Tourists contribute to sales, profits, Jobs, tax revenues, and income in an area. The most direct effects occur within the primary tourism sectors –lodging, restaurants, transportation and retail trade . Through secondary effects, tourism affects most sectors of the economy. An economic impact analysis of tourism activity normally focuses on changes in sales, income, and employment in a region resulting from tourism activity. Formally, regional economists distinguish direct, indirect, and induced economic effects.
Indirect and induced effects are sometimes collectively called secondary effects. The total economic impact of tourism is the sum of direct, indirect, and induced effects within a region. Any of these impacts may be measured as gross output or sales, income, employment, or value added. Direct effects are production changes associated with the immediate effects of changes in tourism expenditures. For example, an increase in the number of tourists staying overnight in hotels would directly yield increased sales in the hotel sector.
The additional hotel sales and associated changes in hotel payments for wages and salaries, taxes, and supplies and services are direct effects of the tourist spending. Indirect effects are the production changes resulting from various rounds of re-spending of the hotel industry’s receipts in other backward-linked industries (I. E. , industries supplying products and services to hotels). Induced effects are the changes in economic activity resulting from household spending of income earned directly or indirectly as a result of tourism spending.
For example, hotel and linen supply employees, supported directly or indirectly by tourism, spend their income in the local region for housing, food, transportation, and the usual array of household product and service needs. The sales, income, and Jobs that result from household spending of added wage, salary, or proprietor’s income are induced effects. By means of indirect and induced effects, changes in tourist spending can impact virtually every sector of the economy in one way or another.
The magnitude of secondary effects depends on the propensity of businesses and households in the region to purchase goods and services from local suppliers. Induced effects are particularly noticed when a large employer in a region closes a plant. Not only are supporting industries (indirect effects) hurt, but the entire local economy suffers due to the reduction in household income within the region. Retail stores close and leakages of money from the region increase as consumers go outside the region for more and more goods and services.
Similar effects in the opposite direction are observed when there is a significant increase in Jobs and household income Direct effects are the changes in economic activity during the first round of spending. For tourism this involves the impacts on the tourism industries (businesses selling directly to tourists) themselves. Secondary of tourism dollars. There are two types of secondary effects: Indirect effects are the changes in sales, income or employment within the region in backward-linked industries supplying goods and services to tourism businesses.
The increased sales in linen supply firms resulting from more motel sales is an indirect effect of visitor spending. Induced effects are the increased sales within the region from household spending of the income earned in tourism and supporting industries. Employees in tourism and supporting industries spend the income they earn from tourism on housing, utilities, groceries, and other consumer goods and services. This generates sales, income and employment throughout the region’s economy. (Stones, 1992)