Economic Impact of Tourism

Economic Impact of TourismEconomic Impact of Tourism

Tourism is widely regarded by industry insiders as one of (if not) the best ways to lift Iran’s economy out of the mire and put it on a path to recovery and, subsequently, prosperity.

Its economic benefits are touted by the industry for a variety of reasons.

“Claims of tourism’s economic significance give the industry greater respect among the business community, public officials and the public in general,” writes Daniel J. Stynes, a recreation and tourism expert and professor emeritus at Michigan State University, USA, in an article available on the university website.

This often translates into decisions or public policies that are favorable to tourism.

Community support is important for tourism, as it is an activity that affects the entire community. Tourism businesses depend extensively on each other as well as on other businesses, governments and residents of the local community.

  Primary and Secondary Effects

The economic impact of tourism is divided into three groups: Direct, indirect and induced effects. Direct effects are also called primary effects while indirect and induced effects are collectively called secondary effects.

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, taxes, 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 associated industries (i.e., those supplying products and services to hotels).

Changes in sales, jobs and income in the linen supply industry, for example, represent indirect effects of changes in hotel sales. Businesses supplying products and services to the linen supply industry represent another round of indirect effects, eventually linking hotels to varying degrees to many other economic sectors in the region.

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 a proprietor’s income are induced effects.

To put this all into perspective, consider the following example: A couple spends $1,000 for a five-day stay at a midscale hotel in Isfahan. The hotel owner uses a part of that money to pay salaries and purchase goods, such as linen, for the establishment (direct impact).

The wholesale distributors that provide the hotel with goods and services use the money paid to them by the hotel to pay salaries and wages, and purchase additional items (indirect impact).

Finally, the hotel staff and employees of the wholesale distributors spend a portion of their salaries on groceries, rent and so on (induced impact).

“By means of indirect and induced effects, changes in tourist spending can impact virtually every sector of the economy in one way or another,” writes Stynes.

Aside from the economic impact of tourism, developing this key sector and attracting more foreign tourists will eventually help develop other sectors, such as hospitality, health, banking, trade, construction, transportation and even security, as each and every one of them has to expand, develop and increase its workforce to keep up with the influx of foreign tourists who are most likely used to world class services.