Economic analysis is the systematic examination and evaluation of data, trends, and indicators to understand an economy’s functioning, performance, and future prospects. It uncovers insights that inform decision-making and shape economic policies. It can be done on an existing situation (retrospective analysis), a future scenario (prospective analysis), or an imagined alternative to what might happen in the future (counterfactual analysis).
One of the most common types of economic analysis is cost-benefit analysis, or CBA. This form of economic analysis expresses both costs and benefits in monetary terms, making it easier to compare the trade-offs between alternatives. In general, if the monetary benefits of an intervention outweigh its monetary costs, it is a good idea to implement the intervention. However, it’s important to take into account hidden or indirect costs that may not be apparent from the monetary data.
Another common type of economic analysis is economic base analysis. It looks at which industries bring money into a region from outside sources and which serve local needs. This helps businesses understand opportunities and risks in a community.
When conducting economic analysis, it’s important to make sure that your models are accurate and well-documented. Inaccurate or poorly documented models can lead to inflated estimates of impacts. This is especially true when it comes to costs. For example, using an inappropriately high multiplier or failing to include the displacement of economic activity can overstate the impacts of a project. Be sure to use current, regional multipliers and follow established best practices.