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Appendices

Appendix A: RIMS Background

  • e U.S. Department of Commerce’s Bureau of

Economic Analysis prepares regional input-output multipliers that allow the estimation of the total economic impact of the addition or removal of in- dustries or projects to a given region. e IOGCC’s annual Marginal Well Report uses these multipliers to investigate the economic impact of marginal well production on 11 states and extrapolates those find- ings to determine the economic impact of marginal oil and gas well abandonments to both the overall economy and the oil and gas industry specifically.

Recognizing the need for a basis of estimating the economic impacts of projects and programs on a regional basis, the Bureau of Economic Analysis developed RIMS (Regional Industrial Multiplier Systems) in the mid-1970s. Enhancements to RIMS in the mid-1980s led to RIMS II (Regional Input- Output Modeling System).

RIMS II multipliers show the interdependence of economic activity throughout a given region, where a region comprises one or more counties. Multipliers are provided for output, earnings and employment, considering final demand and direct effect. ese multipliers plus assumptions of projects or programs introductions into a region can be used to calculate variables such as the increase in the output value, i.e. gross receipts or sales. Multipliers plus assumptions are also instrumental in calculating earnings income

such as wages, salaries or proprietor’s income less any contributions to private pension funds, and employ- ment levels for all other industries in that region.

In some situations RIMS II multipliers have certain limitations. For instance, the multipliers are best used when total demand changes are relatively small com- pared to the economy of the region under consider- ation. Interrelations with adjacent regions are another potential source of error when the regions under con- sideration are small. e multipliers do not consider the possible subsequent incremental economic activ- ity that may be associated with economic impacts of considerable relative magnitude to a region, although if such activity can be predicted, the RIMS II multi- pliers can be added for the expected activity to show a cumulative effect. Demand substitution can affect the RIMS II estimates, in that the multipliers assume an adequate supply of resources and labor exists within the region under study. e multipliers are static in the sense that the changes predicted are overall changes with no regard to the timing. e multi- plier estimate short-term economic effects that often change over the long term. For example, multipliers may overstate job losses in the long term, as displaced employees find new jobs.

Since RIMS II multipliers are limited to the private sector, they exclude the economic impacts on state and local governments. For the proper consider-

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