The Economic Impact of Tourism-A Critical Review

By Egan, David J.; Nield, Kevin | Journal of Hospitality and Tourism Management, August 2003 | Go to article overview

The Economic Impact of Tourism-A Critical Review


Egan, David J., Nield, Kevin, Journal of Hospitality and Tourism Management


This article reviews the underlying theory of tourism multipliers, and questions the underlying concepts of the multiplier. From this review of the theory it is proposed that tourist multipliers will tend to significantly overestimate the impact of tourism on an economy. The article then reviews the literature of tourist impact studies and concludes that there is evidence of overestimation of the impact of tourism on an economy.

The case of hotels is used to illustrate how tourism impact studies overestimate the importance of tourism on an economy, in particular whether business type hotels can be regarded as an expert based industry. The conclusion of the authors is that current strategy of using tourism as a major tool of urban regeneration is possibly misguided as estimates of the impact of tourism on an economy are significantly exaggerated.

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The adoption of tourism as an economic development strategy has not been without debate and questioning. The justification of large-scale public investment via EU Regional Development Funds, Development Agencies has led to numerous impact studies. The essential premise underlying the use of tourism in economic development is the economic advantage that is measured. Impact studies attempt to measure the number of jobs created, the kind of jobs created, the impact tourism has on the maintenance of amenities, and physical regeneration plus the more nebulous benefits of the impact of tourism on the image of the area and its general attractiveness to economic investment.

A key development in the "coming of age" of tourism in the eyes of policymakers was undoubtedly the development of tourist multiplier models as first developed by Archer (1973) in his study of Anglesey, "The Impact of Domestic Tourism". This model and developments of it have been applied by a wide range of authors in the 1970s and 1980s, including Archer (1976, 1977a, 1977b); Henderson (1975); Wheller and Richards (1974); Vaughan (1977); Archer, Shea, and Vane (1974). The attraction to policymakers is that this is a technique that will produce figures on the income and employment impact of tourism including the indirect and induced effects. Thus claims for the number of jobs or income can be shown courtesy of a scientific study.

Such a study was undertaken for the Department of Environment Inner Cities Directorate, Tourism and the Inner City: An Evaluation of the Impact of Grant Assisted Tourism Projects, which concluded that, "Tourism projects have had a positive net impact on the areas in which they have been undertaken" (Central London Polytechnic, Leisure Works and ORV Research, 1990, p. 66). The 20 projects they examined created 1200 permanent jobs and 348 seasonal or casual jobs, plus indirect employment. In the case of the Albert Dock and Merseyside Maritime Museum they estimated the secondary effects created an additional 70% over and above the direct jobs at the project, whereas in the case of Hull Marina and Post House, they estimated that secondary jobs accounted for an additional 44% of jobs. These secondary effects are referred to as the multiplier effect and measured by the multiplier.

It cannot be over-emphasised how important the development and use of tourist multipliers has been in the education of policymakers in the importance of tourism at the national and sub-national level. Moreover, it has acted as a catalyst for the belief that tourism can and should be part of the regeneration of run-down urban areas in the UK. A typical example would be the plans for the Dearne Valley in South Yorkshire, a former coal mining and steel-producing region where the opportunities for tourism development are a key part of the plans for economic redevelopment. One of the more obvious examples of the importance and apparent success of tourism in economic regeneration has been in old industrial cities with a poor image and scarred landscapes, as illustrated by the urban tourism movement from the old industrial cities of "Baltimore, Cleveland, Detroit and Pittsburgh in the USA and Bradford, Birmingham, Liverpool and Manchester in the UK, to cities like Duisburg and Lyons in continental Europe" (Law, 1993). …

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