Thursday, February 11, 2010

PNC :: UOG Prof: Guam Spending Multiplier Should Be Recalculated to Account For Buildup

PNC :: UOG Prof: Guam Spending Multiplier Should Be Recalculated to Account For Buildup

Friday, 5 February 2010

Guam - The Military Build Up will have an effect on Guam’s economy, but by how much is up for debate as the multiplier model used in the DIES is based on Hawaii’s consumer spending, which yields a much higher spending multiplier than what would apply to Guam.

Claret Ruane, Ph.D. in Development Economics, a UOG Economics and Finance professor and resident economist for the UOG Pacific Center for Economic Initiatives, explains in a recent technical report that the macroeconomic multipliers, and spending multipliers in particular, used in the DEIS report should be recalculated using a Guam-based model to develop more accurate projections regarding the economic benefit of the proposed military build-up. Ruane posits that the DEIS estimates overstate the build up’s direct and indirect economic impacts by 41-118% during the construction phase and by 17-93% during the operational phase, thus paint a rosier picture than presented.

Read the report here

In her report, Ruane presents a framework on how to adjust the DIES spending multiplier to better reflect Guam’s specific economic conditions. Because of the lack of current economic data on Guam, she is unable to calculate the actual numerical value of Guam’s spending multiplier but presents arguments for why she believe it is probably quite lower than Hawaii’s spending multiplier. This is in contrast to the DEIS that admits Guam’s multiplier to be only slightly lower than Hawaii’s.

Ruane also notes that a cost analysis should be done carefully by Guam-based experts in order to weigh the build up’s benefits and costs to the island.

The report notes one positive aspect of the above analysis: "Should the proposed military build-up remain attractive according to the evaluation suggested above, our estimates suggest that the impact on the island’s economy and the pressure on the island’s limited resources during the peak year would be less than estimated in the DEIS. In a way, our lower estimates relative to those by the Department of the Navy translate to recent requests by the island’s leaders to lengthen the impact period by another four years (from 2010 to 2018 as opposed to 2010 to 2014) so as to spread out the impact of the proposed military build-up and to allow the economy and community some breathing room to adapt and respond more effectively. Although the impact period in our analysis remains the same, the magnitude of the impact has been shown to be less and presumably more manageable.”

Written by : News Release

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