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Research Report: The Economic Impact of Game and Coarse Angling in Scotland

6 The Impact of Angler Expenditure on Regional Output and Income

6.1 Introduction

In assessing the regional economic impact of angling, researchers are implicitly addressing the question " what would happen to a region's economy if a type of angling ceased to exist?". Section 5 above, provides estimates of the change in angler expenditure for each region/fishery combination. The next step is to model the consequential impacts on each region's output, income and employment. This requires modelling of the direct, indirect and induced effects. Prior to the presentation of results, these effects are explained below.

6.2 Direct Effects

The Direct Effect is simply the increase in local incomes (wages and self-employment income) and any increase in locally sourced inputs (i.e. additional local output) that arise from the initial angler expenditure. Notice that some expenditures have a minimal initial local impact. For example, only about 5% of spending on petrol in, say, The Borders has a direct effect locally, 95% 'bounces off' through the purchasing of inputs from outside. In contrast, after VAT has been removed, quite a high proportion of accommodation spending is paid out in wages and in the purchase of locally sourced inputs. The composition of angler expenditure is thus important in determining the magnitude of the initial Direct Effect.

6.3 Indirect Effects

There are knock on effects from the Direct Effect. Specifically, the local impact of producing these additional locally sourced inputs is known as the first round Indirect Effect. This effect manifests itself in further increase in local incomes (wages and income from self-employment) and further demands by firms for locally produced inputs. The local effect of producing more local inputs creates further rounds of successively smaller Indirect Effects. The combined impact of the Direct and all the rounds of Indirect Effects are modelled by what is termed "Type I" multiplier analysis. Among other things, this analysis would calculate the total local output dependent on the fishery (in this report termed the Type I Total Output Effect) and the total increase in local household income (in this report termed the Type I Gross Value Added).

6.4 Induced Effects

As described, both the direct effect and every round of indirect effects increases household incomes (wages and income from self employment) and in each spending round a proportion of these are spent on locally produced goods, creating further local income and local output. This is the Induced Effect . "Type II" multiplier analysis incorporates these induced effects into the analysis, enabling the estimation of the corresponding Type II Total Output Effects and the Type II Gross Value Added.

6.5 Employment

Once the (Type I and/or Type II) local incomes or output impacts are calculated, (Type I and/or Type II) local employment can be estimated through known relationships between output and employment or total wages and employment.

6.6 Modelling the Local Economy

The magnitude of the overall effect on local output, incomes and employment depends on a number of key characteristics of the regional economy. An important characteristic is the absorption rate, which is the propensity to purchase locally produced goods. A heavy and homogeneous product, such as building materials, would have a high level of absorption in the local economy. If not available locally it will come from sources as close to the area as possible. On the other hand, the 'absorption rate' in financial services would be low relative to cement. The size of the area is also critical. A smaller region such as The Borders is unable to supply most of the goods required and consequently the Type 1 multiplier effect is small. Larger regions such as the Central region will source a greater proportion of goods from within the region and the multiplier will be relatively large. However it should be noted that the larger the region the more angling alternatives there are inside the region and a greater proportion of expenditure would not be lost if angling ceased.

The seven regional economies were modelled using an approach, developed by CogentSi, that utilises specific models for angling. The model incorporates trade matrices between 53 regions ¹² for the128 individual Standard Industrial Classification categories generated by an estimated gravity (distance related) model and consistent with known published information. It also utilises the technical coefficients derived from the Scottish Input-Output Tables and again reconciled to known outputs/inputs and estimated flows. Details of the construction of these tables and the full output are given in the technical report.

6.7 Impact on Regional Output

The impact on total regional output was estimated by taking the angler expenditure data in Tables 5.3.1 (zero displacement) and Table 5.4.2 (with displacement) and tracking the data through a Type II multiplier analysis using the Cogentsi models described above.

Tables 6.7.1 to 6.7.4 below summarise the impact on output for each of the 28 region/fishery combinations. These are presented with zero displacement and with displacement based on anglers stated reaction to a fishery closing in a region.

The above table presents only the impact on each region of a fishery in that region ceasing to exist. The estimated expenditure on salmon and sea trout angling in the Highland region was 35.4m (Table 5.3.1 in Section 5). Table 6.7.1 above informs us that the combined effects of the direct, indirect and induced effects would translate this into a loss of 42.1m of output produced within the Highland region.

Please note that the impact on Scotland of each pound lost to the Highlands requires a separate estimation procedure. This is because, the indirect and induced effects will be greater because the Scottish economy is much larger and thus better able to supply its own needs. On the other hand, the relevant expenditure loss would be less than 35.4m, because, many anglers may simply switch location within Scotland. Given this, it makes little sense therefore to sum the rows and columns of the above table. Fortunately, the models are designed to provide separate estimates of the impact of a known change in angler expenditure within a given region on the Scottish economy (and indeed the UK Economy). This is presented in Section 8.

In the event of cessation of salmon angling in the Highlands, Table 6.7.1 over-estimates the output effect, since it is highly unlikely that there would be zero displacement of all angler expenditure. In the context of complete closure, it is preferable to use the (with displacement) expenditure changes in Table 5.4.2.

Tracking these expenditure changes through the regional models generates Table 6.7.2 below. It can be seen, for example, that the 20.7 expenditure loss (in Table 5.4.2) to the Highland region from the closure of salmon angling would produce an annual fall of 24.6m in Highland output.

Table 6.7.3 below presents ratios (multipliers) that link regional output to a change in expenditure. Since we are referring to specific changes in angler expenditure, displacement is not an issue and the relevant ratio is Table 6.7.1 (output without displacement) to Table 5.3.1 (expenditure without displacement) ¹³.

It can be seen that every 1 increase/decrease in salmon angler spending in the North East results in a 1.21 increase/decrease in output in the North East; whereas in the Borders a 1 change in brown trout angler spending changes local output by 0.77 ¹⁵. The multipliers vary between these two values because of variations in the size and economic structure of the regions, as well as variations in the composition of angler expenditure. Given the size of these regions and their economic structure it is not surprising that some of the above ratios are less than unity. The ratio of the change in total regional expenditure ¹⁶ to angler expenditure will usually be greater than one, but much regional expenditure is on goods imported into the region. It is local output, income and employment that determine local living standards and this study therefore focuses on these, rather than on total expenditure.

The relative magnitude of the ratios in the above table is consistent with prior expectations. From Table 6.7.3, salmon angling with its high levels of labour input from ghillies and workers in hotels and restaurants will have a relatively high ratio. The multipliers in the salmon column are indeed greater than the multipliers in other fishery columns. Rainbow trout angling has relatively strong indirect effects because of the need to restock. In contrast, brown trout angling is dominated by locals whose expenditure is largely on fuel, which in turn has minimal knock on effects. With respect to regional differences, it can also be seen that Central Scotland and to a lesser extent the North East have higher multipliers than the norm, because these large populous regions are more capable of satisfying demands within the region. It is therefore not surprising that brown trout angling in a small region such as the Borders has a relatively low multiplier compared with salmon angling in the North East.

Table 6.7.4 below relates total regional output (Table 6.7.1) to changes in angler days (Table 5.1.1). Once again since the context is a given change in angler days, displacement is not an issue.

The table informs us that on average an increase/decrease of one salmon angler day in the Highlands will increase/decrease output in the Highlands by 185.78, whereas a change of one brown trout angler day in the Borders will result in a change of 37.58.

6.8 Impact on Gross Value Added (ie Regional Income)

Of particular interest is the impact of angler expenditure on household incomes in the form of wages, rents and income from self-employment. Gross Value Added (GVA) is a measure of the income in these forms to households in the region. The difference between Regional Output and GVA is the import content in locally produced goods and services. Tables 6.8.1 and 6.8.2 give the effect on income by region and species, with and without displacement.

In Section 5, the estimated expenditure on salmon and sea trout angling in the Highland region was 35.4m (Table 5.3.1). Table 6.7.1 informed us that this would translate into 42.1m of output produced within the Highland region. From Table 6.8.1 above, production of this output would generate 21.4m annually in household income. This income is in the form of wages and all income from self-employment ¹⁷.

The 'with displacement' analysis is more relevant when describing the current total contribution of angling. Table 5.4.2 informs us that if salmon angling in the Highland region ceased, angler expenditure would fall by 20.7m and this would reduce Highland output by 24.6 (Table 6.7.2). This in turn would reduce local household income by 12.5m (Table 6.8.2 below).

Using Tables 5.3.1 and 6.8.1 the ratio of local income change to the initial change in expenditure is calculated. These particular tables are used because an actual change in regional expenditure is envisaged and therefore displacement is not relevant ¹⁸. Table 6.8.3 below presents these ratios. From the table, it can be seen for example that a given 1 increase or decrease in spending by salmon anglers in the Borders results in a 0.55 increase or decrease in household income in the Borders.

As expected, smaller less self-sufficient regions have lower ratios. The column differences reflect the different expenditure patterns of different anglers, notably the high rents and accommodation payments of salmon and sea trout anglers. Thus, salmon and sea trout angling in the North East and Central regions have the highest ratios and brown trout angling in Orkney and Shetland the least. The relative magnitudes generally follow the relativities in Table 6.7.3 (the ratio of output change to angler expenditure change). The exception is the Western Isles where there is an apparently higher ratio of income to output, particularly in the accommodation and retailing sectors.

Table 6.8.4 below relates regional income to changes in angler days. The table informs us that on average an increase/decrease of one salmon angler day in the Highlands will increase/decrease household income in the Highlands by 112.22 per annum, whereas a brown trout angler day in the Borders will result in a change of 15.04.

6.9 Comparison of Ratios

In Table 6.9.1, below a number of multipliers are presented. The multipliers in columns one and two (taken from Tables 6.7.3 and 6.8.3) are local multipliers with angler regional expenditure as the denominator. The third column presents the multipliers linking Scottish output to angler regional expenditure as estimated by the models. The effect of angler expenditure at the Scotland level is, unsurprisingly much larger than at the regional level.

The fourth column presents the ratio of regional output to the direct effect (sometimes referred to as direct output). The latter is simply the proportion of initial angler expenditure retained in the region. Since the denominators are smaller, these multipliers are correspondingly larger. The fifth column is the ratio of regional income to the direct effect

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