Economic and market analysis
An economic analysis has value when it says what changes because of an action. DDA measures demand, supply, prices, investment, and the behaviour of firms. Then we measure how much of the observed result is new, how much moves from another place, and how much leaves the region.
01 Start with the margin
Averages describe the past. A decision affects the next unit. DDA asks what controls the next unit of investment, hiring, output, or housing. A firm adds capacity until the next unit costs more than it earns. A region adds infrastructure until the next connection costs more than the tax base can carry.
Each constraint on that decision gets a test. We ask if the constraint binds at the margin, or if it exists and has slack. A site with poor road access and no power has two constraints. Only one of them decides the outcome. If power binds, a road upgrade changes nothing. The analysis states which constraint binds and what binds next.
02 Additional activity
Economic development reports give gross outcomes: jobs, investment, workers trained. Gross outcomes do not show what the action added. DDA compares each result with a credible alternative.
A subsidy can move an investment forward in time and leave the final decision unchanged. A subsidized hire can take a worker from another local employer. A new industrial site can attract a tenant that moved from another site in the same region. In each case the gross number is large and the additional effect is small.
Input-output multipliers need the same care. They assume unused capacity and stable prices. In a region with full employment and tight housing, extra activity raises wages and rents. The multiplier overstates the effect. DDA states the assumption and tests it against local conditions.
03 Entry and responsiveness
A market can list many firms and still give buyers few real alternatives. DDA counts the alternatives that a buyer can use at the needed scale, price, and time. A supplier that lacks the certification for a contract is not an alternative for that contract.
Entry needs more than permission. A new firm enters when expected profit after entry covers its fixed and sunk costs. Some services need a minimum scale before any provider enters. A shared training program, a processing plant, and a transit route all work this way. DDA identifies the minimum scale and checks if combined demand reaches it.
Responsiveness measures how far behaviour moves when a condition changes. Lower site costs change little when power is short. A training subsidy changes little when qualified workers will not move. DDA estimates the response before it recommends the action.
04 Regional capture
A large project can send most of its spending out of the region. Outside contractors, imported equipment, non-resident labour, and outside ownership all reduce local effect. A smaller project can keep more. DDA separates gross project activity from the benefit that stays in the region, and it never assumes local capture from project size.
Distribution matters as well. Employers, workers, landowners, residents, taxpayers, and governments receive different gains and costs from the same project.
05 The public-action test
A real constraint does not prove that public action is right. Private action falls short when benefits go to people who do not pay, when many firms need one shared service, when information or finance is missing, or when coordination fails. Public action has limits too. A government can lack information, funds, enforcement tools, or control over the actors who must change.
DDA tests the case in order. Why does the problem continue without action? Why will the proposed action improve the result? What will occur without it? What can someone observe, verify, and enforce? Who pays if it fails?
Correcting one distortion can worsen another. A subsidy that improves project economics can raise land prices and remove the gain. DDA lists the distortions that remain after the action and states the net direction.
06 What the work can produce
The work can produce an economic baseline, an opportunity assessment, a counterfactual estimate of additional effect, a regional capture analysis, a market-entry and minimum-scale analysis, and a public-action test. Each product states its assumptions, its evidence status, and the evidence that will change the conclusion.
For the full sector version of this method, see Economic development.
07 Bring the question
Send the opportunity, the incentive proposal, the market study, or the claim about regional benefit. DDA will find what the result depends on and test it.