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APPLIED ECONOMICS

Socio-Economic Impact
Analysis

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Start up
What do you think are the result of
technology to the environment?
What is the connection between the
society and economics?
As a future businessman, what is the most
necessary thing you must consider in doing a
business?

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

Objectives:
At the end of the chapter, the student would be
able to:
• Identify and explain the various socioeconomic
factors affecting business and industry
• Analyze and evaluate the viability of a business
and its impact on the community
• Formulate recommendations and strategies on
how to minimize and maximize a business’s
negative impact and positive impact, respectively

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

In the production process the operation of


the firm will need intermediate inputs or raw
materials to be processed by factor or
transforming inputs. Thus, the actions and
decisions of the business firm will have effects
on its suppliers of raw materials.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

Framework for Socioeconomic Impact Analysis


Intermediate Final
Goods Goods

Firm

Intermediate Factor Inputs


Inputs

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

The firm organizes its production activities


by sourcing raw materials or intermediate inputs
that factor inputs add value in the
transformation process. The purchase of
intermediate inputs is made from enterprises
within and outside the industry and outside the
country.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

On the other hand, labor market for labor


services, capital market for funds to finance the
acquisition of capital and the real estate market
for land and office space.
These intermediate inputs are processed
by various factors inputs through the technology
available to the firm to produce the firm’s
output.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

The other component of the firm’s output


is finished products that are sold to final buyers
including consumers, investors, government
agencies and the rest of the world as exports.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

TRACING THE IMPACTS THROUGH THE


SOURCING OF INPUTS OF A BUSINESS
FIRM

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

Intermediate Inputs (Raw materials)


• Internal vs external sources. Sourcing raw
materials from internal suppliers can create
income and employment opportunities to
produce of these raw materials.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Independent suppliers vs. subsidiary of


conglomerate. Sourcing intermediate inputs
from independent suppliers domestically may
have greater ripple effects than sourcing it
from a subsidiary of a conglomerate.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Raw vs. semi-processed inputs. Sourcing


immediately inputs that are still very raw in
product transformation will have limited
multiplier effects unlike sourcing them under
semi-processed state especially if these
intermediate inputs where sourced
domestically.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Market power of the firm. If the purchasing


firm has market power in the industry it can
exercise its market power over its suppliers by
extracting surplus from them.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

Factor Inputs

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Sourcing for labor services


– The source of labor services, nature of
engagement, basis of compensation, degree of
unionization of laborers, presence of human
resource development plan, and working
conditions will shape the impact on the labor
market of a firm’s purchase of manpower services.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

– Within the community vs. outside the community.


It is beneficial to the laborers, firm and the
community if labor services are drawn from the
community where the firm is located.
– Direct employment or subcontracting. Although
direct hiring may expensive for the business it has
a number of positive effects on the laborers
– Minimum wage vs. market rate. We know that
laborers are semi skilled personnel are usually
paid the minimum wage as required by law.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

– Organized vs. non-organized. In large companies


laborers are highly organized and have strong
unions.
– Human resource development. Some big firms
provide training programs for the human resource
development of their workers. Some training
programs are specific and some are general.
– Temporal and spatial working conditions.
Temporal working conditions refers to the shift in
duration of work.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Sourcing funds for capital formation


– Funds are needed by the company to start its
operation, purchase equipment and expand its
physical plant.
– Own savings vs. capital market. There are several
options in raising funds to finance the capital
expenditure of firms. They can source it from their
own savings or retained earnings.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

– Foreign borrowing vs. foreign direct investment.


There are number of large domestic firms that
source their funds from abroad. They can do this
by borrowing or by inviting foreign partners
through foreign direct investment (FDI).

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

– Market determined vs. regulated rates of return.


As mentioned earlier, business ventures are
undertaken to make profits. These profits are not
only income the owners of capital a fair rate of
return of their investments.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Sourcing for land inputs


– A business company will need an office space to
conduct its commercial operations.
– Land intensity of business
– Location of business and opportunity cost of land
use

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Sourcing for managers and professionals


– Insiders vs. outsiders
– In-house vs. out-sourced training

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Payment of taxes
– Taxes are paid at different levels of government from
the barangay level to the national government for the
conduct of business enterprise.
– Business permits, business taxes, municipal sales
taxes, and real estate taxes are paid at the local
government unit.
– However, value added tax, import duties, export taxes,
and income taxes including royalties are due to the
national government.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Output as intermediate inputs


– Contributions on industrial integration
If the output of the firm is used by other
industries as intermediate inputs the selling firm is
contributing to the integration of the economic
sector.
– Contribution to productivity of other industries
• A more important impact of producing firm on the firm
purchasing its product as intermediate inputs is the
effect on the productivity of the buying firm.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

• Output as final demand


– Personal consumption
• The quality of the output can affect the level of
satisfaction and welfare of the consumers.
– Investment
• There are firms that produce capital goods like
equipment, agricultural implements and industrial tools
that are sold to other firms not as intermediate inputs
but as factor inputs.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

– Government consumption
• Government consumption refers to the product
disposition is a combination of household consumption
and purchase of capital goods by firms.
– Exports
• Not all outputs of firms or industries are disposed in
the domestic market. There are firms that sell a portion
of its output to the rest of the world as exports. In fact,
many firms located in special economic zones are
producing goods entirely for exports.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

ACTIVITIES:
• Conduct a forum discussing the advantages
and disadvantages of establishing a industrial
plant in your community.

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

Quiz:
• As a senior high school, how can social impact
analysis affected your life?

ABM_AE12
APPLIED ECONOMICS
SOCIO-ECONOMIC IMPACT ANALYSIS

Reference:
• Tullao Jr., Tereso S. Applied Economics For A
Progressive Philippines. Phoenix Publishing House;
927 Quezon Ave., Quezon City. 2016
• Pagoso, Cristobal M. Philippine Economics (Macro
Approach). NELSON PUBLICATION; Marimar
Village Paranaque City. 2003
• Carnaje, Gideon P. Applied Economics. Vibal Group
Inc, Araneta Avenue, Quezon City. 2016

ABM_AE12