During a recent radio interview with CKNW’s Bill Good, Dr. Rashid Sumaila and others discussed an important question about the relative benefits of pipeline development in British Columbia:
How do the ripple effects of investment in pipeline development compare to those of other industries?
In economics, these ripples are referred to as the “multiplier effect”:
An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent. For example, if a corporation builds a factory, it will employ construction workers and their suppliers as well as those who work in the factory. Indirectly, the new factory will stimulate employment in laundries, restaurants, and service industries in the factory’s vicinity. (Dictionary.com)
The multiplier effect can be broken down into “direct”, “indirect” and “induced” effects on the economy:
The direct effect of a project consists, for instance, in the number of direct jobs it creates, and the indirect effects could consist of jobs created at a supplier’s factory. An induced effect consists of the impact of spending by the people employed in the project. For instance, they spend the money they earn on local goods and services, thereby providing a boost to the local economy. (eHow.com)
Effects are often measured in terms of three indicators: Gross domestic product (or “GDP”), output and employment.
GDP: The monetary value of all the finished goods and services produced within a country’s borders in a specific time period (i.e., annually). It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. (Investopedia.com)
Output: The quantity of goods or services produced in a given time period, whether consumed or used for further production. (Wikipedia.org)
Employment: Expressed in “full-time equivalent”, or FTE, it is defined as total hours worked divided by average annual hours worked in full-time jobs. (Statistics Canada Glossary of Terms)
Statistics Canada’s Industry Accounts Division provides a summary of effects on these indicators, by industry. Its National and Provincial Input-Output Multipliers tables, last updated in 2008, provide a list of industries and their effects on the provincial and national economy based on modelling conducted by the Department.
For each industry, these tables show:
- How much GDP and economic output is generated per $1 increase in output, and
- How many full-time equivalent jobs are created per $1 million increase in output.
So, how do the shipping and pipeline industries measure up to other industries?
The three graphs below compare the direct and indirect effects of various industries on GDP, output and employment. As illustrated, investment in shipping and pipeline transportation generates relatively greater output but less employment than other industries on a per unit basis.
This suggests that the benefits of investment in shipping and pipeline projects in B.C. are not quite as clear-cut as proponents suggest. While development of these projects would undoubtedly contribute to the B.C. economy, the number of jobs that would be created are fewer relative to other industries. These multipliers also do not address how economic benefits are distributed among members of the population.
Since there do not appear to be absolute winners in terms of which industries generate the greatest economic impact, a more appropriate question is:
What are our priorities for economic growth?
A. Direct and indirect effects of investment, by industry, on GDP and output within British Columbia by output (largest to smallest)
B. Direct and indirect effects of investment, by industry, on GDP and output within British Columbia by GDP (largest to smallest)
C. Direct and indirect effects of investment, by industry, on employment within British Columbia (largest to smallest)
