Economic Impacts-- Methods

The two principal methods for estimating recreation and tourism-related spending and economic impacts are (1) Satellite Accounts and  (2) Visitor surveys/input-output models.  Satellite accounts are primarily used to give an overall aggregate estimate of the contribution of tourism activity to state and national economies. They extract tourism-related activity from a system of national (or state) accounts. When spending and impacts are desired for particular market segments or for local regions, survey approaches are generally used. Spending data is gathered in visitor surveys and applied to estimates of the volume of tourist activity in an area. Spending totals are then applied to regional economic models or multipliers to estimate economic impacts on the local area, usually including secondary or "multiplier effects".

Satellite accounts:

Satellite accounts: Several organizations have developed satellite accounts for tourism. A satellite account re-organizes the national system of accounts to identify the contribution of tourism to a state or national economy. The advantage of satellite accounting approach is it uses existing economic data and embeds tourism in an accepted system of accounts. The drawback is that the information necessary to extract tourism activity from national economic accounts is often not complete or consistently gathered. Also, satellite methods are much more difficult to apply below the national level or for subcategories of tourism activity.   National accounts are organized around a set of industries or commodities. The problem is that tourism is more a type of customer than either an industry or a type of commodity. Restaurants serve both tourists and local residents and the system of accounts has no easy way to distinguish one from the other. The basic procedure in satellite accounting is to claim a "share" of sales of each commodity or industry to tourism. These shares, however can vary widely for different regions. Information to estimate them generally comes from various sources including surveys of households or tourists. Many of these surveys are not carried out on a consistent basis and are subject to a variety of sampling and measurement errors. Tourist shares also depend considerably on how tourism is defined - usually all trips of 100 miles or more or overnight.

You may find a discussion of satellite accounting methods at the WTTC site along with reports for many countries/regions.  The Bureau of Economic Analysis has produced satellite accounts for tourism in the US for 1992 and 1996/97 - download their Tourism Satellite Accounts ( HTML) reports at the BEA site.

  U.S. Travel and Tourism Satellite Accounts for 1992,  Sumiye Okubo and Mark A. Planting, Survey of Current Business 78 (July 1998): 822.
  U.S. Travel and Tourism Satellite Accounts for 1996 and 1997. David I. Kass and Sumiye Okubo. Survey of Curent Business (July 2000): pp 8-24.

Also look for related economic information at the WEFA site and World Tourism Organization.  WEFA has conducted much of WTTC's satellite research and WTO is leading the efforts to develop standard definitions and procedures for tourism satellite accounts.

Several TSA documents came out of a major conference sponsored by WTO in Nice, France in 1999. A Canadian Conference held in Vancouver, BC in May 2001 has oosted many excellent documents covering TSA's -  TSA documents.

Initial satellite efforts have focused on visitor trip spending. Some have added capital expenditures (e.g. hotel development) and selected durable goods purchases (RV's, boats, etc.) to the tourism account. There remain questions of how far the accounts should be extended, for example into imputed rents for seasonal homes (see Okubo paper) , construction of seasonal homes, and even the manufacturing of passenger aircraft and automobiles. How far should tourism's economic impacts be traced? Satellite accounts generally are restricted to the direct effects of tourist spending, not the indirect or induced economic activity.

Further details on the national system of accounts in the U.S. can be found at the Bureau of Economic Analysis (BEA) site. North America is converting to a new system of accounts to replace the current U.S. Standard Industrial Classification System (SIC). Service industries including recreation and tourism will be covered in greater detail. Check the master NAICS site (Learn about NAICS) for a variety of information about the North American Industrial Classification System. Browse around and you will find issue papers dealing specifically with recreation and tourism (e.g. The proposed structure for performing arts, spectator sports and related industries, including recreation and gambling -  PDF).
 

Visitor Surveys/Input-output (I-O) models for Estimating Economic Impacts of Tourism.

A more common approach to estimating economic impacts of tourism is to directly survey tourists to estimate their spending. Estimates of spending can be translated into the resulting jobs and income in a given area using appropriate economic ratios and multipliers.  The direct survey method is more applicable to estimating impacts of particular actions on a local economy, e.g., what is the impact of a new 100 site campground or a museum that will attract 50,000 visitors to the area. These more focused impact studies frequently also include multiplier effects of tourist spending on a region, as they focus more directly on impacts using a with vs without framework to evaluate impacts of a particular action. Satellite accounts only cover direct effects and tend to demonstrate the overall "importance or significance" of tourism industries to a region rather than "impacts".

The basic equations of the visitor survey/I-O approach are

    Tourist spending = Number of Visitors * Average spending per visitor

    Economic impact  =   Number of Visitors    * Average spending per visitor   * Regional Multipliers        (equation 1)

Help at this site for the direct survey approach

Much of the information assembled at our web site is designed to help recreation and tourism analysts in estimating economic impacts using the direct survey approach. We also provide help for managers and policy makers in interpreting and evaluating economic impact reports.  Equation 1 above identifies the three key inputs to an economic impact estimate:

        Number and types of visitors
        Average spending per visitor (within visitor types or segments)
        Multipliers for the region of interest

These are listed here in order of their importance. One shouldn't even pretend to estimate economic impacts without a reasonable estimate of the number and types of tourists in an area. Given estimates of tourism activity, one simply needs estimates of average levels of spending for different kinds of tourists to estimate total spending in an area. We provide some guidelines for conducting spending surveys, a number of spending profiles from recent studies, and spreadsheets for combining use and spending. Multipliers are the least important of the three inputs. Multipliers are only needed if one wishes to include secondary effects. Note that satellite methods generally do not include secondary effects and for most uses of economic impact studies, multipliers are probably not necessary. It is helpful to have some ratios of spending to jobs and income to convert direct effects to these better measures of economic impacts.

Some recommended sources:

Impact measures: spending, sales, income, jobs, tax receipts

Thepreferred impact measures are income or value added. The income to the region is reflected in the wages, salaries, rents and profits generated by tourist spending. Value added also the revenues to local government units from taxes. Economists generally use the "value added" by the region's economy as the preferred measure for assessing the contribution of a given industry or activity to a region's economy. Value added is basically the income and indirect business taxes generated by the activity. Tourist spending can yield a distorted picture of tourism's impacts, particularly when tourists are buying goods that are not made in the local area. In these cases only the retail margins on these goods show up as direct sales in the local area and contribute to regional income. The "capture rate" estimates the portion of tourism spending that shows up as direct sales in a region's economy. Although there is great interest in tourism's employment effects, job estimates can be misleading given the large number of part time and seasonal jobs associated with tourism in many areas. All jobs are not "equal" making aggregate estimates or comparisons across regions and industries problematic.  Income and value added are relatively clear measures of impact that can be directly compared across industries and regions with quite distinct types of tourism and economic activity.