Chapter 7: The Multiplier Effect of Tourist spending 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.