually hurts the
community?
The “bad” of business activity

Pollution and
environmental
degradation


Infrastructure congestion
from business


Congestion of commuting
employees

Increase in input prices

Anti-clustering and
dispersive factors
Activity is not compatible
with long-term vision for
community
Decreases attractiveness
(beauty) of community
What are the potential negative
externalities of any business?
Well studied in research
– we know what
attracts industries and
residents
 Attractive communities
attract knowledge
based business and
hospitality visits

◦ Beach communities, historic
downtowns, attractive
planning/design elements,
universities, other
technology clusters

Community
attractiveness must be
created by ordinances
(sign, landscaping,
CUPs, proper zoning)
 Attractive communities
are safer communities

◦ Irvine and Mission Viejo,
CA, safest communities
each year; tough design
standards.
Cape Fear region well
positioned to compete
on “attractiveness”
Beauty is good business

Study of leisure visits at all MSAs in the U.S.
 “Beautiful cities” disproportionally attracted highly
educated individuals and experienced faster housing
price appreciation, especially in supply-inelastic
markets. Investment by local government in new
public recreational areas within an MSA was
positively associated with higher subsequent city
attractiveness. . . (p.1)
 Leisure visitors are attracted by an area’s special
traits, such as proximity to the ocean, scenic views,
historic districts, architectural beauty, and cultural
and recreational opportunities. But these are some
of the very characteristics that attract households to
cities when they choose where they will make their
permanent homes (p. 32).
City Beautiful - Study by the Federal
Reserve Bank of Philadelphia (2008)
Our Study
- Three different approaches
- Used more recent data
- Better understanding of the
assumptions and limitations of
traditional impact studies
- Within the context of economic
development theory and practice
Wilmington MSA economy is both narrow and
unbalanced, essentially concentrated in three
primary sectors: Sector 1: Retail trade,
recreation, arts and entertainment,
accommodation and food services; Sector 2:
Manufacturing and utilities, and Sector 3: Real
Estate and construction. It is weak in other
sectors, such as information, professional
services, scientific activity, and the various
sectors generally described as "high/midtechnology."
What is the Economic Structure in
the Region?

Model 1: Traditional Input-Output Analysis
◦ Like most studies, generally overestimates real impact –
assumes Wilmington would be like the general U.S. economy
◦ Increase of 410 to 545 jobs (including 160 announced by
Titan) in Wilmington MSA
◦ Much lower for just New Hanover County, certainly lower than
the 720 original new jobs predicted in 2008 study

Model 2: Net Impact Analysis
◦ Many Titan supplier industries not currently in Wilmington, not
likely to move or expand here because of Titan
◦ Increase of 366 jobs (including 160 announced by Titan) in
MSA
What is the Impact of a Cement
Plant? – 2 IMPLAN Models

Model 3:
Incorporation of
Spillover Effects and
Continuous
Externalities
◦ Traditional regional economic
impact analyses cannot account
for the ways in which large plant
locations and expansions might
repel existing establishments or
other potential entrants. Based
on empirical study of
manufacturing new plants in
Georgia (real data)
◦ Net increase of 110 jobs in MSA
(or 50 non-Titan jobs will leave
the area)
◦ Net increase of only 48 in New
Hanover County
IMPLAN models do NOT capture
externalities – Look at real data
Unfortunately, many negative impacts of
business location can not be quantified with
available data – 4 issues for Titan

Can a strong amenity/clean economy coexist with a heavy
manufacturing economy within a relatively small geographical
region?
◦ Generally amenity based and ambiance driven sectors have
significantly greater economic and social impact.

Negative externalities probably greater than average for Titan
◦ Potential economic damage that might be caused by the perception of
pollution or actual environmental disaster
Firms generally hire fewer people than announced, Titan
announced 160 (studies suggest 13.8% less, or 138 hired)
 Using Florida data, Titan salaries more likely to be $63k than the
announced $75k.

Impact is probably lower than even
Model 3 - perhaps negative