A New Approach to Measuring the Economic Impacts of Tourism

A New Approach to Measuring the Economic Impacts of Tourism

The traditional approach to estimating the economic impacts of tourism is based on the theory that increased tourism expenditure has direct, indirect and induced effects on a host destination, leading to increased production, income and employment. This Standard View assumes strong multiplier effects from this expenditure on output, value added and employment. The usual technique for analysing these effects is Input-output analysis which is used extensively by consultants and government authorities for estimating the economic returns which will flow to a community from changes in tourism expenditure, the hosting of an event or from tourism infrastructure investments. This Standard View is superficial, and very often misleading, because it ignores economy wide effects as the tourism generated expenditure flows through the economy. An expanding tourism industry tends to crowd out other sectors of economic activity reducing the demand for traditional exports and import competing industries and impacting on demand for goods and services, labour and other resource within the economy. These crOWding out effects will depend firstly, on the extent of the price and real exchange rate adjustments which these changes set in train, and secondly on the governments policy framework which will determine the macroeconomic context in which the adjustments occur. Analysis of these complex processes generally requires the use of Computable General Equilibrium (CGE) modelling, rather than the existing Input-output techniques. Measured in this way the economic returns to a community from additional tourism expenditures will often be found to be substantially different. The relevance of these findings go beyond their immediate interest to tourism economists. They demand the attention of tourism planners and tourism marketers as well as public policy makers. As a result of the development of more sophisticated modeling techniques in recent years, the study of the economic impacts of touri