14 Economic Impact of Tourism – A Review of Literatures on Methodologies and Their Uses
14
Economic Impact of Tourism –
A Review of Literatures on Methodologies
and Their Uses: 1969-2011
Mohammad Nurul Huda Mazumder 1,*
, Abdullah Al-Mamun 2
,
Abul Quasem Al-Amin 3
and Muhammad Mohiuddin 4
1 Faculty of Management, Multim edia University, Cyberjaya
2 Centre for Social Entrepreneurship, Binary University College, Puch ong
3 Faculty of Economics and Administration, University of Malaya, Kuala L umpur
4 Faculty of Administrative science, Laval University, Quebec
1,2,3Malaysia
4Canada
1. Introduction
Tourism-based economic growth and developmen t, a recent strategic phenomenon, has been
attracted the attention of government, businesses, policy makers and othe r stakeholders of
world economies. Tourism-based development is playing a pivotal role b y contributing
significantly to the GDP of developed and develo ping economies. Besides, it also receives a
wide-spread recognition because of its ability to eliminate the disparit ies in the balance of
payment (BOP) conditions by contributing positi vely to the services account of the BOP. The
continuous expansion of the tourism sector made it possible to recognize it as the largest and
fastest growing industry, considering either in a country specific or an aggregate global
perspective. According to Eadington and Redman (1991), tourism industry is one of the largest
and fastest expanding sectors of the world econ omy, and is thus experiencing an expansion
faster than any other industry, exposing a post -industrial society. The economic repercussions
of tourism are occurring in extensive latitude, wi thin the evolution of the globalization process
(Sugiyarto, Blake & Sinclair, 2003) that is, in turn , helping the acceleration of this industry’s
expansion around the globe.
Tourism industry is experienci ng tremendous expansion over the years as results of its
inclusion into the national economic plan of develop and developing economies of the
world. Developing economies have been enacting policies to expand tourism as a source of
reliable foreign exchange earnings when trad itional foreign exchange earnings sectors
contribution becomes limited in GDP. The prev iously unexplored developing economies are
experiencing higher growth in expanding to urism than develop economies. However, the
expansion is occurring due to its ability to generate substantial economic impact into
economies of the world. Therefore, the objective of this chapter is to review the literatures
* Corresponding author www.intechopen.com
Visions for Global Tourism Industry – Creat ing and Sustaining Competitive Strategies 270
on estimating economic impact of tourism, th e methodologies used, and their uses held at
several locations of the world. In order to attain the objective, papers on economic impact of
tourism were collected from all renowned databases, such as, web of knowledge, science
direct, proquest, emerald, ebsco premier etc. It was found that a variety of methodological
approaches have been practiced by researchers to estimate the economic impact of tourism.
To a large extent, these methodological approach es have been chosen to explain elaborately
the primary objective of the chosen study and th e related purposes of the primary objective.
A summary of literatures on economic impact of tourism has been depicted throughout the
chapter in order to explore the methodologie s used and their uses in estimating the
economic impact of tourism.
As tourism generates significant economic impa ct to an economy, the industry is gaining
growing importance from all stakeholders of to urism. There are plethoras of studies attempted
to address tourism industry’s contribution to an economy. While academic literatures
concerning the significance of economic im pact of tourism are on the rise, tourism’s
contribution to the economy and impacts upon the local communities is not satisfactorily
acknowledged (Vaughan, et al. 2000) maintaining ei ther industrial classification as a single
industry (Fletcher, 1989a) or the system of national accounts. Since the industry is not
identified as a single industry and its contri bution to the development of economies is not
precisely derived, there is a need to conduct economic impact analysis of tourism – as tourism
activity cannot be regarded as an isolated economic activity. To estimate and analyze the
economic impact of tourism, a number of authors employed several methodologies cov ering
input-output model, Keynesian multiplier model, social accounting matrix model, computable
general equilibrium modelling, touris m satellite accounting modelling.
This section introduces several reviews about economic impact related literature on tourism
economics. With respect to supporting the overa ll objectives, there is a need to investigate
and gather considerable knowle dge and information of what previous studies have covered
in estimating economic impact of tourism. In doing so, this chapter reviews economic
impact analysis of tourism related literature in to five distinctive sections. The first section
represents empirical evidences of measuring th e economic impacts analysis of tourism that
employed input-output techniqu e. Empirical evidence of estimating tourism’s economic
impact using social accounting matrix is de picted in section two. The third and fourth
sections represent the related literature on computable general equilibrium model and
Keynesian multiplier model consecutively. The last section discusses the economic imp act of
tourism using tourism satellite accounting model.
2. Empirical evidence on the economic impact analysis of tourism
The available literatures on estimating the ec onomic impact of tourism has been delineated
in the following section. A number of method s were employed to estimate the economic
impact of tourism, such as, input-output model, general equilibrium model, social
accounting matrix model, tourism satellite accounting model etc.
2.1 Input-output model
One of the prominent studies th at employed input-output mode l in estimating the economic
impact of tourism was performed by Harmst on (1969) using 1963 input-output table of www.intechopen.com
Economic Impact of Tourism –
A Review of Literatures on Methodologies and Their Uses: 1969-2011 271
Missouri state economy. To identify the economic significance of secondary effects (indirect
and induced effects) of expenditure made by tourist on the Missouri state economy for the
year 1967 was the primary objective of the study. The results showed that the indirect effect
of business and industrial activity generated per dollar of tourist expenditure was 23.22
cents, while the induced effect was 76.39 cents. This indicates that the induced effect was
over three times the size of the indirect ef fect. The importance of measuring the induced
impact was emphasized by the author as induced impact generated major portion of the
secondary impact. Total amount of money generated by the secondary effect of tourist
spending amounted to $562,312,000 in which the induced effect accounted for almost 77%.
The particular interest of the next study was to estimate the tourist regional income
multiplier conducted by Archer and Owen (1971) . In fact, this is the first study attempted
to estimate regional tourism multipliers. Th e input-output model was used in measuring
various income multipliers of tourism considering the types of touri sm sectors as well as
different categories of tourists. Archer an d Owen argued that the regional economic
benefits accruing from differen t categories of tourists vary due to differences in leakage
components. This model allowed the regional leakages in two ways: (1) when local
business purchases goods from outside the region; and (2) when consumers spen d money
outside the region. This model was applied in the county of Anglesey and Gwynedd in
North Wales. The income multipliers were estimated as (1) 0.25 for hotel and guesthou se
visitors; (2) 0.14 for caravaners; (3) 0.58 fo r bed and breakfast and farmhouse visitors; and
(4) 0.35 for camping visitors.
The tourist regional multiplier model to examine the economy-wide impact of touris m
was first developed by Archer and Owen (1971). Later, it was modified by Liu and Va r
(1982, 1983), Liu et al. (1984), and Liu (1986), Henry and Deane (1997), Fretchling and
Horvath (1999), Yan and Wall (2002). In their studies, the basic input-output model was
the foundation of deriving sectoral multipliers. Differential tourist multipliers were
estimated using the model to gauge the contributi on of tourism industry at state, regional
or country level.
Liu and Var (1982) analyzed differential income and employment multipliers of
accommodation industries in terms of their orga nization characteristics, i.e., location, size,
scale, affiliation, and ownership in Victoria, BC., Canada in 1977, using the modified input-
output model developed by Archer and Owen in 1971. It was hypothesized at the outset
that the observed multipliers varies in in verse magnitude with types of industrial
organization characteristics mentioned above. In testing whether there are any significant
differences between lodging industries and th eir organizational characteristics or not,
ANOVA (One-way analysis of variance) was empl oyed in the study. The tests revealed that
the regional income generation effects were statistically significant at the .01 levels by type
of ownership. The regional empl oyment generation coefficients and transactions multipliers
also appeared to be statistically significant by different type of facilities (e.g., licensed an d
non-licensed establishment). Liu and Var emphasized that a multiplier analysis should be
employed cautiously, taking into account the fr amework of regional objectives that comply
with tourism planning guidelines, as it only explain a part of the total context. They
concluded that domestically controlled and possessed lodging establishments ought t o be
promoted if the objectives were to optimize income. Furthermore, the smaller scale lodging
establishments had to be given development priority through some supporting policy
implications if the aims were to support more employment. www.intechopen.com
Visions for Global Tourism Industry – Creat ing and Sustaining Competitive Strategies 272
Liu and Var (1983) used provincial surveys and the modified input-output model to analyze
the economic impact of tourism on the Metr opolitan Victoria B.C. state of Canadian
economy for the year 1977, in terms of output, income, job, import and government revenue.
The modified input-output model employed in the previous study was used on the basis of
a 13×13 input-output transactions table of the state economy. The multipliers carried out by
the study were 1.504 dollar worth of output multiplier, 0.65 cents worth of income
multiplier for each dollar of tourist expenditure while the employment multiplier was found
to be 0.10 for tourist expenditure per thousand dollars. The estimated government revenue
multiplier was 0.21 and the estimated import multiplier was 0.34 per dollar of expenditure
made by tourists. Income and employment multipliers were also analyzed for two tourist
categories- overnight visitors and day-trippers reflecting that overnight visitors (non-
residents) generated a little more household income than the day-trippers did by a slight
difference of 1.5% in regard to the income multiplier. However, the former appeared to
create less employment than the latter by 12%. It was also found that the overnight non-
resident visitors generated $71,225 income an d 11,114 jobs, while the day-trippers created
$3,183 income and 568 jobs in terms of total to urist expenditure. The income multiplier of
the locally-owned hotels and motels was found to be higher than that of outside-owned
accommodations. But, the findings indicate d that the locally-owned hotel and motels
contributed only 26.8% of income generated by total tourist expenditure, while outside-
ownership contributed largely by 73.2%.
Liu et al. (1984) measured tourist income mu ltipliers of Turkish economy for the year 1981
generated by different types of tourists. The se rvice sectors were found to be yielding high
direct but low indirect multipliers, indicating the high wage-intensive nature but low
backward linkages. On the other hand, the ma nufacturing sectors in general yielded high
indirect but low direct multipliers, indicati ng capital-intensive nature and strong inter-
sectoral linkages. The tourist income (value-added) multipliers showed that th e domestic
excursionists had the largest multiplier (2.03), followed by that of ov erseas Turkish
tourists (2.03) and foreign excursionists (2.02). The income multipliers for the domes tic
overnight visitors and foreig n overnight visitors were found to be 1.97. The results
revealed that foreign and domestic excursionists and overseas Turkish to urists generated
the high-income multiplier against overnight domestic and international visito rs. The
study described that this difference in multipliers had occurred due to the ex penditure
variety of tourists where the earlier tourists had the tendency to make additional
spending on purchasing retail goods while these tourists made lower expenditures on
hotels and restaurants than the later.
Archer (1985) analyzed economic impact of tourism on the Mauritius economy in 1980. The
results showed that the total output multip lier was 0.9639 and the employment multiplier
was 49 per 1 million Rs (Rupees). The variation in impacts generated by tourists of each
inbound countries indicating that tourists fr om West Germany, Switzerland, South Africa
and the UK made a extensive impact on the ec onomy per visitor. Among the tourists’ origin
markets, the lower impact was found to be generated by tourists from France. Archer
asserted that the high rank in total number of visitors did not necessarily mean the largest
economic impact. For instance, visitors from Reunion occupied the largest proportion of
total visitors (about 23%), but they generated the lowest income per visitor except Malagasy.
Archer concluded that target markets gene rated reasonably higher economic impact
through higher expenditure on tourism related bu sinesses in Mauritius. Therefore, the study www.intechopen.com
Economic Impact of Tourism –
A Review of Literatures on Methodologies and Their Uses: 1969-2011 273
suggested that tourism should be promoted in maximizing income, supporting more
employment, and generating significant fore ign exchange earnings from international
inbound tourism.
Ruiz (1985) employed input-output technique to investigate tourist expenditures economic
impact on Puerto Rican economy in 1980. The study used 110X110 transactions matrix
developed by Puerto Rico Planning Board in 1972. The results showed that the output
multiplier was 2.08 resulted from per dollar tourist expenditure and the employment
multiplier was found to be 142 per million dollar of tourist expenditure in 1980. It was noted
that the number of employment declined from 88 full-time jobs in 1972 to 59 full-time jobs in
1979 for the hotel industry. Ruiz mentioned that this reduction was due to an increase in
worker’s productivity or the substitution by a more advanced technology.
Liu (1986) used the modified input-output mo del to estimate the significant economic
contributions made by different groups of tourists in generating multipliers for the
Hawaiian economy in 1980. Sector multipliers we re obtained by using a 63×63 transactions
table for 1983. A survey questionnaire of tour ist expenditures was prepared to estimate
income multipliers yielded by various groups of tourists. According to the findings of the
study, income multiplier generated by tour ists for Hawaiian economy in 1980 was 0.80;
indicating about 80 cents of local household income were generated per dollar of tourist
spending. In addition, about 80 jobs were created per one million dollars of tourist
expenditures.
The largest household income multiplier of 0.84 per dollar expenditure of tourists appeared
to be generated by Japanese tourists which was 5% more than average income multiplier.
The result also showed that the Japanese to urists had the largest income multiplier which
was contrary to common belief that the Japanese tourists were likely to generate the least
income multiplier for households from per dollar of expenditure. The ground of that belief
was due to leakages resulting from purchases of imported luxury goods and businesses
controlled by Japanese owners. Japanese tourists made proportionately higher expenditure
on retail goods and lower on hotels and restaura nts as most of the Japanese tourists were
visiting friend and relative (VFR) type of tour ists. The findings of the study indicated that
Japanese tourists were responsible for the highest direct and induced income multipliers.
The employment multiplier was found to be 0.08 indicating that about 80 jobs were created
per one million dollar of tourist expenditure. The Japanese visitors and VFR type of tourists
appeared to be generating higher employment multiplier than the average by 7% and 12%,
respectively. The break-down of the visitor ex penditure showed that the Japanese visitors
spent about three times as much as did other vi sitors per day, but less per visit due to the
shortest length of stay. Although the Japanese and Canadian tourists contributed largely to
the economy in terms of average tourist expend iture, the greatest impact and contributions
were made by domestic tourism (mainland USA) , accounting for 62% of receipts, and 59% of
income and employment.
Fletcher (1989) attempted to improve some lim itations over a conventional input-output
model. It was argued that imports should be categorized into competitive and non-
competitive imports. This is because competitive imports are considered as substit utes to the
domestic production. Fletcher made an adju stment on the basic input-output model by
deducting imports content column from the final demand. The modification was www.intechopen.com
Visions for Global Tourism Industry – Creat ing and Sustaining Competitive Strategies 274
accomplished in order to exhibit the real output of each sector. However, the elastic supply
assumption of the input-output model revealed that the supply should be elastic for all
economic sectors under study. Fletcher argued that when there were capacity constraints,
this assumption might overestimate the true im pact of tourism if there was any change in
final demand. Fletcher asserted that when so me sectors were unable to comply with a
certain increase in final demand, an increase in imports of goods and services would result
to meet up that increase in final demand. Fl etcher further modified the input-output model
to avoid this problem. A matrix of capacity constraints was developed and used to the
respective processing sectors.
Fletcher claimed that any attempt to modify a basic input-output model might require
increases in data requirement. Therefore, he recommended the construction of “hybrid”
models which enable researcher to only disa ggregate tourism sectors and aggregate the rest
of the sectors of the economy into a single pr ocessing sector. The model should be utilized
when the lack of reliable data prevented the researchers from building a full input-output
model though it might decreased the accuracy of the results. Therefore, the author
concluded that these models might be suitable only for a small-scale economy.
Fesenmaier, Jones, Um and Ozuna (1989) estimated the economic impacts of outdoor
recreation activity on local economies as they were related to freshwater inflows into each
of the six estuaries (Sabine-Neches, Trinity-Sa n Jacinto, Lavaca-Tres Palacios, Guadalupe,
Nueces and Mission-Aransas, Laguna Madre) which covered the Texas Gulf Coast region.
The direction of the study was to analyze the economic impacts of sport fishing, hunting ,
picnicking, swimming, camping, pleasure bo ating and sightseeing on the economies of
the Texas Gulf Coast region and the state of Texas in the generation of output,
employment, income, and state local tax revenue. The state-wide Tex as Gulf Coast
economic impacts were estimated by using the state-wide expenditure data collected form
the entire Texas Gulf Coast and a 1986 input-output model of Texas was developed for
this study.
Data were collected following a two-step-str ategy which incorporated both telephone and
mail surveys. The focus of data collection was based on typical or average tourists’ visit(s) to
the Texas Gulf Coast during 1986 on each particular place along each estuary. The total
expenditure of a typical tourist was grouped into six categories of goods and services
(overnight lodging, transportation, grocery st ore purchases, restaurants and other eating
establishments, rental of recreation equipmen t, and fees for entrance, participation, and
guided tours). Their study postulated that to urists’ expenditure generated positive impact
and the expenditure were found to be varied ac cording to income, occupation, age, date of
visitation, and tax revenue over the gulf co ast region. Total visitation and resulting
expenditures were estimated and processed through input-output analysis. The results
showed that the total output impact in 1986 amounted to $1.19 billion for the Texas Gulf
Coast and $1.91 billion for the state. Also, th e results showed that 59% of these impacts
resulted from fishing-related travel to this area.
Heng and Low (1990) conducted an input-outp ut study to estimate tourism’s economic
impacts in Singapore emphasizing on exhibi ting the differences between Leontief and
Leontief-Keynes multipliers. Differential sectoral multipliers were estimated based on
tourists’ countries of origin an d their purpose of the trip. The 176 input-output sectors were
aggregated into 46 sectors with regard to the availability of reliable data, such as www.intechopen.com
Economic Impact of Tourism –
A Review of Literatures on Methodologies and Their Uses: 1969-2011 275
expenditure patterns of foreign visitors, sect oral employment etc. The total output and
income multipliers of tourism industry were estimated to be 1.96 and 0.98 per Singapore
dollar of tourist expenditure. Trade (shoppi ng) sector retained the highest income
multiplier, while transport sector retained th e lowest multiplier for each of the tourism
related sector. Heng and Low compared the relative economic contribution of tourism
industry against manufacturing and export substitute industries. When comparing the
income multipliers of different industries, it was found that the income multiplier of tourism
industry exhibited the highest income mu ltiplier of 0.98 against 0.57 and 0.40 per
Singaporean dollar for the manufacturing and expo rt substitute industries respectively. The
employment multiplier was found to be 0.033, implying that tourism supported 33 jobs per
million dollars of tourist spending, which was more than doubled and tripled of what the
export and manufacturing industries supported. The tourism import leakage appeared to be
the lowest with 0.27 compared to the export and manufacturing industries. The results also
revealed that tourism promotions should not ignore tourists from low-income countries
because there were no significant differenc es between tourists from developing and
underdeveloped countries. Overall, they found that tourism contributed significantly to the
economy and tourist earnings were more potent than manufacturing and other exp ort sectors.
Khan, Chou and Wong (1990) also utilized in put-output analysis using 1983 input-output
transactions table in an attempt to measure the impact of tourism on Singapore economy.
Khan et al. argued that treating shopping items equally would be misleading since high
value items, such as jewellery, cost several times as much as low value items like books.
Therefore, the shopping items were categorize d into most expensive, moderately-expensive,
and the least expensive in nature according to the expenditure pattern of tourists. The study
revealed that the contribution of tourism to GDP was 12.5%. The tourism income multiplier
appeared to be 0.94, which was lower than th e multiplier obtained by Heng and Low (1990)
but higher than Bahamas, Fiji, and Cayman Islands. The estimated tourism employment and
output multipliers were 33 jobs per million of Singaporean dollars and 1.96 per Singaporean
dollar respectively which appeared to be similar to the findings of previous study of Heng
and Low. The import multiplier was estima ted to be 0.38 per Singaporean dollar.
Rashid et al. (1993) conducted an inter-sector al analysis on Malaysian economy concerning
tourism impact analysis in which static input- output analysis was the basis of analysis. The
study used 1983 input-output table to estimate the impact of tourism on Malaysian economy
for the year 1991. Tourist and non-tourist co mponents were categorized from private
consumption expenditure column and export column of the final demand sectors of 1983
input-output table. The direct and indirect impacts on sectoral output, employment,
commodity taxes, and non-competitive import s were estimated resulting from tourist
expenditures which were generated followi ng questionnaire method in 1991. Tourist
expenditures were categorized into domestic, Si ngaporean, and other foreign tourists. It was
found that all sectors of the economy were receiving benefit from tourism directly and
indirectly. The contribution of tourist expend iture in influencing output, employment, and
commodity taxes was found to be varied but sti ll small. The contribution of tourism on the
generation of value-added, employment, and co mmodity taxes was found to be less than 5%
of the total but steadily expanding. The Wholesale and retail tr ade, Hotels and restaurants,
Land transportation, Air transp ortation, and Business and personal services sectors were
benefiting largely from tourism. The study co ncluded that other sectors did have strong
technological linkages with other domestic suppl y sectors; therefore, it required to give www.intechopen.com
Visions for Global Tourism Industry – Creat ing and Sustaining Competitive Strategies 276
simultaneous emphasis to the development of these strategic and non-strategic tourism
sectors when designing tourism policy.
Archer (1995) used input-output model to tr anslate the importance of tourism for the
Bermudan economy. A summary of visitor arrivals and expenditures illustrated that
Barmuda’s tourism receipts were declining in the early 1980s until 1992 due to worldwide
recession. Input-output models were de veloped for 1985, 1987 and 1992 where impacts on
import, income, employment, and government re venue were measured for specific tourist
sectors for overnight and cruise passengers. The study findings revealed that tourism
became the principal source of employment although this sector was no longer the main
source of foreign exchange and income for the Bermudian economy. The tourism income
multiplier rose from 1.095 in 1985 to 1.257 in 1992 and supported 11,500 employments.
Archer concluded that Bermudian government sh ould give emphasis on strategic measures
to improve the tourism product.
Archer and Fletcher (1996) analyzed the impact of tourists’ expenditure’s con tribution on
the generation of income, government revenue, and supporting employment and the
balance of payments using input-output mode l to the Seychelles island economy. The
input-output transaction table was disaggregat ed into 18 sectors. While analyzing the
economic impact of tourism by different countr y of origin tourists, they found that impact
varies by visitors’ origin. Visitors from Germ any, Italy, Switzerland, Ireland, the UK and
other European countries were the highest spenders and contribute d significantly in
generating income and employment.
Andrew (1997) conducted a study in the UK periphery, Cornwall to examine the
relationship between the economic develo pment of Cornwall and tourism. The study
pointed out that tourism is particularly suitab le in places where there was an existence of
high unemployment in association with relatively lower wages. Cornwall tourism industry
was found to be significantly accommodation-c entred and UK tourists account for about 3
millions of tourists annually. A linear programming framework was employed where
Leontief coefficients were estimated from an adjusted 1984 input-output table of Cornwall
economy. The study’s empirical results suggest ed that if the target was to develop the
peripheral economy, and then tourism expansion might not be the right strategy where
tourism was led by accommodation-based tourism. The study revealed that in
implementing such tourism atti tude might affect indigenous industries negatively. The
author suggested increasing tourism while simultaneously supporting indigenous
industries would be the right choice to favo ur tourism. The study showed a relationship
between the generations of positive external balances and economic development where
tourism was contributing significantly to the generation of these external balances. The
study asserted that Cornwall’s portfolio industri es should be given priority when preparing
strategic policies for the regional development.
Stynes, Nelson and Lynch (1998) used IMPL AN input-output model in assessing the
economic impact of snowmobiling to the stat e and regional economies in Michigan. They
found that the direct income impact of snowmobilers was $48 million and employment
impact was about 2,500. The secondary income impact was $93 million and 3,800
employments. The study also categorized the expenditure pattern of snowmobilers
according to region. The findings of the st udy showed that Out-of-State snowmobilers
generated about one-third of the total impact. www.intechopen.com
Economic Impact of Tourism –
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Huse, Gustavsen and Almedal (1998) analysed th e economic impact of tourism among nine
Norwegian small municipalities in terms of sales and employment effects by estimating
multipliers of four small municipalities and the results obtained in previous studies for
other five small regions. The direct industry, direct spine-off, and secondary effects were
estimated to show comparison of multiplier effects on local and regional levels. The
secondary effects of tourism were found smaller than direct effects as the study was held for
the core municipalities only. The authors foun d that the magnitude of multipliers were
varied resulting different types of impacts depending on the stage of development of the
local tourism industry, leading types of tour ist attractions, types of tourism product
attributes, and nature of investments in tourism industry.
Mistills and Dwyer (1999) assessed the valu e-added and employment impact of MICE
(meetings, incentives, conventi ons and exhibition) industry between Australian tourism
gateways and non-gateways using input-output analysis. Their study revealed that
economic impact of MICE tourism was expected to be larger in gateways than in non-
gateways of Australia.
Frechtling and Horvath (1999) conducted a stud y on Washington D.C. economy, assessing
the economic impact of tourism by employin g regional Input-output Modelling System
(RIMS II). The estimated implicit final de mand output, earnings, and employment
multipliers were found to be 1.1841, 0.3478, and 18.0 (jobs generated by per $1 million of
output delivered to final demand) respecti vely. A total visitor expenditure of $2,396.4
million generated a total output, earnings, and employment impact of $2,837.7 million,
$748.6 million, and 38,685. The ratio (or direct-e ffect) and normal multipliers (or final
demand) multipliers were measured to compare the relative contribution of tourism with
other sectors of the economy. The normal earn ings and employment multipliers were found
to be higher than other local industry aggreg ations. The authors concluded that the use of
ratio multipliers was more precise than normal multipliers in observing the inter-industrial
linkages with tourism sector. Based on the study, it was found that tourism sector
employees tend to spend more of their income on local goods and services or a mixer of
both. The magnitude of ratio and normal mult ipliers of tourism sector represented that
linkages of this sector with local suppliers were higher than the average industry.
Tohamy and Swinscoe (2000) assessed economic impact of tourism in Egypt using input-
output model to estimate how tourists’ expend iture flowed in different economic sectors
using input-output tables of 1991/92.. The st udy revealed that tourism revenue only
included earnings from hotel and restaurant se rvices. Therefore, the study unable to provide
a complete figure of economic impact of to urism as it did not take into account the
expenditures of tourists on other goods and se rvices that tourists purchased during their
trip. The estimated primary an d secondary impact of expenditure made by international
tourists was US$ 9.6 billion in 1999 which wa s 11.6 percent of GDP. Total value-added
contribution of tourists’ expenditure was about 7.5 percent of GDP. In 1999, the direct and
secondary employment supported by internatio nal tourists’ expenditure was 1.2 million and
2.7 million of employment respectively which was representing 7 and 15 percent of total
employment respectively. The direct and secondary income effect of inbound tourists’
expenditure was US$670 million and US$1.4 bi llion respectively. And, inbound tourism
generated LE 3.6 billion of sales and income tax revenue in 1998/99 contributing 5.1 percent
of total direct and indirect taxes of that ye ar. Finally, the study translated out that the www.intechopen.com
Visions for Global Tourism Industry – Creat ing and Sustaining Competitive Strategies 278
amount of foreign exchange earnings from inbound tourism could be compared to
alternative export competing products of Egypt. The study pointed out that inbound
tourism in Egypt was still below potential level, and coordination and effort should be given
by both public and private parties to raise international tourism to its potential level.
Kweka, Morrissey and Blake (2001) conducted a study in Tanzania using input-output
analysis to identify whether tourism was the key sector for the Tanzanian economy. Direct
and indirect impacts of tourism on income, output, employment, and tax revenue were
examined. Kweka et al. argued that the growth of tourism indu stry did not only depend on
the productivity level of this industry alone but also on th e level of productivity level
generated by other industries or sectors. The study emphasized that sectors that benefited
from tourism expansion should be identified for policy purpose, as they were likely to
enhance the growth impact of tourism. In a ssessing the interdependence of tourism with
other sectors in Tanzanian economy, the study fi rst used static multiplier analysis. Then, the
analysis of intra-sector and inter-sector link ages of tourism was carried out through linkage
analysis. Finally, the study used a Multi-criter ia approach to identify whether tourism can
be identified as a key sector.
In addition, the findings of the study revealed that tourism was more import-intensive than
other sectors. The study elicited that tourism benefited little from other service sectors
compared to linkages with agriculture and manufacturing. This was further evident from its
significant output impact. The direct output effect of tourism expenditure amounted TZS
(Tanzanian Currency) 21,930 million in 1992 which was 1.7% of total GDP. Total output
impact (direct and indirect) was TZS (Tanzanian Currency) 74,012 million which
contributed 5.8% on GDP. Intra and inter sectoral impacts resulted from almost zero to 3.2%
and from 1.7% to 2.6% of GDP respectively. Th e results showed that there was an increased
output impact of tourism if indirect effects were added. Intra-sector effects were significan t
when considering indirect effect.
The above study revealed that the employment impact of tourism was insignificant. The
differential income multipliers were estimated to represent that tourism had insignificant
impact in terms generating income. Tourist sp ending generated TZS9471.2 millions of direct
labour income in 1992 accounted for 0.7% of GDP. The total (direct and indirect) impact
created TZS16, 247 millions of labour income which was 1.3% of GDP. The study suspected
that lower income resulted from lower wages pr evailed in tourism sector. Indirect tax revenue
generated by tourism was found to be the second most important sector. Tourist expenditure
generated TZS2, 126.5 millions of direct government tax revenue (2.7% of net indirect tax).
The amount of tax revenue reached 3,149.3 million which was 4.1 percent of total net
indirect taxes when indirect effects were ta ken into consideration. The direct and total
impact on import was TZS6, 291 million representing 1.6% of total import and 8,410.2
million representing 2.1% of total import. The net foreign exchange earning was 79 cents per
tourist at the direct and indirect level as 21 cents went out from the economy through
import leakage. At the direct level, 85 cent s was generated as the net foreign exchange
earnings as 16 cents leaked out of the econo my through import leakage. In nominal terms,
US$ 120 million of tourism receipts generate d the direct tourism net foreign exchange
earnings of US$102 and the amount increased wh en indirect effect was to be taken into
consideration. The study’s overall results imp lied that the tourism contributed significantly
to the Tanzanian economy not only as a foreign currency earner but also acted as an avenue www.intechopen.com
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through which important structural changes made possible. The study was unable to
precisely measure the economic impact of tour ism since only hotel and restaurant sector
was considered. The estimation of total econom ic impact of tourism was not represented as
the household sector was not included into the model being an endogenous sector.
Yan and Wall (2002) studied the prospects of domestic and international tourism using a
traditional type I input-output model of Ch inese economy for the year 1992. The authors
excluded the impacts on domestic consumpt ion expenditure from the employed input-
output model. Multipliers were derived to repr esent the impact of tourism in the generation
of output, income, employment, value-added, and import. The size and diversity of the
Chinese economy were the causes of why to urism had an insignificant impact on its
economy. This study estimated the impact of tourism on other sectors of the economy and
revealed that tourism had insignificant impa ct on the results of primary sectors as a
consequence of weaker linkages of tourism wi th the primary sectors of Chinese economy.
Finally the study concluded that the ava ilability of secondary commodities created
constraints on tourism development in China.
Chhabra, Sills and Cubbage (2003) used input- output model to estimate the impact of
Scottish highland games in the economy of North Carolina to represent the significance of
festivals to rural economies. Multiplier effect s on output, value-added, and labour income
were estimated by incorporating tourist surv ey data to an input-output model for two
Scottish festivals held in rural North Carolina. Type I and SAM multipliers were calculated
to capture the interdependencies of sector s and the effects of household expenditure
induced by changes in labour income. It was found that although increased tourist
expenditure generated significant benefits for direct festival related businesses, the total
economic impact was found to be insignificant when comparing the festival related activity
to total economic activities in two regions. The authors indicated that lack of information
and admission fees and leakages out of the regi on limited the study to estimate the output
impact accurately.
Kim, Chon and Chung (2003) used input-output analysis to measure the economic impact of
convention tourism in South Korea on the generation of output, employment, income,
value-added and import. The au thors found that the amount of about $66 million and $73
million were born by the total expenditure made by international convention participants
and by the providers of conventions resp ectively. The estimated output, income,
employment, tax, and import multipliers we re estimated to identify the convention
industry’s economic contributi on against other major export substitute products. Estimated
economic impact of convention industry was found to be very significant.
Sun and Stynes (2004) conducted a study on es timating the economic impacts of visitor
expenditure at Pictured Rocks National Lakeshor e, Michigan for the year 2001. Input-output
analysis was carried out to measure visitor expenditure impacts on personal income,
employment, and value-added. The authors foun d that park visitors spend $14.8 million in
the park which generated $5.6 million in total as personal income, $9.2 million as value-
added and generated 470 employments. The estimation biasness and errors, resulting from
inconsistent responses and unrepresentative sa mple data, were elucidated in their study.
Rashid and Bashir (2004) used partial inter-in dustrial analysis or an open input-output
model on measuring impacts of changing tour ist profile on Malaysian economy. The basic www.intechopen.com
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purpose of their research was devoted to expl ain the importance of West Asian tourists’
economic contribution to tour ism industry resulted from th e change in the geography of
tourist arrivals and their expenditure patterns. The study revealed that the economic impact
on changing tourist profile had an impact on domestically produced goods. Through
primary impact, tourism activities benefited the businesses and industries that served
tourists directly but all sectors of the economy were experiencing benefit from secondary
impact. The inbound tourists’ expenditure pattern s of all types of regional tourists were
found to be very similar – spending the bigges t proportion of their expenditure on two items
namely: (i) hotel and restaurants and (ii) wholesale and retail trade. Tourism expenditure
impact on output, import, tax revenue and value-added were measured for Malaysian
economy through deriving partial multipliers. Th e results revealed that there was no direct
effect on output of some sectors, and se rvice sectors benefited largely from tourism
activities. But the products an d manufacturing sectors were getting indirect benefit from
tourism activities. In terms of expenditure component, hotel and restaurants as well as
wholesale and retail trade were the domina nt component. When considering output
multipliers, hotel and restaurants sector generated the largest multiplier. According to
Rashid and Bashir, strategic planning needed to be adopted in improving the multiplier of
hotel and restaurant through inter-industrial link ages so that this sector could be able to
meet its requirements from wi thin the domestic economy.
Wiersma, Morris and Robertson (2004) analysed the variation of tourism multipliers using
input-output analysis to New Hampshire econ omy. The authors found that multipliers of
tourism vary from region to region. The re gions of the state with larger population
generated higher output multipliers whereas the regions with lower population generated
higher employment multipliers. The output multiplier of tourism at state level was 1.5 and
employment multiplier was about 30.07 per million dollars. They concluded that state-level
tourism multipliers should not be applied to sub-state level since they vary from region to
region. Finally, they suggested paying attention to the misuse of tourism multipliers that
might lead to an inefficient distribution of state resources.
Martin (2004) analyzed the role of imports an d tourism consumption effects on GDP on the
Canary Island economy, Spain. Keynesian Multiplier model and input-output analyses were
employed to estimate direct, indirect and indu ced multipliers impacts of tourists’ spending
on generation of imports. The study revealed that import leakages from the circular flow
system had impacted the economy negatively. The author claimed that his study was unable
to determine the inter-sectoral relation of th e economy due to the limitations of Keynesian
multiplier model. This inability made it impossible to detect the indirect import impact
tourism consumption on imports. The study us ed more efficient input-output model to
represent the import impact of tourists’ consumption as a replacement for Keynesian
method to overcome the main disadvantage of this method. In doing so, input-output model
multipliers were determined to represent inter-se ctoral relations existed explicitly within the
framework of economic system . In Canary Island, tourism consumption was 615 billion
Pesetas in 1992. A total of 755 billion Pesetas of output and 484 billion Pesetas of value-
added were generated from tourism consumpt ion which was about 22.8% of GDP. 21.4%
GDP of this economy was attributed by the to urist spending. Per unit of expenditure made
by tourists generated 1.23 Pesetas of output and 0.79 Pesetas of value-added in the year
1992. Of the total value-added, direct value-a dded multiplier contributed 0.56 while indirect www.intechopen.com
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value-added contributed 0.22. The estimated multipliers were medium-lower than
multipliers found in other regions.
It was translated that the demand for intermediate input was found lower because of the
weak inter-sectoral linkages between tourism and other sectors of the Canary Island
economy which resulted in lower indirect multiplier impact. There were other features that
were identified as the reason for lower indirect multiplier impact. Firstly, lack of structural
strength, and secondly, tourists spent more on service sectors. The total import multiplier
was found to be 0.430 where the direct, indirect, and induced impacts were 0.104, 0.109, and
0.216 respectively. The household consumption direct import multiplier was 0.265 which
was two times greater than consumption of non-residents. The study suggested that
enhancing the output and income multiplier impact would reduce the leakages generated
from import of goods and services that was used to satisfy tourist demand.
Daniels (2004) developed occupation-based inpu t-output modelling to assess the effects of
tourist spending in the sporting events of Gi rls Fastpitch World Series, to the income of
different job categories, in Mecklenburg County, North Carolina, USA. Input-output model
was applied to estimate employment impact. The estimated employment represented t he
amount of needed new labour over a year due to a change in fina l demand. The estimated
input-output employment was modified throug h occupation based modelling to rationally
reproduce how much human hours and corre sponding wages were generated from
occupation because of short-term demand for tourism. The author also identified the
occupations that were likely to be affected by a change in the final demand and concluded that
full time equivalent salaries of $15,000-$40,000 of jobs were most likely affected by the event.
Albqami (2004) estimated output, employment, an d income multipliers of the Saudi Arabian
economy from the economic impact analysis of tourists’ expenditure using input-output
model. The input-output transaction table of 1997 was disaggregated into nine sectors where
tourism sector was included as one of the sectors. The impacts of tourist expenditure o n
output, income, and employment were measured at direct and indirect level. The share of
output, income, and employment was found to be 5% of gross output, a total SR8690 million
of income and the service sector received 33% of income from tourism receipts, and the total
employment generated from tourism expendit ure was 507,114 which was about 12% of total
employment. The study concluded that service sector received highest income and
employment impact although output impact was relatively lower compared to
transportation sector.
Lee and Taylor (2005) conducted a study on the economic impact of 2002 FIFA World Cup
in South Korea using input-output model. Th e output, income, and value-added impact of
tourists’ expenditure were determined exclud ing non-event related tourists. The output,
income, and value-added impacts of FIFA World Cup in South Korea were $1.35 billion,
$307 million, and $713 million respectively. They found that international tourists who
visited World Cup in South Korea contributed more to the economy than those who visited
for other purposes. The event related tourist ex penditure was estimated to be 1.8 times. The
authors also concluded that inclusion of non-event inbound tourists’ expenditure would
result significant overestimation of economic impact of an event.
Bashir and Ahmad (2005) investigated the impa cts of West Asian tourists’ expenditure and
analyze the profile of tourists using static cl osed input-output model. The study found that
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sectors received greater economic gains from tourism. The objective of this study was to
examine the impact of inbound tourists’ compos itional shift from the contiguous countries
to West Asian economies tourists. In order to attain the objective 300 survey questionnaires
were distributed to tourist’s in the Klang Valle y region. The response rate was found to be
71 percent. The results from the statistical analysis also revealed that accommodation,
shopping, and food and beverages were the th ree sectors where West Asian tourists made
larger expenditure. Based on the findings the study suggested that West Asian tourists
would revisit Malaysia if they had the opportunity to explore the emotional and experiential
aspect of tourism. Cultural and heritage backgr ound, i.e. Batik, should be the unique brand
characteristics for Malaysian tourism to expand as well as education tourism. The study also
suggested conducting research in identify ing the major short and long-haul inbound
markets for the betterment of Malaysian tourism industry.
Contini, Scarpellini and Plidori (2009) analyzed the economic impact of agricultural based
tourism on the progress of a community, Low-Va ldelsa, Italy. Input-output analysis was
employed to estimate the income and employme nt effects of agriculture-based tourism. The
authors applied an appropriately modified re gional accounting matrix to obtain the
objective of the study. The prevailing constraints of agriculture-based tourism’s economic
impact in obtaining socio-economic development were pointed out and argued. Data were
obtained from direct investigation. The au thors concluded that the absence of product
suppliers’ coordination with the service providers was weakening the local product
visibility. The authors suggested extending and strengthen ing particular activity actions
along with lifting up the product quality to realize amicable benefit. As a result, agro-
tourism would have higher impact on the ec onomic development of Low-Valdelsa, Italy.
Schubert and Brida (2009) employed input-outp ut analysis to examine the macroeconomic
effects of an increase in the demand for touris m as a result of exogenous inflow of visitors’
income and marketing promotion activities of tourism products in a small destination. In
addition, a dynamic general equilibrium model wa s utilized to represent the effects. It was
found that there would be a rise in the domest ic production and price of services provided
to tourists if there was an increase in demand for tourism. The economy would be
experiencing a higher stock of capital along wi th a decline in net foreign possessions since
dynamic change takes into account the current account deficit and accumulated capital.
Increase in visitors’ income would be leading to an increase in wellbeing effect of locals
while uncertain changes were appeared to be occurring on the wellbeing and consumption
of locals. In addition, the study also concluded that a short-term increase in tourism demand
would generate strong changes in real fore ign benefit status and agents’ consumption.
2.2 Social accounting matrix (SAM)
Several research fields have used social accounting matrix (SAM) in quantifying the
economic impact, such as ec ological economics, agricultural economics, economic
modelling, development economics, and tourism.
West (1993) used a combination of social acco unting matrix with econometric analysis in
measuring the significance of tourism in Quee nsland State economy of Australia. The study
results showed that there were sizable econom ic impacts of tourism on both gross state
product and employment. Tourism in Queensland was estimated to generate $2.1 billion of
the gross state product, in addition to $3 billion initial expenditure made by tourists. It was www.intechopen.com
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estimated that 80, 000 jobs were directly or indirectly related to tourism in 1990-1991 period.
The author simulated 15% increase of international tourists and 2.5% increase of domestic
tourists with the potential to increase the Gross State Product (GSP) to $5.6 billion and
235,000 employments in 2000-2001. Recreation sect or, followed by trade, manufacturing,
and transport sectors were identified as the major employment providers. The study
concluded that more investment in improving the infrastructure would provide additional
stimuli in the economy.
Wagner (1997) estimated the economic impact of tourism in Guaraquecaba, north-eastern State
of Parana, Brazil using SAM. The finding of the study concluded that the economic impact of
tourist expenditure was small due to high import leakages since businesses imported most of
their inputs to satisfy tourist demands. Aver age expenditure of a tourist was $15.12 per day.
The study asserted that a formal employee effort to obtain one minimum salary required 214
tourist-per-days. Approximately 7,500(±2,500) visitor arrivals were estimated to generate
$244,575 value of additional output, 32 fulltime jobs, and a total wage of $19,425.
Daniels, Normans and Henry (2 004) utilized social accounting matrix (SAM) to estimate
household personal income and three other variat ions of occupation-based model to estimate
the effects of a sports tourism event on indivi dual wage in Charleston, South Carolina, USA.
The authors argued that social accounting ma trix was inappropriate in assessing personal
income effects for different hous eholds during sports tourism events because of its limitations
to weight income by sector. Personal income coefficients were found favouring high income
households. Since social accounting matrix did not allow for any particular occupations, wage
variations by job category were unable to be measured. Therefore, their study used average
full-time equivalent wages which were most precise for sports tourism. The most impacted full
time equivalent wage occupations ranged from $15,000 to $40,000.
Oosterhaven and Fan (2006) employed social ac counting matrix along with input-output
technique in estimating the international to urism impact on Chinese economy. The study
developed an extended input-output model and related this with Tourism Satellite Account
(TSA) and finally aggregated SAM data. The obje ctive of using Type II input-output analysis
was to determine direct, indirect, and induced impact of foreign tourist expenditure. The
study combined the economy into 17 sectors from input-output table where employment
statistics of 9 sectors were adjusted. The findings of the study showed that foreign tourism
contributed a small percentage (1.64%) of GDP to the economy. The income and
employment impacts were found to be 1.40% and 1.01% respectively which constituted a
smaller percentage than GDP of Chinese ec onomy. The authors concluded that foreign
tourist expenditure contribution to the econ omy was insignificant though there was high
value-added impact indicating future potential of international tourism.
2.3 Computable general equilibrium (CGE) model
Researchers have used computable general equilibrium (CGE) models in tourism impact
studies based on availability of data from diffe rent countries, such as Hawaii, USA, Spain,
Australia and some other countries.
Adams and Parmenter (1995) analysed the econ omic impact of tourism in Australia by
simulating a 10% growth of tourism using computable general equilibrium model for 117-
sectors of Australian economy. The results of the study showed that a 10% increase in www.intechopen.com
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tourism would result in exchange rate apprecia tion, increase in import and decrease in the
traditional export sectors production, and dec lining balance on trade. The authors stated
that expansion of tourism in Queensland State would result in negative impact from
international tourism. Furthermore, the study suggested that the Queensland State economy
should be depended on traditional export se ctor which was experiencing a declining trend
because of an expansion of international tourism.
A study by Zhou, Yanagida, Chakravorty and Leung (1997) estimated visitor expenditure
impact on the economy of Hawaii from a 10% reduction of tourist expenditure. The study
compared the results generated from computable general equilibrium and input-output
model. They stressed that the distribution of a sector’s product would be traced through
input-output modelling framework using a system of linear equations, whereas computable
general equilibrium (CGE) model represented sectoral complex interdependencies
unrestricted by the constraint of linearity, which allowed for resource allocation. Social
accounting matrices (SAMs) were employed as the primary data requirements for
constructing computable general equilibrium model. The authors referred that the findings
which were based on input-output model were si milar in magnitude to that of the results of
computable general equilibrium, however, generally higher for a hypothetical 10% decrease
in tourist spending. Their study found that the sectors directly related to tourism
represented statistically the largest effects in terms of economic loss. Output reductions in
the input-output model were found to be larger than computable general equilibrium model
because latter model allowed reallocation of resources. The study illustrated that
computable general equilibrium model would represent price effect and variation in output
which had a positive relationship wi th domestic and composite prices.
Blake (2000) estimated the effect of 10% expansion of tourism in Spain using CGE model. The
author estimated that a 10% increase in touris m would result in a 0.05% increase in GDP,
0.61% increase in real exchange rate, and a slig ht increase household consumption, investment
and domestic tourism.. The au thor found that the benefit received from a 10% tourism
expansion would offset an increase in imports and decrease in the value of other exports.
Dwyer, Forsyth and Spurr (2005) assessed a spec ial event’s economic impact generated from
the Qantas Australian Grand Prix in Australia for the year 2000. They employed computable
general equilibrium model and compared the result with input-output model. They found
out that input-output model represented a greate r impact on real output ($120.1 million) as
compared to computable general equilibrium model ($24.46 million). They also found that
the value-added multiplier and employment multipliers were different in undertaking two
models which was 0.844 from input-output analysis and 0.267 from CGE model for value-
added. On the other hand, employment multiplie rs were 11.548 using input-output analysis
and 2.5 using CGE model. The study concluded that funding agencies could benefit from
such study as the approach would allow them to decide the economic benefits that would
outweigh costs and proper utilization of li mited funds under the prevailing alternative
opportunities.
2.4 Keynesian multiplier model
Keynesian model was used by several studies although the version of multipliers derived by
this model did not consider any leakages fr om the economy. The studies that employed
Keynesian model were limited in numbers compared to input-output analysis. www.intechopen.com
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Eriksen and Ahmt (1999) employed Keynesia n income multiplier model under an input-
output framework to assess the regional tour ism effects for each of 16 Danish counties.
Different tourism policies were evaluated in terms of employment, GDP and expenditure
pattern of tourists. The measurement of tourism impact was conducted by tourist
expenditure surveys. The author s found that foreign tourist generated approximately over
47,000 employments which were one half of the employment derived from one-day tourism.
The study also estimated the economic impact of domestic tourism by considering foreign
and domestic tourism in terms of substitutes of each other and non-substitutes of each other.
When foreign and domestic tourism were assumed to be substitutes, the economic impact of
tourists generated 61,652 employments where foreign tourists generated 47,271 jobs and
domestic tourists 14,381 jobs.
Vaughan et al. (2000) analysed the economic im pact of “agro” and “non-agro” tourism in
Exmoor National Park, UK, by employing proportional multiplier analysis which was a
combination of input-output and traditiona l Keynesian model. Three surveys had been
conducted to collect the data on operationa l characteristics of businesses, visitors’
expenditure and residents’ expenditure in the study area. Tourism impacts on the
generation of output, income, employment and their distribution among different sectors of
the economy were assessed. The study foun d that Agro-tourist had an impact of ?1.7 million
in income, ?5 million in output, and 230 employments.
2.5 Tourism satellite account (TSA)
In recent years, several researchers used tourism satellite accounting (TSA) model in
estimating the economic impact of tourism. Of these studies, Blake et al. (2001), Kuhback
and Herauf (2005), Dwyer, Forsyth and Spurr (2007), Smeral (2006), and Ahlert (2007a and
2007b) addressed the issues related to the TSA model that was considered as an extension of
input-output model. The latest literature on economic impact on tourism using TSA has
been discussed in this section.
Ahlert (2008) employed the results of TSA to analyze the significance of increased inbound
tourism on the German economy on GDP, employment, and tax revenue generation. The
study asserted that the options for estimating the economic impact were offered within
model-based macroeconomic analysis where structural information could be obtained from
tourism satellite accounting framework. TSAs had the ability to show maximum linkages t o
input-output models as well as to represent resu lts originated from product-specific records.
The study emphasized on formulating and using dynamic macroeconomic structural
models along with trouble-free input-output approach. Some simulation results were
obtained by using INFORGE model in determin ing the total effects of inbound tourism in
generating GDP/income, employment, and tax revenue.
Studies that assessed the contribution of to urism through economic impact analysis are
increasing over the years which started in 1960’s. The literature is evolving as a consequence
of government’s stressing the importance to develop the economy by means of developing
the tourism industry as tourism injects foreign exchange earnings, helps eliminate balance of
payment disparity, generates income for the households, and supports employment
generation. The studies that were devoted to estimate impact of tourism on different
macroeconomic variables held in different locations around the world have been
summarized in table 1. www.intechopen.com
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Studies Year/
Study Area Nature of
Analysis Output Income Employment
Value
added Import
Govt.
Revenue Linkages
Analysis Balance of
Payment Type of
Tourist Type of
Sector Harmston 1969 (Missouri) Static
I-O
x Bryden 1973
(Caribbean) Static
I-O
x x x Archer et al. 1974 (Gwynedd) Static
I-O x x x x Armstrong
1974
(Barbados) Static
I-O
x Diamond 1976 Turkey Static
I-O
x Liu ; Var
1982
(Victoria, BC.) Static I-O, ANOVA
x x x Liu ; Var
1983
(Victoria, BC.) Static
I-O
x x x x x x Liu et al.
1984
(Turkey) Static
I-O x x x Archer 1985 (Mauritius) Static
I-O
x x x Ruiz 1985
(Puerto Rico) Static
I-O x x Liu 1986
(Hawaii) Static
I-O
x x x x Fletcher 1989a Static
I-O Fasen-maier,
et al. 1989 (Texas)
Static
I-O x x x x x x Heng ; Low
1990
(Singapore) Static I-O ;
Keynesian
Multiplier x x x x x x Khan et al.
1990 (Singapore) Static I-O x x x x x x x West 1993
(Queensland) SAM x x x Rashid et al. 1993 (Malaysia) Static I-O x x x x Adams ; Parmenter 1995
(Australia)
CGE x www.intechopen.com
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Studies Year/
Study Area Nature of
Analysis Output Income Employment
Value
added Import
Govt.
Revenue Linkages
Analysis Balance of
Payment Type of
Tourist Type of
Sector Archer 1995 (Bermuda)
Static I-O x x x x x x Archer, ;
Fletcher 1996
(Seychelles) Static I-O x x x x Andrew
1997 (Cornwall) Static I-O ;
LP x x Wagner
1997 (Parana, Brazil)
SAM x x x Zhou et al. 1997
(Hawaii) Static CGE
; I-O
x Stynes, Nelson
; Lynch 1998 (Michigan)
Static
I-O x x x Huse et al.
1998 (Norway) Static
I-O
x x Mistilis, ; Dwyer 1999
(Australia) Static
I-O
x x Frechtling ; Hovath 1999 (Washington, DC.) Static I-O
(RIMS II)
x x x x Eriksen ; Ahmt 1999
(Denmark) Keynesian
Multiplier
x x x Tohamy ;
Swinscoe 2000
(Egypt) Static I-O x x x x Blake 2000 (Spain)
CGE x Vaughan et al. 2000
(UK) Keynesian ;
static I-O
x x x x Kweka et al.
2001 (Tanzania)
Static I-O x x x x x x x Yan ; Wall 2002 (China) Type I Static
I-O
x x x x x Chabra, Sills ;
Cubbage 2003 (North Carolina) Type I Static
I-O ; SAM
x x x Kim et al. 2003 (South Korea)
Static I-O x x x x x x x Sun, ; Stynes
2004
(Michigan) Static I-O x x x www.intechopen.com
Visions for Global Tourism Industry – Creat ing and Sustaining Competitive Strategies 288
Table 1. List of Literatures on Assessing the Economic Impact of Tourism
Studies Year/
Study Area Nature of
Analysis Output Income Employment
Value
added Import
Govt.
Revenue Linkages
Analysis Balance of
Payment Type of
Tourist Type of
Sector Rashid, ;
Bashir 2004
(Malaysia) Static Open
I-O x x x x x x Martin 2004 (Spain) Keynesian ;
Static I-O
x x x x Daniels et al.
2004 (South Carolina) SAM x Wiersma et al.
2004
(New Hampshire) Static I-O x x
Daniels 2004 (North Carolina)
SAM x x Albqami 2004
(Saudi Arabia) Static
I-O x x x x Lee and Taylor 2005 (South Korea)
Static I-O x x x x Bashir ; Ahmad 2005 (Malaysia) Static I-O x x x x x Dwyer et al.
2005
(Australia) Static
CGE/I-O x x x Oosterha-ven
; Fan 2006
(China) Static I-
O/SAM x x x Gerd Ahlert
2008
(Germany) TSA x x x x Contini et al. 2009
(Italy)
Static I-O x x Schubert ;
Brida 2009
(Small Destination) Static I-O ; Simple
Dynamic CGE x x www.intechopen.com
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3. Critical assessment of economic impact literatures of to urism
The above literature survey translated that most of the studies employed input-output
framework in assessing the economic impact of tourism whereas only few studies utilized
SAM, CGE, and Keynesian model. The construction base of these models heavily relied on
input-output table that also acted as the main requirement of Leontief input-output analysis.
Assessing the magnitude of tourism impacts on employment, income, and output was the
primary concern of most of the past studies (Tyrrell ; Johnston, 2006). Although the
determination of multipliers on a wide range of macroeconomic variables could be
accomplished through economic impact analysis, most tourism studies focused on
estimating output, total value-added, employment, and income multipliers (Kim, Scott,
Thigpen ; Kim, 1998; Burgan ; Mules, 1992; Var ; Quayson, 1985; Crompton 1999).
Besides, several studies evaluated the contribu tion of tourism in the balance of payment
account of economies while some of the studies were devoted to measure the contribution
made by types of tourists. The economic impacts on different se ctors of the tourism industry
were the subject matter of a number of touris m studies, although not many, whereas only
few studies, such as the study of Wiersma et al. (2004), Huse et al. (1998) discussed a
comparative tourism economic impacts on severa l locations. It is also evident from the
literature survey that input-output model is an ever-present model in conducting economic
impact analysis in differe nt regions of the world.
The methods, such as input-output model, computable general equilibrium model, social
accounting matrix model, Keynesian multiplier model, TSAs etc., were employed in
analyzing economic impacts of tourism, in some way each of the methods needed to utilize
input-output table as a foundation in estimati ng the economic impacts of tourism. It is
noticeable from the available tourism literature that input-output model is one of the most
widely used methods. The summary of literatur e in table 1 also reveals that past studies
were only able to represent the economic impa cts of tourism from a static view point where
the derivation of dynamic multipliers of severa l sectors of tourism industry was particularly
excluded. Even the most recent method, TSA model which was considered to be the
extension of input-output framework, was un able to estimate the indirect effects and
intermediate consumption with out making adjustments (Smeral, 2005). Therefore, it only
provided the effects generated by the direct economic relationship between guest and
producer (Smeral, 2006). Underlying the limita tion of TSA, World Tourism Organisation
(1999) commented that TSA model essentially provided a kind of static analysis that
described the interdependence of tourism sector with the rest of the economy. Input-output
model was defined as complementary model that could represent complete informatio n
about contribution made by tourism to ma croeconomic performance (Smeral, 2005 ; 2006).
In this context, Ahlert (2008) argued that in put-output was the only incomparable method
which allowed synchronized documentation of all direct and indirect effects of value-added.
By addressing the limitations of the past studies (static analysis) that derive multipliers of
the tourism industry using input-output model, Dwyer et al. (2004) developed and
approached an alternative technique known as the CGE technique to achieve the best
practice for evaluating economic effects of tourism. Nevertheless, the CGE model can also be
considered as static model due to its incapability to illustrate the dynamic impact of tourism.
In addition, there is an existence of a gap of economic impact of tourism literatures that
employ both static and dynamic economic impa ct analysis of tourism together in order
to study the comparative aspects of these two analyses. Forecasting based on static input- www.intechopen.com
Visions for Global Tourism Industry – Creat ing and Sustaining Competitive Strategies 290
output analysis has been considered a kind of significantly misleading method in impact
studies that should be avoided. Therefore, past studies were unable to provide information
in directing policies precisely.
In this context, to overcome the considerable limitation of forecasting reflected in previous
studies, it is essential to employ dynamic input-output analysis to estimate dynamic
multipliers of tourism industry along with th e utilization of static input-output analysis.
There is existence of studies that estimate d dynamic multipliers using Leontief dynamic
input-output analysis. Such as , Liew (1977) estimated the dynamic multipliers for Oklahoma
regional economy, USA to demonstrate a comparative study of different sectors dynamic
multipliers. The support for using the dynamic input-output analysis to estimate dynamic
multipliers is well documented in literature except tourism economics. In this respect, Liew
(2000) asserted that dynamic multipliers can be treated as an efficient method to illustrate
the consequences of a change in final demand (for example, the expenditure effects by state
or federal government). Therefore, polic ymakers of governments, businesses, and
consumers can be benefited from th e estimated dynamic multipliers.
Richardson (1972) pointed out that economic policy makers are more attracted to the
utilization of dynamic input-output model as it is useful when dimension of forecasting
period increase in length. The use of Le ontief dynamic input-output model bears
significance on the view point of both th eoretical and empirical aspects (Liew, 2000).
Specifically, the existing literature suggested th at there is a lack of studies that has been
taken into consideration the economic impact of tourism on a wide range of macroeconomic
variables into three distinct directions (direct, indirect, and induced effects) while there is
prevailing a clear deficiency of dynamic input-output analysis.
4. Conclusion
By acknowledging the above literature, it can be admitted that economists and planners
have applied different models and techniques for measuring the economic impacts of
tourism on regional, local and national economies. The model or technique that is to be used
in a particular situation depends upon the obje ctives of the analysis, the types of problems
found in the subject region, data availability, and conditions assumed in the study. It is
evident from the literature cited above that input-output model is predominant among the
models that are being used to estimate multipliers. Input-output model has become more
popular and widely adopted because it is cost effective and simple in comparison with CGE
models (Kasimati, 2003). Input-output method ha s been considered as a useful technique for
estimating the complete performance of touris m in terms of direct, indirect, and induced
impacts of tourism on generating output, in come, employment, value-added, import, and
tax revenue. However, this method is considered to be limited to inter-sectoral transactions
(Pyatt ; Round 1985). Acknowledging the limit ations of the method, whether it is
exploratory or hypothetical, Babcock (1993) assert ed that it will sustain and gain persistent
popularity because of its narrative ability and usage adaptability. Although the method has
limitations, like other methods, it also has some advantages in measuring the direct, indirect
and induced impacts of tourism in terms of its usage flexibility. The method will continue to
be a practical tool for conducting economic impact analysis if employed cautiously (Daniels,
2004). Daniels also asserted that the benefits of input-output analysis could be utilized to
make strategic policy formulation and useful for community planners, coordinators, www.intechopen.com
Economic Impact of Tourism –
A Review of Literatures on Methodologies and Their Uses: 1969-2011 291
respective authorities dealing with diversifying tourist attractions. Therefore, using such a
method to conduct economic impact analysis can provide valuable information to policy-
makers about the economic benefit as a result of an increasing economic activity (e. g.
tourism) or changes in economic policy.
Therefore, the analysis in viewing the contri butions of tourism should be concerned with
estimating the economic impacts of tourism. For this reason, there is a need to conduct
economic impact analysis of tourism in orde r to identify tourism’s performance in the
growth and development process of the economy and its contribution in generating output,
income, employment, value-added, import, and ta x revenue at three different levels (direct,
indirect and induced). There are several advantag es of input-output analysis as pointed out
by Fletcher (1989b) and Daniels (2004). They include: 1) it operates under a general
equilibrium framework; 2) it provides a comprehensive view of a given economy; 3) it pays
attention on sectoral interdependencies; 4) the structure of this analysis is flexible that
allows researchers in making decisions such as aggregation choices; 5) it consider uniform
treatment of each sector to redu ce subjectivity; 6) it enhances data availability; and 7) it
allows impacts of tourism to be viewed at di rect, indirect, and induced levels. Therefore,
economic impacts studies of tourism should utilize static and dynamic input-ou tput model
to derive macroeconomic multipliers for tourism industry.
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Visions for Global Tourism Industry – Creating and Sustaining
Competitive Strategies
Edited by Dr. Murat Kasimoglu
ISBN 978-953-51-0520-6
Hard cover, 478 pages
Publisher InTech
Published online 18, April, 2012
Published in print edition April, 2012
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We have been witnessing huge competition among the
organisations in the business world. Companies,
NGO's and governments are looking for innovative wa ys to compete in the global tourism market. In the
classical literature of business the main purpose i s to make a profit. However, if purpose only focus on the
profit it will not to be easy for them to achieve. Nowadays, it is more important for organisations to discover
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industry. In this book, we are pleased to present m any papers from all over the world that discuss the impact
of tourism business strategies from innovative pers pectives. This book also will help practitioners and
academician to extend their vision in the light of scientific approaches.
How to reference
In order to correctly reference this scholarly work , feel free to copy and paste the following:
Mohammad Nurul Huda Mazumder, Abdullah Al-Mamun, Ab ul Quasem Al-Amin and Muhammad Mohiuddin
(2012). Economic Impact of Tourism – A Review of Li teratures on Methodologies and Their Uses: 1969-201 1,
Visions for Global Tourism Industry – Creating and Sustaining Competitive Strategies, Dr. Murat Kasimo glu
(Ed.), ISBN: 978-953-51-0520-6, InTech, Available f rom: http://www.intechopen.com/books/visions-for-gl obal-
tourism-industry-creating-and-sustaining-competitiv e-strategies/economic-impact-of-tourism-a-review-of –
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