The CNMI’s Econometric Model

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Presented By:. The Marianas EB5 Regional Center . For The:. CNMI Department of Commerce. Paid By:. The US Department of Interior. Office of Insular Affairs. Model Background. Who, What, Why & How. ID: 558456 Download Presentation

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The CNMI’s Econometric Model

Presented By:. The Marianas EB5 Regional Center . For The:. CNMI Department of Commerce. Paid By:. The US Department of Interior. Office of Insular Affairs. Model Background. Who, What, Why & How.

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The CNMI’s Econometric Model

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The CNMI’s Econometric Model

Presented By:The Marianas EB5 Regional Center For The:CNMI Department of CommercePaid By:The US Department of InteriorOffice of Insular Affairs


Model Background

Who, What, Why & How



The CNMI’s Economic Modeling

Outdated and inconsistent with current economic realties

Doesn’t reflect impact of loss of manufacturing & tourism changes

Current Economic Measures

2007 & 2010 Gross Domestic Products

Produced by the US Bureau of Economic Analysis

Provides a true measure of economic health

Estimates are hindered by data gaps and the need to extrapolate data made available

Economic Indicators

State-level collection of economic markers which provide a sense of economic condition

Not consistently collected and reported

Consumer Price Index

State-level collection of prices in specific “market baskets” which gauge inflationary changes to general consumer commodities

Historically only collected on Saipan, which didn’t reflect nature of inter-island price fluctuations for the specific time collected

Recently developed Tinian & Rota CPI’s to account for actual changes in those specific economies


Need for a Model

To forecast impacts of specific projects, proposals and/or policy decisions

Useful in understanding multiplier impacts of specific economic activity

Example: How many jobs a specific development will create (Direct, Indirect & Induced)

Useful in forecasting impacts of policy implementation specific to the economic condition

Example: How will changes to tax laws or structure impact revenues

Useful in the application/evaluation of economic development programs

The CNMI’s Qualifying Certificate Program

Free Trade Zone Incentives


CNMI Steps

CNMI Department of Commerce

Primary government entity for reporting economic condition through its Central Statistics Division

Applied for a Technical Assistance Grant from the US Department of Interior, Office of Insular Affairs

Placed RFP12-DOC-064

Contract awarded to the Marianas EB5 Regional Center

Economist: Dr. Michael K. Evans of Evans, Carroll & Associates

Contractor report to Governor Inos

in June 2013

Identified data gaps and discussed impact to the economic model


CNMI’s Economic Model

Model Summary

Model was developed without specific time series data points (2003-2010)

Wages & employment: Impacts the wage/employment sections of the model

Attempts to extrapolate data utilizing from the BEA, Economic Census & CNMI data, however too many inconsistencies existed to make extrapolation useful

Availability of 2011 GDP estimates from BEA

Anticipated release of 2011 GDP estimates will include revisions to 2009 & 2010 data

CNMI’s model will be recalculated once the revisions are made available

Tourist spending data

MVA data provide tourist arrivals, however spending patterns per market are not available

If data collection occurs specific to tourist spending, model can accommodate changes to include these data points


Model Elements

Equations & elements of the CNMI Model


Model Framework


Utilized In Model Framework



Domestic Product




Export of goods



of services

Consumer Price Index


of goods


GDP Deflator

Import of services

Domestic personal disposable income


government consumption & investment


measures of personal income


government consumption & investment

Exogenous variables*


variables for Japan, China & Korea and includes values of the currencies & real GDP for those countries.

Key variable:

Number of Visitors

Impacts: Total Demand


Consumption Charts: Consumer Durables

Excludes spending patterns of Japanese visitors

Represents shopping patters in which consumers purchase genuine products vs. counterfeit products in their home country


Consumption Charts: Consumer Non-Durables

Consumption closely tied to current conditions


Consumption Charts: Consumer Services

When housing expenditures rise, purchases of fuel & household non-durables (utilities, etc.) rise

Increases in non-durables may serve as the cause of housing expenditure increases.


Consumption Charts: Net Foreign Travel

Equation developed to maintain consistency with BEA statisticsSimilar to export of services


Fixed Investment Equation

Includes housing & capital spending

Population decline consistent with the need for housing

Capital spending primarily for tourism based investments with the exit of the garment manufacturing industry

Visitor arrivals critical independent variable for this equation


Export Charts

Goods export is minimal and statistically insignificant

Export of services is closely tied to tourism and visitor arrivals

Data similar to Net Foreign Travel (Consumption)


Export: Visitor Arrivals


Decline consistent with JAL pullout and fluctuation with Japan’s Real GDP




Total demand is difficult to measure due to scarcity of dataEmployee compensation is used to measure aggregate demandExports of goods are more clearly linked to imports due to the need to import raw materials


Government Consumption Territorial

Federal consumption is statistically insignificantWages are used as a proxy for aggregate demand


Manufacturing Compensation

Manufacturing wages are closely tied to export of goodsDecline consistent with garment manufacturing exit


Compensation for Government Workers, Territorial

Boosts in visitors increases the need for local services, which accounts for the rise in 2009-2010


Private Sector Wage

Excludes manufacturing & government wages.Usually separated into several sectors, but due to data gaps, CNMI’s model is unable to provide sector specific informationCNMI’s model utilizes the CPI as a correlation value versus standard output measures


Implicit GDP Deflator

Constructed to close the gap between current & constant dollar GDP


Consumer Price Index for CNMI

1% increase in minimum wage= 0.3% in CPI


Final Five Equations

Not estimated stochastically2010 Employment in manufacturing , trade, hotels, and restaurants, all other private, and government to relevant components of GDP.

EM = XGX * 39/17

ETR = (CDX + CNX) * 3495/313

HER = XSX * 5779/180

EOTH = (CSX + IPX) * 12220/331

EG = GSLX * 5277/300



Utilizing the Model to Forecast

Simulation of a $10,000,000.00 injection into the CNMI economy


Forecast Simulation & Results

Considered a forecast despite having known variables (visitor arrivals), due to pending release of GDP account figures

Current GDP for 2011 & 2012 to rise from 4.1% change from 2010 (last known results)

Constant GDP for 2011 & 2012 to rise from 0.9% in 2011 to 6.0% in 2012

Increase in GDP for 2011 & 2012 due to increase in visitor arrivals of 20,000

Model Simulations

Both test an impact of $10,000,000.00 into the CNMI economy

First scenario arrives at the $10,000,000.00 via an increase in visitor arrivals of 20,000

Second scenario arrives at the $10,000,000.00 via an increase in capital spending


Economic Impact of an Increase 20,000 Visitors

Assumptions of model

Average visitor spends roughly $500.00 x 20,000 visitors= $10,000,000.00

Simulation Purpose

Simulation looks at the economic impact of an additional 20,000 visitors and its impact to overall economic impact over a three year period

Results of Simulation

Increase of three year increase of $12 Million in first year, $17 Million in second year & $20 Million in third year

of a $10,000,000.00 “shock” into the CNMI economy

Multiplier for an increase of 20,000 visitors into the CNMI economy is 2.0

over three years


Economic Impact of an Increase in Capital Spending of $10 Million

Multiplier is 1.2 versus 2.0 (increase in visitor arrivals)

Capital spending multiplier is lower due to the need to import goods, whereas tourism based increase is higher due to the amount of domestic spending.

Money is remitted out of the local economy in import expenditures

The impact of tourism spending creates and sustains higher employment numbers vs. capital spending