ASAM Economic contribution analysis

What is ASAM? The short of it: it is an Excel Application that facilitates economic contribution analysis of an industry sector. It does this by taking data from a source like IMPLAN (not included) and transparently calculates base economic output, employment, wages and value added. The code can be downloaded from GitHub.

So below is the long answer…

Some Background

I confess. When I was “in business”, managing factories and companies, I thought of a local economy as simply the sum of local business success. And, you guessed it: I thought that “my company” was making a major economic contribution.
So what changed my mind on how a local economy works? When analyzing economic contributions of businesses and sectors I started to see how different each business or sector (government included) affected a region. The key to that difference was its value-chain: the “food chain” from raw material to end-user. A local video-store or gas-station is at the tail-end of a NIMBY value-chain. That represents a value chain where most of the wealth generation happens elsewhere and little to ‘Nothing In My Backyard’.

When a community embraces streaming or electric cars, the disappearance of the video-store or gas-station will be just another casualty of disruptive innovation; probably barely noticed. Now witness a small-town’s local dairy go out of business! The effect cascades through the entire community. Transportation companies, engineering firms, machine shops, all kinds of local services, they all loose a chunk of business overnight.

The induced effect is even wider: disappearing wages that fueled local restaurants and retail, and supported healthcare and mortgages. It may hit home even better if you play the following story in reverse: when yogurt maker Chobani built a $450 million plant in Twin Falls, Idaho, in 2012, they not only leveraged the dairy sector in the surrounding region, but affected all kinds of services from construction^[1]Source: Idaho department of Commerce to education^[2]The College of Southern Idaho instituted special programming to support Chobani: link to wastewater treatment^[3]The The City of Twin Falls spent $6,523,445 to upgrade its wastewater treatment facility for Chobani: link. And the induced economic effect is just starting to build…

Economic Contribution Analysis

So how does economic contribution analysis provide insight in the value chain? And what is ASAM?

Economic Base Analysis

Economist use a method called Economic Base analysis to determine the contribution of an industry or sector to a local economy. It looks at those activities of a community that bring in “new money” and then follow the money trail. There is a potential for these studies to be self-serving. As Watson et al phrase it: “Criticism of [economic contribution] studies focuses on the perverse incentive for publicity and advocacy purposes to double count the contribution of a given sector by making its direct, indirect, or induced effects appear responsible for a larger share of the economy than the observed data can support” ^[4]Watson, Philip, Stephen Cooke, David Kay, and Greg Alward. “A Method for Improving Economic Contribution Studies for Regional Analysis.” Journal of Regional Analysis and Policy, 2015. Available at: www.researchgate.net. An accepted solution is to track all economic contributions in a (social accounting) square to make double counting impossible.

ASAM: Automating the Grunt Work

Even though working from a SAM (Social Accounting Matrix) is a fairly foolproof solution (contingent to reliable data), you may have picked up on the downside: it amounts to an enormous amount of work!! I took a class in economic modelling from University of Idaho’s Phil Watson, a young energetic professor well versed in economic contribution analysis. When I wanted to do historical and regional comparisons I found the amount of work staggering. So I automated the SAM work in MS Excel.

Open source

Then I shared the excel application with Phil, who shared it with Abelardo Rodriguez – a professor in UI’s extension organization. Abelardo, keen on showing the nuts and bolts of local economies to community and business leaders in a region, pushed to make it into a stand-alone excel application that could be used by local extension educators^[5]Rodriguez, Abelardo, Willem Braak, and Philip Watson. 2011. “Getting to Know the Economy in Your Community: Automated Social Accounting.” Journal of Extension, August. Available at: www.joe.org.

We named it Automated Social Accounting Matrix (ASAM) and Abelardo provided a download location for the application at UI’s website.

Git repository

When Abelardo left UI in 2009, the webpage remained available but was no longer maintained. I still get questions from individuals that use the original ASAM application or report bugs. So I updated the application and created a GitHub repository for those that want to use the work, or build on it. A stand-alone application can also be downloaded from GitHub.

A word of caution…

Economic Base analysis has limitations, discussed here. It is still a valuable tool in thinking through a region’s economic development perspective. It helps in separating the NIMBY sectors from those that can deepen and leverage a region’s strengths. ASAM, in this process, is merely an automation tool. But it sure can lower the threshold to take on the effort.