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Tourism multiplier effect- made SIMPLE

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Do you want to know what the tourism multiplier effect is and how it works? If you have come through to this page then the answer is probably yes! And you are probably aware that when you Google the term ‘multiplier effect’, the results presented to you include an array of complicated economic jargon that can be hard to understand. Well the good news is that if you are studying travel and tourism, especially at undergraduate level or below, the chances are that you don’t need to understand the complex economic terms and formulas! Yippee!

So what do you need to know to be able to understand what is meant by the term tourism multiplier effect? Make sure you stick around until the end of the article and I can promise that you will know a lot more about the tourism multiplier effect than you did before you arrived on this page!

What is the tourism multiplier effect?

things to do in Guilin
The tourism industry has the potential to bring about positive changes through the tourism multiplier effect.

So lets start off by explaining, in simple terms, what the tourism multiplier effect is…

The tourism multiplier effect occurs when the economic benefits of tourism are multiplied.

This is largely fuelled by the growth in the tourism industry and associated industries that grow as a result of tourism. It can bring wide-reaching benefits to people involved directly and indirectly with the tourism industry.

So how can the economic impacts of tourism be multiplied…?

Types of tourism multipliers

There are many ways that the economic impacts of tourism can be multiplied. Jickorish and Jenkins (1997) explain that the types of tourism multipliers can be broken down into five major categories.

Sales or transaction multiplier

This is when the number of sales or transactions made increases. These can be directly involved with the tourism industry (i.e. selling hotel rooms) or indirectly involved (i.e. increased sales of produce (that will later be used to feed the tourists) at the local farmers market).

Output or production multiplier

The output multiplier is when the amount of products or services increase (but are not necessarily always sold). Examples could include the opening of new eco lodges in the Gambia, more padi diving courses being offered in Dahab or more hotels for families opening up in Shanghai.

Inner Mongolia Itinerary
The tourism multiplier effect can take place directly or indirectly.

Income multiplier

Income multiplier is when employee income generates further income through their expenditure. For example, a waiter who works in a hotel may spend part of his wages on schooling for his child. The school then makes extra money that they may use to pay their teachers. The teachers may then spend their money on produce in the local store. Etc….

Employment multipliers

An employment multiplier measures the impact of tourism activity on jobs. So, for every hotel that is built, for example, many jobs will be created, from construction workers to cleaners, to hotel receptionists and more. These are jobs that are directly created as a result of tourism.

Alongside this, there will be a number of jobs that are indirectly created, for example, the fisherman now has more people (the tourists) to feed so he has more work and can hire more staff. And because more people are using the roads the roads will have more wear and tear, resulting in the need for more road workers.

Tourism multiplier effect
The money from tourism often goes further than people realise….

The official or government revenue tourism multiplier

The ‘official’ tourism multiplier will often be determined by the local Government. Using the statistics that they have (and remember, not ALL money made from tourism is recorded- think the child street seller or the tuk tuk driver- do you think they are formally reporting on all of their income??), Governments will determine the net value of the tourism industry i.e. how much money it is worth.

Tourism multiplier effect
This example demonstrates the potential economic impacts resulting from a new hotel.

How does the tourism multiplier effect work?

The tourism multiplier effect occurs when the economic impacts of tourism are multiplied. This can happen in three ways:

Direct tourism expenditure

Direct tourism expenditure is when is the money that tourists spend on tourism-related products and services. This includes paying for their hotel room or hire car, buying tickets to go to a tourist attraction or to watch a show or paying for a meal at a restaurant, for example.

Indirect tourism expenditure

Indirect tourism expenditure is when money is spent on aspects that are related to the tourism industry but that may not directly involved with the tourism industry. For example, tourists will use the roads to travel along, so there will be a need for more road workers to repair and maintain the roads. These road workers are paid to be there because the tourists exist, but they do not work directly with the tourists.

Induced tourism expenditure

Induced tourism expenditure is when there is an increase in economic activity in the area, which has resulted from tourism. For example, a person may be hired to work as a cleaner at a hotel. That person may then use the money that they earn to buy birthday presents for their child that they may not otherwise have been able to afford. This is spending that has occurred as a result of tourism (because if the tourists didn’t come the cleaner would not have a job).

Tourism multiplier effect
The tourism multiplier effect can positively impact the wider economy.

Why is the tourism multiplier effect important?

The tourism multiplier effect is an example of a positive economic impact of tourism, i.e. it is a good thing (most of the time, at least)! The tourism multiplier effect demonstrates that the economic consequences of a single action (i.e. a tourist going on holiday) can have a greater impact economically on the local and global economy.

If tourism is managed in a sustainable way, the tourism multiplier effect has the potential to bring about many positive changes in society. Money raised can be invested into areas such as healthcare or 3education, for example. This can then have wide-reaching benefits for years to come.

How to calculate the tourism multiplier

If you want to calculate how much the tourism multiplier has made a difference, then you will need a bit more knowledge than I have provided in this article! Whilst this job will usually be down to economists who have a thorough understanding of economic multipliers, this video will give you an idea of how this can be done-

Limitations with the tourism multiplier

One of the major problems that can occur with the tourism multiplier, is when the money multiplies outside of the host destination. In other words, economic leakage occurs. When foreign employees are hired or when foreign organisations, such as multinational corporations, have a significant presence in the tourism industry it is likely that lots of the money raised from tourism will leak out of the country, known as economic leakage. This is a problem for many destinations around the world and is an example of a negative economic impact of tourism and this further highlights the importance of sustainable tourism management and adequate tourism development planning.

Further reading

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