Multiplier Effect of the Agricultural Sector on the General Economy

RCED-84-56: Published: Apr 17, 1984. Publicly Released: Apr 20, 1984.

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Pursuant to a congressional request, GAO reviewed the relationship between the agricultural sector and the rest of the national economy. GAO was asked to provide information on: (1) federal tax revenues generated by federal agricultural program expenditures; and (2) the multiplier effect of the agricultural sector on the national economy.

GAO was unable to determine a specific multiplier for the agricultural sector or to compare it with multipliers for other sectors. GAO was able to obtain information on definitions and techniques used by economists to measure multiplier effects. A multiplier is a measure of the relationship between an initial increase in spending in one sector of the economy and the total increase in spending in all sectors of the economy as a result of the initial increase. The increase in total spending will be greater because the recipients of the initial increase spend some of what they receive in other sectors. GAO found that: (1) most analyses of the multiplier effect for the agricultural sector have focused on particular products or regions; and (2) those studies that had wider focuses used a variety of definitions for multipliers and different methods of determining multiplier effects. GAO stated that, if a consistent set of studies were available for calculating multiplier effects in various sectors of the economy, multiplier analysis would be a useful tool for measuring the impacts of different economic sectors on one another.

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