BML111 - economic impacts

BML111: Tourism, Events & Destinations: Impacts & Sustainability

The Economic Impacts of Tourism & Events

Aims  To consider the economic characteristics of the tourism

and event product / industry  To highlight the factors influencing the intensity of

economic impacts  To identify the economic benefits and costs of tourism and

events  To consider the economic impact of tourism and events in

a range of destination environments

The Economic Impacts of Tourism and Events Activity 1: Identify:

• What are the key economic characteristics of tourism and events?

The Economic Characteristics of Tourism and Events

Key considerations:  An invisible export industry

 A highly fragmented sector/product, linking and affecting other sectors of the economy therefore making the full measurement of economic impacts a complex activity  Pearce [1989]:

‘the objective and detailed evaluation of the economic impact of tourism can be a long and complicated task’

Understanding the Economic Characteristics of Tourism

Key considerations:  Tourism is a highly unstable export, susceptible to

unpredictable external forces  Tourism and events are highly elastic with respect to income

and price  The cyclical pattern of demand for tourist goods and services

has significant implications for employment and investment  Low levels of customer loyalty in relation to destinations and

products, often linked to complex tourist motivations  The product is perishable

The Economic Impacts of Tourism and Events Activity 2: Identify:

• What factors will influence the intensity of economic impacts?

Factors Influencing the Intensity of Economic Impacts

Key considerations: The Destination  The geographical location of the destination area in relation to

the main tourist generating regions (and ability to respond to +/- of location)  The nature of the destination environment, and its products,

facilities and physical characteristics  The nature, scope and propensity for economic regeneration

and diversification within the destination (e.g. agricultural diversification into tourism)

Factors Influencing the Intensity of Economic Impacts

Key considerations: The Visitors  The type of visitor

 The type of holiday / activity / event  The volume and scale of visitor expenditure [influence of socio

demographic variables including age, social class and nationality]  Community awareness and engagement (e.g. VFR)

Factors Influencing the Intensity of Economic Impacts

Key considerations: The Industry  The existence of a skilled and experienced organisational body,

and the quality and level of marketing in tourist-generation countries/regions  The level of interconnectedness between the economic sectors

of the destination in which tourist expenditure will recirculate (types of suppliers and producers with which the industry’s demands are linked)  The degree to which the destination has adjusted to the seasonality of visitor tourist demand

Factors Influencing the Intensity of Economic Impacts

Key considerations: The Industry  Tourism policy / strategy frameworks and initiatives

 Wider macroeconomic policy (e.g. taxation)  The characteristics of local entrepreneurial activity -

managerial capability & expertise; motivations; fiscal availability

Factors Influencing the Intensity of Economic Impacts

Key considerations: The Economy  Urbanised, service-based, diversified economies

 Urbanised, tourism-dependent economies  Urbanised, manufacturing-based economies  Semi-urbanised economies based on small and medium-sized

enterprises  Largely rural economies with agriculture and craft production  Largely rural economies with traditional industries like agriculture in

decline  Largely, rural, autarkic or subsistence economies [Source: Swarbrooke, 1999]

Economic Impacts: Quiz

Economic Impacts Q1: According to the WTTC, what is the global value of tourism’s direct industry contribution to GDP? A.

$1,555bn

B.

$1,890bn

C.

$2,008bn

D.

$2,225bn

Economic Impacts Q1: According to the WTTC, what is the global value of tourism’s direct industry contribution to GDP? A.

$1,555bn

B.

$1,890bn

C.

$2,008bn

D.

$2,225bn

Economic Impacts Q2: According to the WTTC, how many people does the tourism industry employ globally?

A.

196,500,000

B.

238,277,000

C.

275,450,000

D.

300,600,000

Economic Impacts Q2: According to the WTTC, how many people does the tourism industry employ globally?

A.

196,500,000

B.

238,277,000

C.

275,450,000

D.

300,600,000

Economic Impacts Q3: According to the WTTC, what percentage of the global workforce is employed in tourism?

A.

6.8%

B.

7.5%

C.

8.4%

D.

9.2%

Economic Impacts Q3: According to the WTTC, what percentage of the global workforce is employed in tourism?

A.

6.8%

B.

7.5%

C.

8.4%

D.

9.2%

Economic Impacts Q4: According to Visit Britain statistics what is the current value of tourism to the English economy?

A.

£94.1bn

B.

£95.8bn

C.

£96.7bn

D.

£97.2bn

Economic Impacts Q4: According to Visit Britain statistics what is the current value of tourism to the English economy?

A.

£94.1bn

B.

£95.8bn

C.

£96.7bn

D.

£97.2bn

Economic Impacts Q5: According to Visit Britain statistics, 30 million inbound visits generates what level of spend?

A.

£11.7bn

B.

£12.5bn

C.

£14.6bn

D.

£16.5bn

Economic Impacts Q5: According to Visit Britain statistics, 30 million inbound visits generates what level of spend?

A.

£11.7bn

B.

£12.5bn

C.

£14.6bn

D.

£16.5bn

Economic Impacts Q6: How much does the domestic tourism market spend on overnight trips?

A.

£19.2bn

B.

£21.2bn

C.

£22bn

D.

£23.1bn

Economic Impacts Q6: How much does the domestic tourism market spend on overnight trips?

A.

£19.2bn

B.

£21.2bn

C.

£22bn

D.

£23.1bn

Economic Impacts Q7: According to Visit Britain statistics, how many people work in the tourism industry in the UK? A.

0.9m

B.

1.4m

C.

1.9m

D.

2.6m

Economic Impacts Q7: According to Visit Britain statistics, how many people work in the tourism industry in the UK? A.

0.9m

B.

1.4m

C.

1.9m

D.

2.6m

Economic Impacts Q8: What percentage of England’s Domestic Overnight Holiday Trips are spent in the South East?

A.

11%

B.

14%

C.

18%

D.

21%

Economic Impacts Q8: What percentage of England’s Domestic Overnight Holiday Trips are spent in the South East?

A.

11%

B.

14%

C.

18%

D.

21%

Economic Impacts Q9: What percentage of England’s Domestic Overnight Holiday Trips are spent in the South West?

A.

19%

B.

22%

C.

25%

D.

27%

Economic Impacts Q9: What percentage of England’s Domestic Overnight Holiday Trips are spent in the South West?

A.

19%

B.

22%

C.

25%

D.

27%

Economic Impacts Q11: How many people visit the Arun District each year?

A.

2.8m

B.

3.2m

C.

3.7m

D.

4.1m

Economic Impacts Q11: How many people visit the Arun District each year?

A.

2.8m

B.

3.2m

C.

3.7m

D.

4.1m

Economic Impacts Q12: What is the value of total visitor spending in the Arun District?

A.

£187m

B.

£193m

C.

£196m

D.

£199m

Economic Impacts Q12: What is the value of total visitor spending in the Arun District?

A.

£187m

B.

£193m

C.

£196m

D.

£199m

Economic Impacts Q13: How much is tourism worth per Arun resident?

A.

£116

B.

£122

C.

£129

D.

£135

Economic Impacts Q13: How much is tourism worth per Arun resident?

A.

£116

B.

£122

C.

£129

D.

£135

Economic Impacts Q14: According to figures from SQW Consulting (2009), what was the total direct spending generated by visitors to the Glastonbury Festival?

A.

£39m

B.

£42m

C.

£48m

D.

£52m

Economic Impacts Q14: According to figures from SQW Consulting (2009), what was the total direct spending generated by visitors to the Glastonbury Festival?

A.

£39m

B.

£42m

C.

£48m

D.

£52m

Economic Impacts Q15: According to estimates, what was the total visitor expenditure derived from the Royal Wedding?

A.

£107mn

B.

£110mn

C.

£112mn

D.

£115mn

Economic Impacts Q15: According to estimates, what was the total visitor expenditure derived from the Royal Wedding?

A.

£107mn

B.

£110mn

C.

£112mn

D.

£115mn

Economic Impacts Q16: How much is the heritage tourism sector worth to the UK economy?

A.

£9.8bn

B.

£11.2bn

C.

£12.4bn

D.

£13.5bn

Economic Impacts Q16: How much is the heritage tourism sector worth to the UK economy?

A.

£9.8bn

B.

£11.2bn

C.

£12.4bn

D.

£13.5bn

Economic Impacts Q17: According to estimates what level of visitor spending is generated by the London marathon?

A.

£27.9m

B.

£30.2m

C.

£31.7m

D.

£32.8m

Economic Impacts Q17: According to estimates what level of visitor spending is generated by the London marathon?

A.

£27.9m

B.

£30.2m

C.

£31.7m

D.

£32.8m

Economic Impacts Q18: Between 2004-2007, what was the total economic injection Valencia derived from hosting the America’s Cup? A.

2,478m Euros

B.

2,568m Euros

C.

2,768m Euros

D.

2,995m Euros

Economic Impacts Q18: Between 2004-2007, what was the total economic injection Valencia derived from hosting the America’s Cup? A.

2,478m Euros

B.

2,568m Euros

C.

2,768m Euros

D.

2,995m Euros

Economic Impacts Q19: According to estimates, how much money was spent in a 60 mile radius of Silverstone as a result of the 2008 British Grand Prix?

A.

£47mn

B.

£51mn

C.

£55mn

D.

£61mn

Economic Impacts Q19: According to estimates, how much money was spent in a 60 mile radius of Silverstone as a result of the 2008 British Grand Prix?

A.

£47mn

B.

£51mn

C.

£55mn

D.

£61mn

Economic Impacts Q20: According to estimates, how many FTE jobs in Edinburgh are supported by the Edinburgh Festivals?

A.

4,200

B.

4,500

C.

4,890

D.

5,242

Economic Impacts Q20: According to estimates, how many FTE jobs in Edinburgh are supported by the Edinburgh Festivals?

A.

4,200

B.

4,500

C.

4,890

D.

5,242

Economic Impacts Q21: What is the collective value of Games-related contracts won by more than 1,500 UK companies?

A.

£2.4bn

B.

£4.2bn

C.

£5.0bn

D.

£6.5bn

Economic Impacts Q21: What is the collective value of Games-related contracts won by more than 1,500 UK companies?

A.

£2.4bn

B.

£4.2bn

C.

£5.0bn

D.

£6.5bn

Economic Impacts Q22: According to estimates what is the predicted increase in total UK GDP between 2005 and 2016 as a result of the Olympics?

A.

£1.9bn

B.

£2.5bn

C.

£3.1bn

D.

£3.4bn

Economic Impacts Q22: According to estimates what is the predicted increase in total UK GDP between 2005 and 2016 as a result of the Olympics?

A.

£1.9bn

B.

£2.5bn

C.

£3.1bn

D.

£3.4bn

The Spatial Impact of Tourism Trips (Millions) - Apr to June 2010 6

Trips (Millions)

5 4 3 2 1 0 East

East London Midlands

North East

North West

Region

South East

South West

West Midlands

Yorks & Humb

Las Vegas Fact File 2007 • 39,196,761 visitors • $8.4 billion gambling revenue • 6,209,253 convention delegates • 132,947 hotel rooms • 94% hotel occupancy • 90.4% city-wide occupancy Source: LVCVA, 2008

Las Vegas Fact File 2008 • 37,481,552 visitors • $6.1 billion gambling revenue • 5,899,725 convention delegates • 140,529 hotel rooms • 89.8% hotel occupancy • 86% city-wide occupancy Source: LVCVA, 2009

Las Vegas Fact File 2009 • 36,351,469 visitors • $5.6 billion gambling revenue • 4,492,275 convention delegates • 148,941 hotel rooms • 85.3% hotel occupancy • 81.5% city-wide occupancy Source: LVCVA, 2010

Las Vegas Fact File 2010 • 37,335,436 visitors • $5.8 billion gambling revenue • 4,473,134 convention delegates • 148,935 hotel rooms • 83.5% hotel occupancy • 80.4% city-wide occupancy Source: LVCVA, 2010

Brunei Fact File 2008 • 261mn US$ direct industry GDP • 11.6% of total economy GDP • 5,300 direct industry employment • 24,000 total employment • 13.8% of total employment • 228mn US$ capital investment (15.2% of total)

Brunei Fact File 2010 • 361mn US$ direct industry GDP • 11.5% of total economy GDP • 5,900 direct industry employment • 25,000 total employment • 13.4% of total employment • 495mn US$ capital investment (16.1% of total)

Romania Fact File 2008 • 3,631mn US$ direct industry GDP • 5.8% of total economy GDP • 304,000 direct industry employment • 600,000 total employment • 6.9% of total employment • 2,755mn US$ capital investment (7.3% of total)

Romania Fact File 2010 • 3,405mn US$ direct industry GDP • 5.1% of total economy GDP • 267,000 direct industry employment • 519,000 total employment • 6.1% of total employment • 3,578mn US$ capital investment (7.4% of total)

Vietnam Fact File 2008 • 3,521mn US$ direct industry GDP • 13.6% of total economy GDP • 1,509,000 direct industry employment • 4,981,000 total employment • 10.8% of total employment • 2,413mn US$ capital investment (8.4% of total)

Vietnam Fact File 2010 • 3,998mn US$ direct industry GDP • 12.4% of total economy GDP • 1,397,000 direct industry employment • 4,539,000 total employment • 9.9% of total employment • 3,410mn US$ capital investment (8.4% of total)

Maldives Fact File 2008 • 383mn US$ direct industry GDP • 67% of total economy GDP • 32,000 direct industry employment • 64,000 total employment • 57.9% of total employment • 150mn US$ capital investment (29.1% of total)

Maldives Fact File 2010 • 426mn US$ direct industry GDP • 63.4% of total economy GDP • 38,000 direct industry employment • 74,000 total employment • 54.8% of total employment • 165mn US$ capital investment (28.1% of total)

The Economics of Tourism [Source: WTTC, 2008]

The Economics of Tourism [Source: WTTC, 2008]

The Impact of Events

[Source: Jenkins et al, 2005]

Formula 1: Value and Impact

Events: The British Grand Prix 2002 Key Facts: 

Visitor Expenditure: 

£10 million on tickets



£6.3 million on site by general visitors in food, drink, and merchandise



£5.1 million visitor expenditure on accommodation, food, drink and other products in the wider economy

Events: The British Grand Prix 2002

Events: F1 International Perspectives

Events: The Global Expansion of F1 F1: 1988

F1: 2008

fR

Abu Dabi, 2009 South Korea, 2010 India, 2011

Economic Impacts: Balance of Payments

Economic Impacts: Balance of Payments (BofP) Balance of Payments  The outflow of British money spent abroad = IMPORTS  The inflow of foreign holiday-makers money spent in the UK =

EXPORTS  The value of receipts minus the total payments represents a

country’s balance of payments on the tourism account  Until the late 1970s the UK had a surplus on the tourism

account:

Economic Impacts: Balance of Payments (BofP) United Kingdom Travel Account 1976-2000 30000

25000 Earnings from Outbound Tourism (£m.)(Debit Import)

20000

Earnings from Inbound Tourism (£m.)(Credit Export)

10000

Balance 5000

-5000

-10000

-15000

Year

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

0 1976

£m.

15000

Economic Impacts Exchange Rates Values – Sterling v US Dollar Shopping Trip to New York (£1,500) 8th Nov 2007

1st April 2009

29th Jan 2010

30th Jan 2011

26th Jan 2012

(£1 = $2.106)

(£1 = $1.36)

(£1 = $1.61)

(£1 = $1.599)

(£1 = $1.5704)

$3,159

$2,040

$2,415

$2,398.65

$2,355.73

Shopping Trip to London ($1,500) 8th Nov 2007

1st April 2009

29th Jan 2010

30th Jan 2011

26th Jan 2012

($1 = £0.4747)

($1 = £0.7336)

($1 = £0.6204)

($1 = £0.625)

($1 = £0.636)

$712.05

$1100.4

$930.60

$938.03

$955.797

Tourism and the Balance of Payments The Leaky Bucket Syndrome:

‘There are two ways to maintain and increase the level in a leaky bucket. One way is to increase the flow. But is it the right way? Surely a more logical way is to mend the bucket and staunch some of the leaks. Staunching the leaks (in the UK context) means additional support for domestic tourism in England’

[Middleton, 2003]

Tourism and the Balance of Payments Key Facts: 

B of P deficit fluctuated around £2 to £4bn in the early 1990s but had risen to £15bn in 2001



2002 revealed the worst overall B of P (goods and services) since records began over 300 years ago



Need to recognise the value of domestic tourism which outweighs inbound tourism by a factor of 10:1

✓

Economic Impacts: Employment Types of Tourism Employment: 

Direct - jobs created as a result of visitor expenditure and directly supporting tourism activity



Indirect - jobs created within the tourism supply sector but not as a direct result of tourism activity



Induced - jobs created as a result of tourism expenditure as local residents spend money earned from tourism



Construction employment - jobs generated in the construction of tourist facilities and infrastructure

✓

Economic Impacts: Employment Employment – Key Questions: 

How many people are employed as a result of the tourism industry?



What type of job opportunities and job mobility exist in the tourism industry



What skills do people require and what returns and benefits can be expected from their employment



What is the geographical and temporal dimension of this employment?

[Source: Wall and Mathieson, 2006, p. 127]

✓

Economic Impacts: Employment Employment – Key Questions: 

What level of capital investment is required to create this employment and maintain ongoing training of human capital?



What is the overall economic contribution to national, regional, and local economies of this employment?



What are the renumeration levels of tourism occupations compared to other sectors?



What are the patterns of occupational diversity in relation to standards of service requirements, size of the tourist enterprise, location, type of client, and seasonality?

[Source: Wall and Mathieson, 2006, p. 127]

✗

Economic Impacts: Employment Key Issues:  Employment is seasonal  Limited career potential  Unsocial hours  Poor working conditions  The local population is often too small to fill the vacancies  In many areas there are insufficient workers with specific

technical or managerial skills

✗

Economic Impacts: Employment Key Issues:  Outsiders are attracted in by high wages and the

opportunity to live and work in pleasant or exotic surroundings  Immigrant workers get much of the initial employment

benefit

Economic Impacts: Gross Domestic Product (GDP) Factors Influencing Tourism’s Contribution to GDP: Bull (1991):  The stock of resources - natural resources, built facilities,

human and financial resources  The state of technical knowledge - economic returns from tourism are highest in those countries with high levels of technical expertise  Social and political stability - factors influencing the destination environment, visitor numbers and hence receipts from tourism

Economic Impacts: Gross Domestic Product Factors Influencing Tourism’s Contribution to GDP: Bull (1991):  Attitudes and habits - views of the host community and the

individual tourists’ propensity to travel  Investment - government and commercial investment in capital projects, promotion, training and business support

Enhancing Economic Impacts: The Multiplier Effect Multiplier Effects  Revenue generated is boosted by the multiplier effect:  Tourist spending is re-circulated in the local economy and is

therefore worth more to the area than its face value  £200 spent on a couple on a short-break in a hotel could be

worth £200*1.4 (the hotel multiplier effect for that area) = £280  The actual value of the multiplier will vary from region to

region and different sectors of the leisure and tourism industry  A multiplier for a guest house is greater than a large hotel

which is part of a national chain

Enhancing Economic Impacts: The Multiplier Effect

✗

Negative Economic Impacts:  Leakage of Income  Interest on foreign capital  ‘Debt’  Money taken by tour operators and airlines  Consumption of imported goods  Tourists often ‘confined’ to resort with little interaction

with the local economy

 Damage to other Economic Sectors  Lure people and resources away from other sectors of the

wide economy

✓

Impacts of F1: Economic Returns:  F1 events generate an average return of 553 per cent  Japanese Grand Prix – government investment of $4m;

$70m local economic impact gives an estimated 1,750 % return  Monaco – state funding of $3m – generating $120m

spending in the country  Nurburgring- a return of 167% (rural setting diminishes

its economic impact)

✓

Impacts of F1: Economic Returns:  Canadian Grand Prix (2004) – during the week of the

race: 

Spending at tourist attractions and exhibits grew 261% compared with the previous week



Transport receipts increased 24%



Spending rose 20% in sports shops, 12% in department stores and 8% in restaurants

✓

Positive Economic Impacts: Economic Regeneration and Development 

Investment in infrastructure/regeneration



Marketing and ‘image-making’

Bognor Regis : Butlin’s

London 2012

Weymouth and Portland: Olympic Sailing

Yas Island Marina, Abu Dhabi

Economic Impacts: Economic Regeneration and Development

✓

✓

Economic Impacts: Legacy What is legacy? 

A review of the research literature reveals a notable degree of ‘hesitancy’ over a precise definition of legacy

✓

Economic Impacts: Legacy What is legacy? 

Cashman (2005): The use of the word legacy is elusive, problematic and even dangerous for a number of reasons: ‘When the term is used by organising committees, it is assumed to be entirely positive, there being no such thing as negative legacy when used in this context.

Secondly, it is usually believed that legacy benefits flow to a community at the end of the Games as a matter of course’

✓

Economic Impacts: Legacy What is legacy?

✓

Economic Impacts: Legacy What is legacy?

✓

Economic Impacts: Legacy Preuss (2007) ‘Hard’ and ‘Soft’ Event Structures

‘Soft’ Structures

‘Hard’ Structures

• Knowledge (e.g. organisational, security, technological • Networks (e.g. political, sports When ‘event federations, security) • Cultural goods (e.g. cultural identity,structures’ change cultural ideas, common memory) the supply-side

characteristics of a destination, any subsequent activity based on or resulting • Primary Structure (e.g. sport infrastructure, from these activities training sites) is the event legacy • Secondary infrastructure (e.g. village for athletes, technical officials and media) • Tertiary structure (e.g. security, power plants, telecommunication networks, cultural attractions)

✓

Economic Impacts: Legacy Preuss (2007) ‘Dimensions of Legacy’ 

The degree of planned / unplanned structure planned expansion of tourist attractions / bomb attack adversely affecting the tourism image of a location



The degree of positive / negative structure - highly ambivalent - a positive legacy may be a negative legacy for the environment; the classification of legacy is a valuation that will address stakeholders in a positive or negative way

✓

Economic Impacts: Legacy Preuss (2007) ‘Dimensions of Legacy’ 

The degree of intangible / intangible structure - the increased number of visitors is tangible, while destination image is intangible



The duration and time of a changed structure - effects pre-event (the ‘pregnancy effect’); the duration of legacy can be very long or very short



The space affected by changed structure - the immediate host locale will benefit most directly from the event

✗

Negative Economic Impacts:  ‘Opportunity Cost’  What else could resources be used for?

 ‘Displacement Effect’  Tourism replaces one form of expenditure and economic

activity

 Inflation  Inflation effects on local economies relating to land,

property and goods e.g. North Wales/Cornwall / France villages have become popular for the purchase of second homes  Inflation of the local housing market, pushing young

people off the property ladder

✗

Negative Economic Impacts:  ‘Net Legacy Benefit’  Redistributions - the alternative investment (opportunity

costs) would have created alternative legacies  If an event pulls in an extra 10% of visitors, but average

visitor growth preceding the event has been 7% then the legacy is only an increase of 3%  Crowding-out - benefits that cannot be activated due to

limited capacities have to be deducted from the event legacy; e.g. event related visitors crowding out ordinary visitors

Learning Outcomes: At the end of this session you should be able to:  Identify the economic characteristics of the tourism and

event product / industry  Discuss the factors influencing the intensity of economic

impacts  Identify the economic benefits and costs of tourism and

events  Discuss and evaluate the economic impact of tourism and events in a range of destination environments