A fact sheet to complement the Gulf of Mexico Ecosystem Service Logic Models & Socio-Economic Indicators (GEMS) project.*
Quantifying and communicating economic value
The Gulf of Mexico ecosystem is abundant with ocean and coastal resources such as sandy beaches, estuaries, mangroves, coral reefs, fish, oysters, shrimp, and birds. These resources provide livelihoods to people like fishers, boat crews, bait and tackle business owners, tourism operators, restaurant and hotel staff, retailers, oil and gas industry workers, and many more.
Many institutions working in the Gulf share goals such as habitat restoration, water quality improvement, and marine resource protection, and are interested in understanding their impacts on community resilience and economic revitalization. Project and program managers – such as those active in ecological restoration efforts – increasingly need to quantify the economic activity associated with ecosystem services to monitor change and report progress toward goals. While many professionals likely understand the economic and social importance of ocean and coastal resources, quantifying and communicating their value can be challenging. Furthermore, the use and misuse of terms such as economic value, impact, contribution, and benefit can lead to confusion and misinterpretation, especially when one or more of these terms are used interchangeably, as they often are.
Measures of economic activity
Here we define traditional economic activity as the movement of goods and services that have an impact on employment, income, and gross domestic product, for example, the ways in which a recreational fishing trip can provide revenue to hotels, restaurants, boat and gear rentals, guides, and recreational fishing permitting offices. One way to determine the value or economic importance of ocean and coastal resources is to measure the market activity associated with these resources. There are several publicly available data sources and methods to quantify the market activity that is directly and indirectly associated with these resources, described below.
Direct measures
Many sales and purchases are associated with products, services, and activities that are directly tied to ocean and coastal resources. These sales and purchases would not exist if the ocean and coastal resources did not exist. Examples of products, services, and activities tied directly to ocean and coastal resources include commercially harvested seafood, aquaculture shellfish, for-hire and charter fishing and diving operations, services offered in coastal marinas, beach visits, and recreational fishing. Measurement of the value of these products, services, and activities is often as easy as summing publicly available information on sales of the industries supplying these goods and services, but can also involve survey techniques to determine the portion of sales or purchases directly tied to a specific resource. Metrics such as the employment and income levels associated with these values of market activity can also be calculated. Note though, that each metric (e.g. employment, income, sales) is a separate measure of economic activity and that they are not additive. However, market activity in these directly supported industries can result in additional activity through supply chain purchases and employee spending.
Broader measures
Broader measures of economic activity include what are often termed multiplier effects, or activities that are indirectly supported through supply chain purchases of industries supplying directly associated goods and services or through the goods and services purchased by employees of the directly and indirectly supported sectors. For example, while the value of a commercial fisher’s catch represents direct market activity, the fisher’s purchase of boat fuel, tackle and bait, line or nets, and labor from deck hands are all considered indirect market activity. Each of these industries in turn purchases goods and services to supply their own product and this process continues indefinitely through multiple rounds of spending. In each round of spending, only a portion of the input goods and services are sourced locally, with the remainder “leaking out” of the local economy. Multiplier effects can also include induced effects, which capture the goods and services purchased by employees of the indirectly associated industries. Induced effects typically occur in sectors like healthcare, real estate and rentals, restaurants and grocery stores, entertainment, etc. Although some of the indirectly supported activity occurs in sectors that are considered directly associated with ocean and coastal resources, much of it occurs in other sectors but is still ultimately supported by the existence of these resources through direct market activity.
The Analyses
Depending on the application, methods for estimating the broader regional economic activity associated with ocean and coastal resources are known as economic contribution analysis or economic impact analysis. Economic contribution analysis estimates the value of existing, ongoing economic activity that can be attributed to a given industry, activity, or policy. In an ocean and coastal resource context, one might estimate the economic contribution of existing artificial reefs, or of existing levels of recreational saltwater fishing activity. Economic impact analysis estimates the economic effects of new or changing levels of activity such as deploying a new oyster restoration project. Economic contributions measure the gross amount of economic activity related to an ocean or coastal resource while economic impacts measure a net change in economic activity. Like direct market activity, both economic contributions and impacts can be measured using several different metrics – e.g., sales revenues, employment, value added. Both types of analysis are rooted in a methodology known as input-output analysis and can be performed using software packages such as IMPLAN or IO-Snap.
To assess the economic impacts of coastal restoration projects, spatially explicit economic outputs from this model would be connected with spatially explicit data on restoration project types, characteristics, and location. This analysis could answer questions like:
- What is the overall economic impact (jobs, revenue, value added) of restoration spending in the last 3 years in the Gulf of Mexico?
- Which types of restoration contributed most to recreation vs. those that contributed most to commercial fishing?
- How does location of a project or type of project influence its economic impact?
Program managers and funders who are interested in these analyses for their own programs are encouraged to consult an expert in regional economic modeling. However, it would be more efficient if interested programs would work with other program managers and funders to develop these types of analyses regionally for many different users, allowing aggregation of results across multiple programs. Note that these analyses are always calculated specific to a certain place and time period and are not transferable to other geographies or time periods.
* Christa Court, University of Florida contributed to the description of EIA.