Economic Multipliers

"Leaky" Economies Must Be Considered in Development

Why is it important?

Economic multipliers show how many times a new dollar circulates in a local economy; a multiplier of two means a dollar is spent twice before it leaves. When multipliers are high, dollars flowing into an economy create more jobs than when they are low. Communities increase economic multipliers when they buy from local businesses. Encouraging local businesses to supply goods that the community routinely buys elsewhere help complete the circle. This economic development strategy, called “plugging the leaks,” is an alternative to recruiting new businesses. The strategy’s effectiveness results from its investment in social capital – the local businesses and entrepreneurs at the heart of a community.

How are we doing?

North has the most leaky economy, followed by the East and South Central. When residents shop outside their region, they go to cities such as Reno or Sacramento, instead of other parts of the Sierra. This helps explain why the Sierra Nevada has a smaller multiplier than North Central. Normally, the larger area will have the larger multiplier. Plugging the leaks would be a good development strategy for North, South Central and East.

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