Question

When the broader impacts of an individual project or a group of projects are considered, why must the economic analyses consider some or all of the following: (1) the indirect impacts, (2) the entire geographic area affected by the project, which may reach beyond the project works and the locations of the direct users, and (3) the induced impacts that may result from the direct and indirect effects?

Answer 1

Economic analysis of the project considers indirect impact, induced impact as well as the impact upon the geographical area, because each project has positive or negative externality, as well as social benefits and cost. These impacts, consider those people and entities who are not the customers of the project or are related to the project. Hence, economic analysis is not only about the profitability earned by the project, but also the different impacts made by the project. A project can either create jobs, increase purchasing power, create derived demand and contribute in the development of communities. These are the benefits to be considered. Further, a project can also create different types of pollution, harming the environment as well. Hence, economic analysis should consider these impacts to ascertain the profit and loss due to the project. So, these impacts are considered.