Using LEFM
Determining alternative forecasts and scenarios
LEFM is a tool to aid forecast analysis. Its purpose is to capture what can reasonably be inferred from available data, so that the user can focus on the key questions for the local economy (eg prospects for major employers). It does not remove the need for undertaking off-model analysis of the local economy. Rather, it provides a framework for embodying that analysis formally.
Scenarios can be determined, driven by alternative assumptions for
- the UK economy alternative macro scenarios can be developed bu CE in MDM)
- demand for individual industries (structural change)
- population (by age and gender)
- activity rates (by age and gender)
- labour market dynamics
- future change in structure of occupations
LEFM allows users to examine the impact of alternative national scenarios on the local economy. For example, a ‘strong-sterling’ scenario can be prepared using MDM to assess the sensitivity of different industries to a high exchange rate. To the extent that the local economy has a high representation of vulnerable industries, output and employment in these industries will be affected in LEFM. The explicit social accounting matrix structure then allows the local multiplier effects to be fully represented, with the greatest effects on those industries that appear to depend mainly on local area demand.
One of the purposes for which LEFM has been designed is to construct scenarios for the impact of the opening of a new plant or closure of an existing plant. In the case of the opening of a new plant, the construction and operation phases are distinguished. The software allows for explicit assumptions to be entered for the direct employment impact of the change, and suggests default assumptions for productivity to derive the direct output impact. The user also has the option to specify the inputs that the plant purchases (default suggestions are given) and the extent to which these are purchased locally or from outside the local area.
LEFM provides a framework for constructing a counterfactual when evaluating the impact of regional policy. Assumptions are made for the relationship between particular policy measures and possible direct consequences in specific sectors, LEFM then allows the user to develop scenarios for policy-on and policy-off cases and to compare the two. In a pre-evaluation study, LEFM provides a framework for assessing the balance of expenditure on different measures.
For further information, including prices, and to order the service, email:
Mike May-Gillings
Manager, UK Local Economy Services
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