Multiplier Effect

The term “multiplier effect” as it pertains to the local economy and wind project development describes how increased spending in one part of a economy starts a chain reaction that results in an overall increase in economic activity. When a consumer spends money to buy goods or services at a local business, the local business will, in turn, spend some of this money locally on additional goods and services, and the local providers of these goods and services will likewise spend some of this money locally. In this way, money recirculates within local economies, creating wealth broadly through ongoing cycles of buying and selling. In contrast, when a consumer spends money outside of his or her local economy, it does not benefit local businesses or the employees of these businesses but instead benefits individuals outside of the community. For example, when the income from a wind energy project is spent for goods and services provided primarily by non-local entities, the local community benefits less than if these goods and services are provided locally. This concept explains why outside ownership of a natural resource often results in local poverty despite the great wealth that results from extraction of the resource – most of the wealth from the resource flows permanently outside the local community leaving little available to recirculate within and thereby enrich the local community.