Ports contribute much to their economies, and port economic impact analysis is the major tool for
documenting those contributions. Pisani estimates that U.S. commercial port activities generated a total impact
on the U.S. economy in 1988 of $98 billion in gross sales, 1.2 million jobs, $50 billion in gross national product,
$28 billion in personal income, $10 billion in federal taxes, and $3.5 billion in state and local taxes.(1) Numerous
economic impact studies document the importance of ports to their local economies.(2)
Over the years the methodology of port economic impact analysis has improved. Major improvements include
the use of impact multipliers generated by input-output models and efforts to ensure that the direct impact is not
overestimated by the inclusion of economic activity unrelated to the port. Both of these improvements owe much
to critical articles, such as the one published by Davis in this journal, and to the U.S. Maritime Administration's
development of port economic impact kits.(3)
Nevertheless, improvements may be made. This article contends that port economic impacts are mis-estimated
because impact studies fail to consider the price changes and the resulting changes in local-area production
that would occur in the impact area were the local port unavailable for the handling of imports and exports. The
purpose of this article is to provide an operational methodology for estimating the direct impact of a port that
takes into account the changes in local output due to price changes.
Supply-demand analysis is used to obtain the conceptually correct impact, and an operational impact estimation
formula is derived. This is done for five mutually exclusive and exhaustive direct-impact categories -- port
industry, exports, noncomparable imports, comparable imports, and inland transportation -- each of which
consists of a collection of firms that are all impacted in conceptually the same way by the port. Although this is a
theoretical article, some empirical issues are mentioned in the endnotes.
PORT INDUSTRY
Port industry, as defined here, comprises firms that provide services associated with moving cargo through the
port system; certain activities not directly related to cargo flows but related to the port, such as ship repairs; and
services provided to port users by governmental and quasi-governmental agencies, such as dredging services
of the U.S. Army Corps of Engineers. What these diverse activities have in common is that their demand is
greater than it would be in the absence of the port.
This direct-impact category is found in all port impact studies. In these studies, however, port industry includes
inland transportation. In this article, inland transportation is treated separately for reasons that will become
clear.