Transcript Chapter Seven

Tourism Economics
Chapter 7: The Multiplier Effect of
Tourist spending
TRM 490
Dr. Zongqing Zhou
Chapter 7: The Multiplier Effect of Tourist
spending (1)
• Multiplier effect: new money entering an
economy in whatever form stimulates the
economy, not once but several times as it is
respent.
– John Keynes and R.K. Kahn: economic growth results
from investment, which creates employment and
income for the future.
– Tourism exports bring in income from outside an
economy. These exports are called injections into
the economy
– An injection impacts the economy by fostering internal
spending
Chapter 7: The Multiplier Effect of Tourist
spending(2)
• Leakage
– Tourism expenditures that do not get respent
(savings, taxes) or do not stay in the economy
(imports, for example)
– The less developed a country, the more likely
the leakage is going to be higher since the
linkage of the tourism industry is not well
developed.
– The greater the leakage, the lower the
multiplier.
Chapter 7: The Multiplier Effect of Tourist
spending(3)
• Computation of the Multiplier:
– Use the input and output model
– Much of the data that go into these multiplier computations are
estimates
– Multipliers are not exact science and its credibility and validity are often
questioned
• Significance of the multiplier
– A number that is easily understood
– It says that tourism spending not only brings new dollars into a local
economy, but that as new dollars are circulated, their effect is multiplied
– It implies that the tourism dollar is somehow better than a dollar already
in circulation.
– Where opportunity cost is low, tourism is a valued souce of income
– In some places, even the multiplier is low, the economic importance of
tourism can still be high.
Chapter 7: The Multiplier Effect of Tourist
spending(4)
• An example of the calculation of multiplier
– See p140 figure 7-3
• An example of the employment multiplier
– See p142 figure 7-4
Chapter 7: The Multiplier Effect of Tourist
spending(5)
• Direct, indirect and induced impact (effect)
– Direct effects: the changes in sales, employment, and
income as a result of the purchase of goods and
services by visitors (direct expenditures)
– Indirect effects: the changes in sales, employment
and income generated indirectly in other businesses
as the tourist dollar is respent
– Induced effects: part of consumption expenditure that
varies with real GDP, minus imports, that is, increased
spending as a result of the increase of the total wealth
of the residents (see link)
Chapter 7: The Multiplier Effect of Tourist
spending(6)
• Type I and Type II impacts
– Type I: includes direct and indirect impacts
– Type II: includes direct, indirect and induced impacts
– An example on P 147, figure 7-6
• A Type I output multiplier for eating and drinking places,
showed that an original dollar purchase of food and veverage
by visitors indirectly generated an additional 41 cents of
sales. Another 45 cents was created by the continued
spending, resulting in the total impact of 1.95 that includes
direct, indirect and induced effects.