LM3 was developed by the New Economics Foundation as a simple and understandable way of measuring local economic impact. It is designed to help people think about local money flows and how their organisation can practically improve its local economic impact, as well as influence the public sector to consider the impact of its procurement decisions.
An economic multiplier effect describes the impact that spending has in the economy, taking into consideration knock-on effects. The measuring process starts with a source of income and follows how it is spent and re-spent within a defined geographic area.
A higher proportion of money re-spent in the local economy means a higher multiplier effect because more income is generated for local people. More income retained locally, or nationally, means more jobs, higher pay and more tax revenue for government, all of which may lead to better living standards.
The first stop to understanding LM3 is The Money Trail, published in 2002 as an introduction to understanding and measuring impact on the local economy using LM3.
Since The Money Trail was first published, the LM3 model has continued to be developed and refined. NEF Consulting now offers training on LM3 for local authorities and suppliers to the public sector. See our training pages.