Market Economics - Memo

Latest news & views from market economics / June 2014

Auckland Road Pricing Study
Over the next 2 months, M.E, in conjunction with Gravitas Research & Strategy and McGredy Winder & Co will be assessing the effects of the potential imposition of alternative road funding mechanisms on Auckland’s household and business sectors.

Housing Preferences Study
How realistic is high density living in Auckland? To uncover the hidden motivations and trade-offs driving housing choices, Auckland Council has commissioned M.E and Research First to ascertain what people want from their housing to better inform future planning and development of residential activity.

Section 32 Economic Commentary 
M.E has been commissioned by MfE to write the economic commentary in the Section 32 Guidelines. Doug Fairgray will be presenting at the upcoming road-show training events in Auckland, Wellington, Christchurch and Dunedin. Further details are available from NZPI or RMLA.

Ecological Economics Journal Article 
As part of her PhD, M.E’s Nicola Smith has recently had an academic paper published in the Ecological Economics Journal.  We will make a copy of her article entitled “Is there overshoot of planetary limits? New indicators of human appropriation of the global biochemical cycles relative to their regenerative capacity based on ‘ecotime’ analysis” available soon.

Heritage Protection Incentives 
M.E is facilitating a Multi Criteria Analysis (MCA) decision making process for Auckland Council  to evaluate options for non-regulatory incentives to maintain historic, cultural and natural heritage.

FNDC Asset Planning 
M.E has begun a ‘whole of life’ economic assessment for FNDC’s infrastructure assets to inform their planning process underpinning their LTP. The full cost analysis will take into consideration replacement costs, current value, asset age and asset life.

Special Housing Areas 
We are currently working with Urbanism Plus to facilitate an application for a SHA. M.E can assist landowners to realise the opportunities of their land (from a spatial and economic perspective) in accordance with the SHA criteria.

New Lynn Centre Study 
Planning a development that creates new retail floor space in an existing centre? Talk to us today. We have just completed a detailed ‘situation analysis’ of New Lynn for Auckland Council Properties Ltd to inform their Merchant Quarter leasing strategy.

Reduce, Reuse, Recycle

M.E has carried out several studies recently for the Solid Waste Unit at Auckland Council. Lawrence McIlrath has been focussing on the financial viability of establishing community recycling centres as well as peer reviewing business cases for the inorganic collection and resource recovery network.

EEZ Hearing – Trans Tasman Resources

Doug Fairgray provided review and evidence services for the EPA on tourism and recreation effects of the Trans Tasman Resources application to mine ironsands in the EEZ. A key finding was that the applicant’s report had not adequately addressed the potential effects of sea-bed mining on NZ’s clean green image. The decision making committee has declined the consent.

NZPI Conference

Doug Fairgray presented a paper at the NZPI conference in Queenstown earlier this year. A copy of the paper jointly prepared with Garry McDonald  (“Managing and Protecting our Freshwater Resources – Some implications for Rural Communities”) is available here.

Staff Updates

Next month we welcome back to the team Rodney Yeoman. Rod has had a 2.5 year stint working at the City of Melbourne Council and re-joins us having figured out that NZ is indeed the best place to live. Many of you will also know our long serving team members Rebecca and Derek Foy. Rebecca has recently left for maternity leave and we wish them both well for the imminent arrival of their baby boy.

Census 2013 - Benchmark your TA

To see how the TAs compare on key Census 2013 measures, visit our Spatial Time Series site here. Maps, graphs and tables are all free to export.



 

 

Greetings

Belated greetings from the team at M.E. It seems a bit clichéd to start out by saying that the year is flying by (June already!!) but if being so busy during the last 6 months means that M.emo has had to go at the bottom of the to-do list, then we are certainly not apologising for that. This year has gotten off to a cracking start and the diversity of projects has never made work more interesting. We touch on some of our topical projects in the news in brief.

Last year we themed a newsletter around Costs and Benefits (March 2013) – which is still the hot policy topic in RMA terms. In this edition, we focus on Economic Impact Assessment (EIA). It is a methodology that is often misunderstood (and often poorly applied) but is a relevant technique that will continue to have an important role. There has been considerable advances in best practice in EIA and M.E is leading the way. The articles below highlight the key changes in best practice and provide examples of recent projects where Input-Output (IO) based EIA has been robustly applied.

EIA - What, When, How?

Economic Impact Assessment (EIA) is an approach used to understand (or often justify) the economic impact that projects, programs or policies have on an economy. ‘Economic impacts’ are effects on the level of economic activity in a given area and consider not just direct effects but flow-on effects in the economy. There are two core methodologies for determining economic impacts – Input-Output (IO) and Computable General Equilibrium (CGE) modelling and M.E are experts in both. This article provides a brief introduction to each method, including some practical guidance on when you might apply one over the other. 

Economic impacts are quantified measurements most commonly expressed in terms of a contribution to GDP/Value Added or employment (note, these are two different ways of looking at the same impact but usually reported together). Other less commonly used (but equally valid) measures of economic impact include business/gross output (sales volumes) and personal incomes. 

It is necessary to point out that economic impacts are not the same as economic “benefits”. Essentially, EIA does not quantify the economic ‘costs’ involved to generate the impacts. Therefore, it is not possible to call them ‘benefits’. We would refer readers to our March 2013 newsletter for more information on benefits (and costs) and methods used to quantify and compare them. 

Economic impacts can be determined for any change in economic activity as long as good data is available. That change could arise from a development (e.g. a marina), an event (e.g. Auckland Arts Festival), a particular facility (e.g. Te Papa), a piece of infrastructure (e.g. a bridge), an organisation/entity (e.g. Emirates Team NZ), or a change to a whole sector of the economy (e.g. the Dairy sector). It is also possible to examine the economic impacts of policies or programmes although scenarios are usually required to estimate how those policies translate into tangible effects on economic sectors. EIA can be carried out for something that has occurred (ex-post analysis) or before it has occurred (ex-ante) although the former is always more accurate and reliable. 

There are two core methodologies for assessing economic impacts; Input-Output (IO) and Computable General Equilibrium (CGE) modelling. Both require an expert to carry them out, both rely on the same input data and both can provide estimates of GDP contribution and employment. Like all modelling, both methods are subject to limitations (not touched on here). We could dedicate pages to describing the technical pros and cons of both but we don’t want the majority of our readers to drift off. Needless to say, we provide below a lay-persons guide to both methods and invite anyone who wants to know more to give us a call. 

Conclusion

Every type of modelling approach is subject to certain limitations and the task is to select the best available approach given the nature of the questions involved and the resources at hand. While a CGE model may have some advantages over IO models, particularly in terms of providing a framework incorporating factor substitution and price change dynamics, unless there is sufficient information and budget available to model these dynamics in a meaningful way, the outputs may be not be better than an IO approach. Under ideal circumstances, best practise is to use these methods in concert – IO to tell you about the sector level detailed impacts over time and CGE to identify the gross quantum of change. 

Nicky Smith, 09 915 5521 or nicky@me.co.nz

Greg Akehurst, 09 915 5511 or greg@me.co.nz 

Best Practice IO Based EIA - ETNZ Funding

The America’s Cup is back in the news as Emirates Team New Zealand (ETNZ) looks to secure Government funding in addition to local and international private sector sponsorship to ensure a financially viable challenge can be mounted for the next regatta. Many question whether this is an appropriate use of tax payer’s money? To help answer that, one can look at the impacts that arose from the Government’s Strategic Partnership Agreement with ETNZ for the 2013 America’s Cup to determine the ‘value for money’ of that investment. Earlier this year MBIE released M.E’s comprehensive EIA report that addressed just that. 

So what were the net economic effects that accrued to New Zealand as a result of Government’s contribution and ETNZ’s participation in the America’s Cup? We will get to that shortly. First however, M.E’s study on the impacts that arose from Government’s $36m funding of ETNZ provides a useful overview of current best practice in Input-Output (IO) based EIA, not least because MBIE wanted some comparability between the impacts of this campaign (which spanned the period immediately following the close of the 32nd regatta in Valencia in July 2007 to the close of the 34th regatta in San Francisco in September 2013) and the previous campaign assessed by M.E in 2008 that covered the period from April 2003-July 2007. 

Re-running the 2008 analysis, as opposed to simply referencing those past results, was necessary as there have been a range of changes to M.E’s IO based EIA methodology (associated with changes in best practice and changes to the base models, some data and modelling assumptions) that meant that results would not be directly comparable. So what has changed in IO based EIA modelling? 

Tables underlying IO based EIA models

In the 5 years since the 2008 evaluation study was completed there has been evolution both in the base IO models that drive the impact assessment and the manner in which they are applied. The base models used in the 2008 study drew from a 2003/04 IO table. The models in use today draw from a 2006/07 IO table and all economic impact results are therefore expressed in $2007 and employment terms. 

From a technical perspective, the difference is that the most recent supply-use based tables focus on the commodities produced and consumed in the economy rather than the value (in total) of an industrial sector’s output. This allows for a greater degree of accuracy and more regular updating as commodity outputs are generated on a much more regular basis than inter-industry tables. 

A key implication of the update of IO table is that, overall, the 2006/07 sector interactions within the local economy have declined as a result of the further opening-up of New Zealand to the global economy (i.e., a greater reliance on imports and therefore a smaller share of manufacturing carried out domestically). All else being equal, the flow-on impacts from an increase in final demand would be smaller under the latest table (and would be smaller again in the current economy). 

 Although the 2006/07 IO table is the most recent available, a relevant issue is that EIAs based on this table will not enable the impact of the GFC – which took effect during the 34th America’s Cup campaign period – to be recognised. All IO based EIA models are however impacted by the absence of a more recent IO table so this issue is not unique to this study.

Determining net additional direct expenditure – better recognition of ‘who pays’
The second major change in best practice and the way in which M.E now conducts IO based EIA modelling is the way that transfer effects associated with funding/income that originates from New Zealand households, businesses or Government are dealt with and how this contributes to net additional expenditure calculations. 

Historically, these sorts of studies relied on the development of a specific sector that could be included in the model, drawing components from other sectors and leaving a residual. Change was measured as the difference between the sector added model and the base model. However, this approach failed to adequately deal with the ‘who paid’ question and therefore the principal alternatives were not identified accurately. 

In M.E’s current IO based model, the opportunity cost of funding is more robustly recognised. ETNZ income (funding) can be sourced to its supplier (primarily Central and Local Government as well as businesses and households). The amount considered a transfer from each of those funding sectors is then deducted from the final demands each of those sectors places on the economy, informed by the IO table. This means that when the Government uses some of its revenue to fund ETNZ (for example), they have less to spend elsewhere. Sectors that normally supply central Government’s final demands face a reduction in demand pro-rata to central Government’s average spending behaviour. 

These reductions represent a decrease in final demand across relevant sectors which offset the increases in final demand in sectors associated with ETNZ’s direct expenditure. Combining the negatives and positives for each sector gives the net final demand outcomes which then run through the IO based EIA model to generate direct and flow-on impacts. 

Note that the reductions in demand in any one sector may not be offset by increases in response to additional activity. After all, ETNZ has a very different economic footprint than central Government. The majority of impact felt as a result of ETNZ activity occurs in the marine industry. The majority of central Government final demand is focused on the Health, Education, Administration, Defence and Public Order sectors.

In reality though, a considerable portion of the ETNZ funding was not a transfer and was overseas funding that was available for spending in New Zealand. Such funding must be carefully accounted for and does not get used to offset final demand.

To illustrate this aspect of M.E’s EIA methodology, Figure 1 shows the effect of combined ETNZ funding which is considered a transfer (i.e. the sum of Government funding, local Government funding, household donations, and local business funding (shown on the left of the graph in red) versus the increase in final demand (expenditure) by ETNZ (including wages and salaries) by 48 economic sectors (shown on the right of the graph in green). The net change in final demand in each sector is shown in black and may be positive or negative. 

An EIA based on this approach is more robust because it appropriately reduces government (and other) activity in response to active choices made to part fund the campaign (in this instance). The results of the study present a rigorous assessment of actual effects of ETNZ’s involvement, both at the regional and national level.

Figure 1 - Net changes in final demand for ETNZ’s 34th America’s Cup campaign

Multipliers no longer used

‘Multiplier’ is a term that many still associate with EIA. M.E’s 2008 America’s Cup study (along with earlier studies of the economic impact of the America’s Cup), made use of multipliers to drive the process and translate the direct injection of funds at a sector level into a full effect on the regional and national economies. While this approach is suitable to assess the effects of an injection of activity in a single sector, it does not adequately or accurately model the actual effects of complex events such as the America’s Cup.

The use of multipliers has come under increasing scrutiny in the literature in terms of the effects of double counting and is no longer considered appropriate to model complex events or policy decisions or changes that affect a large section of the economy. 

In the latest America’s Cup study, the flow-on effects are estimated through a different approach. Changes in the net final demand profile of the economy, in response to additional demands arising from the syndicates building boats, paying wages and the associated other business related expenses incurred, are summarised at the 48 sector level (as shown in Figure 1). The model then allows the output of supplying sectors to adjust to meet these increased demands. The economy further adjusts as the sectors supplying the supplier sectors adjust their outputs to meet the indirect changes in demand. The economy further adjusts as wages and salaries flow through. These adjustments result in the total output of all sectors growing (or the majority of them anyway). 

Summing these changes provides a measure of Gross Output. Once the outputs have been calculated, it is possible to estimate what the multiplier would been by dividing the output from each sector by the initial sector shock. The difference being that multipliers are descriptive of the output in the current approach, whereas multipliers drove the process in previous studies. We would recommend caution to anyone commissioning an IO based EIA study if the practitioner specifies a multiplier based approach – particularly if the nature of the study is complex or impacts are spread across multiple economic sectors. 

The result of these collective changes is that IO based EIA modelling is far more accurate and theoretically robust and this best practice has underpinned all of M.E’s IO based EIA work since 2010. 

Impacts arising from ETNZ’s participation in the 34th America’s Cup

So, what economic impacts arose from Government’s contribution of $36m to ETNZ? M.E’s research confirms the positive economic impact that ETNZ had on the New Zealand economy, even though they competed in a major sporting event overseas. Without the Strategic Partnership Agreement (SPA) funding, ETNZ would not have been in a position to mount a challenge for the 34th America’s Cup and these outcomes would not have been achieved. Furthermore, Luna Rossa’s presence in NZ is tied to ETNZ’s participation in the 34th America’s Cup and so their economic impact is also attributable to the SPA. 

Key EIA findings (expressed in $2007):

  • Total value added to the NZ economy by ETNZ of $87m. That is, the economy generated $87m more value added with ETNZ than without.

  • ETNZ sustained employment during the GFC period equivalent to 1,220 people working for 1 year

  • Total value added from ETNZ and Luna Rossa combined, $106m

  • ETNZ and Luna Rossa combined sustained the equivalent of 1,480 people working for 1 year

Oracle’s wholly owned subsidiary Core Builders Composites Limited also had a significant impact on the New Zealand economy, though is not directly attributable to the SPA. Combined with ETNZ and Luna Rossa, the economic ‘footprint’ of all three syndicates represents the wider impact of the America’s Cup event on New Zealand. During the period 2007 to 2013 total value added to the economy is estimated at $2007159m, sustaining the equivalent of 2,220 workers for one year. 

In addition to the EIA results above, ETNZ’s competitiveness at the pinnacle of high performance yacht racing on the world stage generates wider benefits for New Zealand. These benefits include promotion of the New Zealand ‘brand’ (with media coverage estimated by NZTE to have an equivalent editorial value of $13m) and potential future tourism benefits arising from that exposure. The most significant benefits are on the New Zealand marine sector including marketing leverage, exposure to new markets, retention of skilled labour and the spin-off potential for other manufacturing sectors from the technology developed through high performance boat building, particularly for composite materials. These benefits and the tax income generated as a result of the Government’s funding are discussed in more detail in M.E’s full report

As a result of the research carried out in this report, it is clear that New Zealand has benefitted significantly from ETNZ’s involvement in the Americas’ Cup – to a far greater extent than the cost to the country and taxpayer via the Government’s contribution to the SPA.

Greg Akehurst, 09 915 5511 or greg@me.co.nz
Natalie Hampson, 09 915 5512 or natalie@me.co.nz


Leading Edge - Multi Regional EIA

M.E is taking the practice of EIA in New Zealand to new levels. This article highlights our recent developments to ensure that inter-regional relationships are incorporated in IO based EIA modelling and to enable CGE modelling to be applied at a regional level. 

Over the past year M.E has been involved in a significant work stream focused on the development of regional economic accounts, and culminating in the production of an integrated set of regional Input-Output (IO) tables, Supply-Use (SU) Tables and Social-Accounting Matrices (SAMs) for New Zealand. Together these economic accounts constitute a highly valuable resource for EIA, and indeed economic modelling in general. This article briefly introduces these different types of accounts and their importance to EIA, and outlines M.E’s leading-edge advancements in these regards.   

What are IO Tables, SUTs and SAMs?

In their essence, IO tables are a set of economic accounts that describe, for a specific year or study period, the way in which economic goods are traded among the various economic agents involved in production (i.e. industries) and agents involved in final consumption (e.g. households, exports). Payments for factors of production (including labour and capital) are also included in these accounts. 

Such information is of vital importance to economic modellers, who seek to estimate the way in which impacts on one particular agent (or set thereof) may trickle or flow through an entire economic system. IO tables thus form a core component of a wide range of economic models known as ‘input-output analysis’ and the highly related area of work which we know as EIA. Supply-Use (SU) tables utilise a similar framework to IO tables, and are often used for similar purposes. SU tables provide, however, specific information on the types and relative production of commodities by industries, and also the types of commodities purchased by consumers.

Although the relationships recorded in IO/SU tables are relatively straightforward, clearly the data requirements for establishing such accounts is enormous. It is partly for this reason that IO and SU tables are only produced in NZ on an infrequent basis. The latest available national tables are produced by Statistics New Zealand for the 2006-07 financial year. Despite the importance of such information to regional-level analysis, no official regional-level IO or SU tables exist for New Zealand. Occasionally practitioners draw on a national table or a table for another region if available, but the robustness of many EIA studies falls short when practitioners do not use an IO table that is specific to the study area. The worst example we have seen is an IO table for the US applied to a region in NZ. M.E is one of only a handful of organisations involved in the estimation and production of regional IO tables.

Social Accounting Matrices (SAMs) are similar to IO tables and SU tables. In addition to describing how industries provide economic goods to meet domestic and international demand, the SAM describes the way in which factor income is allocated among responsible agents (e.g. enterprises, households). Secondary distributions of income, for example through tax payments and government transfers, are also included, along with the distribution of income towards savings or consumption. SAMs thus provide a full account of the circular flow of income through an economy. 

The production of a SAM is a typically a first and critical step to the construction of a Computable General Equilibrium (CGE) model. Over the last decade, such models have become increasingly popular in EIA and other policy analysis. However, the significant resources (time and data) required for the production of regional SAMs is a factor that has to date greatly limited the more-widespread application of these models in New Zealand, particularly at a regional level.
In New Zealand, only a limited number of regional SAMs have ever been produced, and often only of a ‘prototype’ nature. As far as we are aware, the SAMs produced by M.E are the most comprehensive and detailed attempt ever undertaken in NZ and are a significant step towards the development of regional CGE modelling capability.

M.E’s Leading Edge Developments

There are four key areas where M.E’s regional economic accounting framework is setting the standard:

  1. Industry and Commodity-Based Accounts - Our regional accounts utilise a SU framework as a starting point. This provides us with an ability to produce not only industry, but also commodity-based IO tables. This has also meant that we are able to draw on both industry (e.g. employment) and commodity-level (e.g. agricultural census data, mining data) in the estimation of the regional accounts.
  2. Tailored study regions – We are able to produce IO tables, SU tables and SAMs for any NZ region. IO tables can also be produced for any territorial authority or any other spatially-defined sub-region. The flexibility to select an appropriate study region ensures that modelling reflects local economic structures. 
  3. Multi-regional - Our economic accounts can further be produced as nested, multi-regional tables, hence enabling us to capture inter-regional economic relationships.
  4. Full specification of inter-regional trade – Many non-survey based approaches to the development of regional accounts rely on simple assumptions (particularly common is the location quotient method) to establish the trade in economic goods and services between regions. We have, however, applied a significantly more sophisticated approach that includes reliance on 'big data', as well as national freight flows studies.
  5. Peer review – our process for deriving regional accounts is under peer review, including review by Treasury, as part of our involvement in MBIE-funded research programmes. 

Garry McDonald, 09 915 5520 or garry@me.co.nz

Marina Expansion - Impacts on FND

Opua Marina is currently the largest marina in the Bay of Islands and is the main port of entry into New Zealand waters for approximately two thirds of boats clearing NZ Customs each year. There is high demand from cruisers wanting to lease space over the peak summer period. However, there is only a limited pool of berths available for leasing on a casual basis. As a consequence of this shortfall, most visiting yachts end up staying for only a few days in Far North District, anchoring in the harbour or in the bays. They then move onto other marinas further south where they can berth for longer durations while their crew and owners travel around NZ by road.

To better meet the needs of the visiting boat market, Far North Holdings have proposed an expansion of the Opua Marina. Proposed works include significant dredging, construction of a seawall, expanding the hardstand area and developing new commercial buildings and carparking as well as constructing and designing new marina berths (70% increase) and relocating existing swing moorings. M.E was commissioned to assess the likely economic contribution of this regional development project. An IO based EIA methodology was applied. 

The proposed development’s economic impacts will manifest in stages aligning with the timing of the initial capital expenditure for the construction activity, followed by on-going additional expenditure in the local and wider regional economy stimulated by the increased number of boats berthed at Opua. It is estimated that the berths will be fully occupied over the summer peak period within three years of the construction phase being completed. 

The economic impact of the construction expenditure is expected to equate to $2007 14.8 million of value added across three years, sustaining the equivalent of 50-100 jobs per annum. With the majority of the work expected to be undertaken by local firms, the Far North economy can expect to accrue approximately 90% of the value added, employment and household impacts.

Once operational, the expanded marina will provide the catalyst for Far North District to attract additional expenditure from those using the new berths and frequenting the businesses onshore at Opua and in the wider economy. The key expenditure areas will be on boat maintenance and repair, berthage fees, and on tourism and hospitality activities. This expenditure will be net additional to the economy on an on-going basis, sustaining employment in a wide range of sectors. By the fifth year, when the marina berths are fully occupied over the summer season, the total direct and flow-on value added impacts are expected to be $2007 23.2 million, increasing Far North District’s total value added by 1.6%. The District’s employment is expected to increase by 1.9%, with the largest increases in boat building, retail and hospitality jobs and motor vehicle retailing and services. On top of this the money flowing through the economy would generate additional household expenditure of approximately $200712.9 million per annum from Year 5 onwards.

A resource consent application has currently been lodged for the proposed expansion of the Marina, with hearings likely to occur mid-2014. 

Greg Akehurst, 09 915 5511 or greg@me.co.nz

The Contribution of NZ's Airports

New Zealand’s airports play a central role in enabling and unlocking economic activity and opportunities. Airport infrastructure contributes to the linking of our regions and links us with the rest of the world, bringing in foreign capital and providing access to export markets. M.E was asked to estimate the economic and social contribution of New Zealand’s airport network. 

This study, commissioned by the New Zealand Airports Association, focuses on understanding airports’ relative contribution by looking at the total value of the supply chains supporting, and relying on, airports and air travel. The International Air Transport Association (IATA) and the Airports Council International (ACI) use a similar logic when assessing the impacts of international airports and the activity they facilitate. 

When looking at the ‘contribution’ of airports, it is necessary to have a wide perspective that considers the business activity associated with running the airport, the economic activity in the airport environs as well as the facilitated effects. We have seen a number of recent studies which have omitted the facilitated effects. This understates the economic contribution of airports and their economic importance as strategic infrastructure. 

For this study have we developed a detailed and unique Multi-Regional Input-Output model to underpin our EIA. This model divided New Zealand into 25 regions and showed the interactions and relationships between those regions at a sector level. To our knowledge this is largest MRIO model that has been developed for the New Zealand economy. 

New Zealand airports and air transportation activities employ over 12,645 people (2012). Over the past decade or so this sector’s total employment has increased by 49%. Another visible effect of airports is that they create a hub for business. We analysed the airport environs by establishing ‘benchmarks’ that highlight the type of activity that would be expected in the airport environs, taking account of airport size. First, there are firms that co-locate with airports because they service the airport and/or other airport related activities. Next are firms that locate at airports because they rely on air transport or access to air transport infrastructure. Then there are firms that locate in the airport environs to service the other firms within the environs. Finally, some firms locate in the airport environs because it offers a business location but these firms aren’t related to or reliant on airports or air transport. 

Nationally, the airport environs host some 74,700 employees (MECs); 3.2% of New Zealand’s employment. Around a third of this employment has a direct relationship with airport activity. Almost 4% of New Zealand’s economic activity (Value Added) is generated in the airport environs and more than 40% of this is associated with firms supporting airports and air transport or using airport facilities. 

Our findings suggest that the true value of airports arises from the connections they enable. These facilitated effects are around four times larger than the effects associated with the airport and environs. These facilitated connections enable other economic activities such as:

  • Tourism activity and international connections. The airport network provides a key link in this chain. Around a third of airports’ overall effects arise due to tourism movements and in the importance of tourism in New Zealand is well documented. 

  • International trade and business travel. This is the second main source of economic contribution that is facilitated by airports. These effects are associated with New Zealand-based business and production activities trading with overseas clients and customers. 

In addition to the macro level economic effects, airports fulfil an important role their local and regional contexts. This importance stems from the size of airports (as business units) and the nature of airports’ facilitated effects. Airports are important in the local context because:

  • they tend to be (medium to) large businesses with strong local value chains supporting other local businesses; 

  • the airport environs are important business concentrations and are key business areas. 

Airports support economic activity in the wider regions but they have little direct control of how that activity is translated into local and regional economic benefits. Airports can contribute towards future regional growth and development by delivering high quality services. This means that it is necessary to ensure that airports are integrated in the urban systems (e.g. transport) to reduce the transaction cost associated with using airports. It is also important to future proof airports by protecting their immediate environs (land resource, flight paths, noise boundaries etc.) thereby protecting the opportunities to develop in future because:

  • the presence of an airport can be a critical factor in attracting investment, especially if that investment is outward facing, i.e. targeting an export market(s),

  • growing exports is a key economic growth objective (outlined in central Government’s Business Growth Agenda) and airports clearly influence and support import and export trade, 

  • firms within the airport environs may wish to expand their operations by developing additional land to accommodate investment in plant and equipment, and

  • airports play a critical role in making tourism possible. 

Lawrence McIlrath, 09 915 5523 or lawrence@me.co.nz

   

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