3C: Determining the Local Economic Impact of Tourism

Introduction

Local economic impact studies:

• reinforce the commercial importance of tourism
• are a key part of measuring sustainable tourism
• are becoming increasingly significant to help destinations understand their performance better, plan more effectively and contribute to the improvement of national data sets.

The national picture

Tourism’s impact on the national economy is collated from data collected by the Office for National Statistics, national tourist boards and other government departments and agencies.

The United Kingdom Travel Survey (UKTS) and International Passenger Survey (IPS) are dedicated tourism surveys, undertaken on a continual basis with large sample sizes. They show the overnight volume and spending of UK residents and overseas visitors to England’s regions.

The UK Day Visits Survey measures the impact of day visits and estimates the volume and value of leisure day visits taken from home and by tourists away from home. Surveys are carried out at irregular intervals. The latest one was in 2005.

VisitBritain’s website has information on national tourism data, market intelligence and trends.

Estimates of trips, nights and spend from the UKTS and IPS are published down to county level on an annual basis, along with the associated confidence intervals.

In 2005 there was a return to face to face rather than telephone interviews. It is widely acknowledged that the new UKTS methodology (implemented in 2000) represents a more dedicated and sophisticated tourism survey, and a number of improvements have been brought about – namely the faster dissemination of results.

Most economic impact models use these two surveys to varying degrees, depending on the amount of local information available. Both the IPS and UKTS surveys are operated to very high standards and regional breakdowns provide invaluable, robust data for local area tourism economic impact studies.

Why measure economic impact at local level?

Knowing the volume and the economic value for tourism is an essential prerequisite for developing effective policies for managing tourism within local areas. Tourism economic impact studies also play an invaluable role in supporting tourism services. Through income and employment estimates they provide the justification and rationale for local authorities to invest in initiatives to support tourism industry.

They also help galvanise and sustain the necessary political support for tourism at a local level in the face of increased budget cuts for non-statutory functions.

Key uses for data from local economic impact studies include:

• justifying the receipt of government resources such as standard spending assessment (SSA)
• helping with the preparation of strategies and policies
• justifying funding from outside organisations
• enabling the organisation to measure comparative performance and assist with decision making
• monitoring in planning and other departments
• encouraging inward investment
• supporting improving local infrastructure
• releasing funding from national and European agencies
• justifying/unlocking appropriate funds from within the organisation
• supporting expansion plans from the area’s tourism operators
• monitoring the results of project commitments
• carrying out comparative performance monitoring and benchmarking assessments.

Tourism policies and activities of the destination need to be soundly based, both on an awareness of the existing levels and type of visitor activity in the locality, and on the economic impacts that result from them.

What do economic impact models measure?

Economic impact models provide:

• estimates of the volume and value of tourism activity, including day visitors, within an area
• estimates of income generated and employment supported by visitor expenditure.

To produce these estimates, impact models identify three main effects.

• Direct effect – from visitor spending in first-line businesses.
• Indirect effect – from first-line businesses buying from their suppliers and so on down the supply chain.
• Induced effect – from the wages earned in businesses in direct and indirect receipt of visitor spending.

Models generally include visitor and business surveys to establish the direct effect. Indirect and induced effects are estimated by using formulas that apply multipliers to the known direct spending data.

Direct effect

The direct spending categories that are used to provide the data for the three main national tourism expenditure surveys are shown in Table 1 below. These same categories provide the basis for measuring tourism spending in the local area.

Indirect effect

Front-line businesses such as hotels and restaurants buy supplies and services to run their businesses, so suppliers experience the indirect effect of visitor spending.

There are several layers of indirect effect from tourism spending. Businesses make the initial purchasing decisions that determine what visitors will buy. If a front-line accommodation business decides to buy local products wherever possible, the visitor will by default also buy mainly local goods.

Therefore it is well worth encouraging the tourism industry to buy locally-produced goods and services to maximise spending retention and economic impact in an area.

Induced effect

The wages and profits earned by employees and business owners of tourism-oriented enterprises and by the suppliers to those front-line businesses, produce an induced economic impact. A proportion of these wages is spent in the local economy.

How do these different economic impacts affect each other?

Visitor expenditure flows

Visitor expenditure affects businesses, employees, the self-employed, local authorities and government because spending in one local business gets passed on to other local businesses and also ends up, in part, as taxes. However, inevitably, some of this expenditure will "leak" out of the area due to spending in non-local shops and/or on non-local products.

Although there is leakage outside the area at every stage of the spending model, the key to local economic success, and a foundation for sustainable tourism, is retaining as much expenditure in the area as possible.

Purchasing local supplies and services at every level of the supply chain is crucial to sustainable tourism, hence the growing emphasis on local produce retail outlets, local supply groups and improving workforce skills and training to facilitate local employment.

Job creation

The number of jobs supported by visitor expenditure can be estimated in the following way.

1. Using data on the volume and value of visitor and business spending.
2. Applying model multipliers.
3. Validating the results against published labour statistics.

Economic impact models can only produce indicative estimates for the volume, value and economic benefits of tourism to a local area and not absolute values. This must be borne in mind when using the data. However if the data is collected in the same way over time it can be used to provide an insight into trends.

Considerations and key steps before choosing a model

Some fundamental questions should be considered before undertaking an economic impact study.

• Why is the information wanted?
• What existing information could contribute to a study?
• How will the study be carried out?
• What needs consideration before the final decision?

Why is the information wanted?

Information is needed to counter the argument that tourism is not an important local economic sector. Information can be used to justify the tourism function, and highlight the importance of tourism within the local economy. However, there are also other important considerations to balance against this wish for data.

• How budget is available for the study?
• What data already exist?
• What data can be realistically collected (in terms of staff time and participation from businesses)?

The last point is particularly important. There is no point signing up to a model that is dependent on locally generated data if there is no time to recruit businesses, collect the data and ensure that businesses respond on a regular basis. Similarly there is no point in continuing if there is little likelihood that the businesses will complete and return the necessary data forms. For example if previous attempt to collect hotel occupancy data in a simplified format achieved limited participation, in spite of considerable effort, is the situation likely to change?

Ultimately then, the best approach is determined by three factors:

• data needs
• cost
• ability to secure good, regular local participation from businesses.

What existing information could contribute to a study?

Information is usually defined as being of the "supply" or "demand" type to differentiate between the product available and its market effect. Most models rely on supply information about accommodation in the area, and demand information on overnight and day visits.

The information needed by model engineers is usually available from existing data or previous studies. The model may use some proxy information from similar surveys and there may be a need for completely new surveys.

The following list shows some of the information that models may need so that they can build a picture of tourist activity and its impacts in the selected area of study. An indication of possible sources for some of the data is provided.

Supply information

• Resident population – local authorities and www.statistics.gov.uk for the latest neighbourhood census data.
• Employment statistics – government offices, regional development agencies, local authorities, business survey.
• Number and type of tourism businesses including retail, catering and attractions – local authorities, commercial directories, audit survey.
• Bed stock by tourism sector – local authorities, destination management organisations, RDAs, tourist boards.
• Number of tourist information centres (TIC) and other information and booking agencies – local authorities, tourist boards, DMOs.
• Transport services available – local authorities, commercial operators.

Demand information

• Regional and local volume and spending data on overnight and day visits for domestic and overseas visitors – RDAs, tourist boards, DMOs, local authorities, visitor surveys, industry surveys.
• Occupancy levels – RDAs, tourist boards, local authorities, industry surveys.
• TIC visits – local authorities, tourist boards, DMOs, tourist associations, TIC.
• Recent visitor surveys – local authorities, RDAs, tourist boards, DMOs.
• Visitor attractions and events attendance – local authorities, RDAs, tourist boards, DMOs, commercial operators, events organisers, police authority.
• Traffic counts and car park occupancy – local authorities, Highways Agency.

It is also important to bear the following in mind.

1. Key information (such as data on the supply of accommodation stock) must be as accurate as possible – under- or over-estimates in accommodation capacity will be reflected in (and adversely affect) subsequent volume calculations.
2. Occupancy data must be representative for all accommodation sectors – particularly in areas where the tourism product is very diverse. It should include data for rural/urban B&Bs, hotels (including chain hotels), inns and pubs, camping and caravan sites, and hostels and self-catering businesses. There are therefore substantial differences in terms of quality, location and types of accommodation establishments. To obtain reliable data that is representative of the occupancies of all these different types of establishments requires a large, consistent sample of establishments supplying data on a regular basis, eg every month.
3. Avoid bias by ensuring that the sample is not skewed by responses from better-performing establishments. This could lead to overestimation of staying visitor numbers if extrapolated to the wider accommodation base.
4. Ensure consistent reporting within the sample to make sure detected trends are not more indicative of erratic reporting from establishments than changes actually happening on the ground.

How can a study be carried out?

There are two main options for carrying out studies:

• use a branded model
• commission a specific ad hoc study from an appropriate university or research organisation.

A branded model will probably cost less than a primary research model and will still provide exclusive results and offer comparability with other studies. Conversely, an ad hoc model can be created to answer a wider range of explicit economic questions in the study area, and may also be used to forecast changes.

If the information required is to measure tourism trends, branded models will deliver this. However, local circumstances may warrant the likely additional costs of an ad hoc study.

What needs consideration before the final decision?

Before seeking tenders for an economic model, create a "user requirement" identifying six key criteria.

• Reliability – how accurate should the information be?
• Timing – how soon should the information be available following actual events?
• Participation – how to involve those who will provide as well as use the information?
• Cost – what is affordable, including the cost of internal staff and other resources needed to support this work?
• Comparability – is part of the requirement to make comparisons with other local areas, or with the regional or national total?
• Frequency – is the information required continually, eg every year or every month? It may be as important to assess change over time as it is to estimate the level of tourism during a given period.

Current approaches to modelling

An overview of some of the models available or under development is given below.

If selecting a tailored ad hoc approach, it is recommended to first define exactly what is required from a model, and then contact colleagues in the organisation who may have required similar information on measuring economic impact from other industries. This may provide pointers as to which commercial or academic organisations should be invited to tender.

Advice from professional membership organisations and similar bodies that may have undertaken tourism studies can also help the decision-making process.

To help those that have decided to use an existing off-the-shelf model, this section provides a brief synopsis of two models that measure economic impact and one model that forecasts economic impact.

Cambridge Model

The Cambridge Model (an abbreviation of Cambridge Local Area Model) provides an estimate of the volume and the economic effects of tourism activity in a selected area. It can operate at different levels according to budgets/quantity of local tourism data available.

I can be applied to a region, county, district and discrete areas including branded destinations and environmentally designated areas such as Areas of Outstanding Natural Beauty (AONB) and National Parks.

The method used is a spreadsheet model with menu-driven approach. In its basic form, it comprises two stages detailed below.

1. Estimating the volume and value of tourism activity including day visits within a local area

Regional data is gathered from the UK Tourism Survey, the International Passenger Survey and the United Kingdom Day Visits Survey. To achieve local estimates, drivers such as known local accommodation stock, estimates of local residential population, visitor attraction performance data and other survey information are used.

2. Estimating employment supported by visitor spending

The model estimates employment using the data collected, the government's New Earnings Survey, internal business data and estimates of spending by different visitor groups. Using multipliers and adjustments, an estimate of indirect and induced jobs completes the picture.

Advanced survey stages can be added, where additional local data collection can be commissioned for information on local levels of occupancy and visitor spend to add to the volume and value stage of the model.

Results

Outputs include estimates of:

• value and volume of staying trips by domestic and overseas staying visitors, with breakdowns for purpose of visit and type of accommodation used
• the number of nights spent by overseas and domestic visitors
• value and volume of day trips
• direct visitor expenditure by different sector, eg accommodation, eating/drinking, shopping, attractions, transport/travel
• impact of associated multiplier and linkage spend
• indication of the level of direct and indirect employment and induced jobs resulting from the wages of people in direct and indirect tourism employment.

STEAM Model

The Scarborough Tourism Economic Activity Monitor (STEAM) provides an indicative base of the local economic impact of tourism (from both staying and day visitors) for monitoring trends.

It can be applied to any area that is capable of providing the minimum four inputs shown below.

The method used is a spreadsheet model that uses values, relationships and equations from local input data. As a minimum, implementation of STEAM within an area depends on the following inputs:

• information on occupancy percentages each month for each type of accommodation
• bed stock of each type of accommodation
• attendance at attractions/major events by month
• Tourist Information Centre (TIC) visitors by month.

The model is built up from this basic information and by drawing on data from published or unpublished sources, local interviews and supplementary trade enquiries.

Results

The STEAM report provides commentary, annual and month-by-month numeric outputs for the years of study and comparison with previous study information, including:

• distribution of visitor spending
• revenue generated by the main categories of visitor
• annual number of visitor days spent in the area by category of visitors
• total count of all visitors annually
• full-time employment generated by visitor spending.

The report includes:

• economic impact
• population
• employment
• tourist days/tourist numbers
• vehicle days/vehicle numbers
• bed stock
• relationship of direct and indirect impacts
• data available to determine employment generated.

For further information, contact STEAM’s owner, David J. James at Global Tourism Solutions (UK) Ltd. 2 Barleycroft, Filey Road, Scarborough, North Yorks YO11 3AR. Tel: 01723 506310, gtsuk@link-connect.co.uk .

PRIME Model

PRoject IMpact Evaluation provides forecast indication of the expected volume and value of tourism activity generated by a project in its local and regional setting, and measures actual performance once the project is open.

It is designed to be applied to single projects and their impact in the local district or unitary authority area.

The method used within PRIME has two components: a computer model that indicates expected outputs from the project, and a guidance pack for developers seeking to set up or extend their project.

The computer model requires the input of forecast data about the project, including:

• anticipated cost
• turnover
• employment
• visitor numbers.

Results

The model provides an estimate of the likely gross and net impacts from the project in terms of expenditure and jobs.

The use of the model to pre-appraise the impacts of proposed projects should be regarded as a useful tool to aid consideration rather than generating a definitive calculation.

For further information talk to your RDA, DMO or regional tourist board.

Using the results

Firstly, the results should fulfil the answer to the question, "Why do we want this information?" The results need to be interpreted and used. Examples of uses can be as follows.

• Promote the results to council members and officers to demonstrate the importance of tourism locally and the importance of tourism research.
• Create a press release to highlight tourism’s importance to the local community.
• Circulate the information to the local tourism industry to encourage continued/future participation in business surveys and demonstrate that the data they supply is fully utilised and valued.
• Make the data readily available to agencies, other departments and local businesses to enable wider usage, eg in planning applications.
• Use the data to provide a basis for trend analysis, performance monitoring and decision making.

Most models will not only provide data, but a commentary and interpretation of the findings. This should assist the client in identifying strengths and weaknesses of its tourism offer and highlight areas where action can be taken to reinforce a sustainable economy.

The information obtained for a local audience of local authority and tourism business interests will also contribute to the regional and national sustainable tourism indicators that recognise the value of such information.

The results of the study will contribute to a knowledge bank for access by the many departments in local authorities that are involved with or affected by tourism.

Publicising the results

The results of such research can be used effectively to maintain a high profile for tourism, publicise good news stories about tourism’s economic impact both within the organisation and in the local area.

Organising an event to present study findings to local politicians, council officers in other departments, local tourism businesses and relevant local, sub-regional and regional organisations can be a useful exercise, as it allows questions to be raised and wider support for tourism generated.

Retention of spending in the area

Economic and tourism development managers have the opportunity to create higher local impact by reducing leakage of visitor spending to other areas.

This can start within the tourism department where, in some cases, photography, design and print of the annual destination guide are not sourced within the area. Local businesses can be encouraged to source their services from local suppliers as part of programmes to manage destinations sustainably (see 2A: Sustainable Destination Management).

Key determinants of success or failure

The success of an economic model relies on the input of reliable information and good model design. The following factors may need to be considered in discussion with model owners before starting the study.

Defining the area

Since most visitors are unaware when they cross local authority boundaries, it may be difficult to measure economic impact. For example, visitors to the Cotswolds may be able to recall spending money there, but may not be able to recall in which of the three Cotswold counties they spent it.

Do not assume that visitors’ knowledge of local geography will allow for reliable information on where they spent their money. This is an even greater problem when using postal surveys carried out after a visit.

Underestimation of spend

Visitors can typically underestimate some types of expenditure, particularly travel where they do not take into account fuel costs, etc.

Reliability of surveys

To obtain missing or to provide up-to-date information, there may be a need to commission or undertake new surveys. The company offering the model may carry out this work as part of its contract.

Information on surveying visitors can be found in 3B: Surveying Visitor Satisfaction. Try to integrate your visitor survey work with your economic impact studies so that it can fully benefit from this local dataset.

Further reading

• 1. Department for Culture, Media and Sport. Guidance on Measuring Sustainable Tourism at the Local Level, 2002 .
• 2. Middleton V. Measuring the Local Impact of Tourism, British Resorts Association, 1998.