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  It is widely observed that a new basic primary or secondary economic activity in an area, such as the development of a mine or the establishment of a car plant, triggers off additional economic activities nearby, especially in the local tertiary sector which provides services to the new industry and/or to its employees and their households. This is termed a multiplier effect, and the multiplier is an attempt to measure its magnitude, which has great potential importance, for high multipliers would indicate to planners the places and activities where investment would create, both directly and indirectly, the greatest amount of new economic activity (see growth pole).

The exact method for estimating multipliers depends on the theoretical base of the researcher and the data available. The simplest multiplier calculations depend on economic base theory, but in other cases multipliers can be derived from input-output analysis. There are two fundamental distinctions in such studies. The first is between employment multipliers where the focus is on jobs created, and income multipliers where the extra economic activity is treated in value of activities generated. The second is between aggregate and incremental multipliers. The aggregate multiplier is the ratio between total regional economic activity and its economic base: the incremental multiplier focuses on the ratio between the incremental change in basic economic activity and the consequent change in overall activity. The first is the easier to measure: the latter is more correct theoretically but extremely difficult to measure.

The value of multiplier studies has been called in question. First it can be shown that multipliers are unstable over time, and that the incremental multipliers differ according to whether the initial change in basic activity is an increase or a decrease. Secondly it is clear that (like economic base theory) multipliers deal with short-run effects. Thirdly there is evidence that the results of multiplier estimates are very sensitive to the size, shape, and location of the study region. Very small regions tend to have low multipliers because many effects leak across their boundaries: much larger regions have large multipliers simply because they are larger and more services are provided internally. A US study suggested that multipliers are around 1.5 to 2.0 for smaller cities, greater than 2.0 for cities like Cincinnati and Denver, and over 3.0 for New York city. (AMH)

Suggested Reading Smith, D.M. 1981: Industrial geography: an economic geographical analysis, 2nd edn. Chichester and New York: John Wiley.



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