Economic impacts of cultural heritage – Research and perspectives

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<ul><li><p>al</p><p>ita</p><p>, K</p><p>5, N</p><p>acc</p><p>ftend ints. Doveeginco</p><p>Research, NIKU. The project is financed by the Research</p><p>economic effects of cultural heritage in Rros, which is</p><p>summary of empirical findings are also presented.</p><p>2. Introduction</p><p>There is an increasing political focus on cultural heritage,</p><p>utilised for economic purposes through eco-tourism and thelike.</p><p>Economists approach the value of culture from (at least)two different angles: First, economists try to estimate the value</p><p>* Corresponding author. Tel.: 47 45 40 50 00; fax: 47 22 42 00 40.E-mail addresses: einar.bowitz@poyry.com (E. Bowitz), karin.ibenholt@</p><p>poyry.com (K. Ibenholt).</p><p>Available online at</p><p>www.sciencedirect.com</p><p>Journal of Cultural Hericentre consists of well-preserved timber houses. Rros reliedfor centuries on copper mining, but other industry and tertiarysectors are now the basis for the community. Other objectivesof the project include revealing how management of culturalheritage can affect economic value, and exploring the inherentconflicts between value creation and conservation of culturalheritage. The study aims to increase the knowledge about thepossibilities and limitations in the management strategyconservation through use to support a common</p><p>both because of higher public interest in heritage per se andbecause many see heritage as a means to stimulate economicactivity in regions with economic problems. Tourists areincreasingly demanding cultural experiences of various sorts.Cultural heritage, both isolated monuments and historicalquarters or city centres also serve to attract tourists to variousdestinations. Moreover, local initiatives such as festivals,concerts and amusement parks are mushrooming and can helpattract tourists to the community. Also natural heritage is beingincluded on the UNESCO World Heritage List. The townThe overall objective of the research project is to estimate</p><p>Council of Norway [1]. 2008 Elsevier Masson SAS. All rights reserved.</p><p>Keywords: Economic impact; Inputeoutput; Tourism; Local economy; Culture</p><p>1. Research aims</p><p>This article is the first delivery in a large research projectCultural heritages and value creation. Estimating economiceffects of cultural heritage in the city of Rros conducted byEcon Poyry and the Norwegian Institute for Cultural Heritage</p><p>understanding among local actors of the action space for useand management of cultural heritage.</p><p>The objective of the present paper is to present results fromone of the working packages, with the aim to establisha theoretical framework for the project and to elaboratea theoretical model to be used to estimate economic values. AOrigin</p><p>Economic impacts of cultural her</p><p>Einar Bowitz*</p><p>Econ Poyry, P.O. Box</p><p>Received 9 January 2007;</p><p>Abstract</p><p>Investment in cultural heritage (and other forms of culture) are ocultural consumption, but also in the form of increased employment aneconomic impact studies of investments in cultural heritage projecespecially how these can be calculated. We also give a short overviewactivities, and the pros and cons of these studies. In a study of the Norwin the region contribute some 7 per cent to overall employment and i1296-2074/$ - see front matter 2008 Elsevier Masson SAS. All rights reserved.doi:10.1016/j.culher.2008.09.002article</p><p>ge e Research and perspectives</p><p>arin Ibenholt</p><p>-0051 Oslo, Norway</p><p>epted 15 September 2008</p><p>claimed to be beneficial for a local economy, not only in terms ofcome. This article addresses some methodological questions regardingifferent types of direct and indirect impacts are being discussed,</p><p>r some studies of economic impact of different cultural and/or tourisman town of Rros, we find that tourism related to the cultural heritagesme.</p><p>tage 10 (2009) 1e8</p></li><li><p>3. Economic impacts of cultural heritage projects</p><p>All investment projects have some form of economic impact</p><p>of Cof various aspects of culture, e.g. an opera, an art museum ora well-preserved middle-age city centre. These are goods thatare not traded in an ordinary market, i.e. there exists no marketprice for them. And should a market price exist it wouldprobably not be equal to the true societal value, sincecultural goods also can be characterised as public goods and/oras having external effects. Similar to economists estimates ofthe value of unspoilt nature, economists use surveys or othermethods to estimate the populations willingness to pay forcultural events, monuments or buildings.</p><p>Another approach for economists is asking the question:What is the positive effect for the local economy (jobs, reve-nues) from investing in culture, such as festivals, upgradingold houses or building a new museum? The problem here isnot to estimate the true value of culture, but to estimatepotential spillovers in the local economy from investing inculture. It is the latter effects of culture (more particularlycultural heritage) that is the topic of this survey.</p><p>Policy-makers increasingly seem to demand estimates ofthe effects on the local or regional economy of investing inculture. If local economic effects of investing in culture arehigh, cultural investments could support, or even substitute for,more traditional projects or policies for promoting regionaldevelopment. Large economic effects of culture might also bean additional argument in favour of using resources on cultureprojects, in addition to the utility of pure cultural value.</p><p>Many studies suggest economic effects of culture on theregional economy, both in terms of generated revenues andemployment effects, which for an economist seem to begrossly exaggerated. E.g. a recent Norwegian white paper oncultural heritage policy [2] claims that for each krone publicinvestment in maintenance and rehabilitation of culturallyvaluable buildings, society receives 10 kroner in return, andEach workplace directly attached to the cultural heritagesector creates on average 26.7 associated jobs. The effectsare undoubtedly high, in addition to the fact it seems unclearwhat the expressions in the text really mean.</p><p>Both in Norway and internationally one can identify studiesthat seem to be rather quick appraisals that often produce(unrealistic) large effects. On the background both on theestimates in some studies and on how the results have beenused in public discourse, the studies and their use have beenfiercely criticised, see for instance Refs. [3e6]. This hasthreatened to cast the entire field of analysing the economiceffects of using the public purse to stimulate culture (includingcultural heritage) into disrepute. But there is also a group ofmore rigorous studies with more realistic estimates of regionaleconomic effects.</p><p>Our view is that because some previous analyses may havehad low quality and have been subject to misuse in the publicdebate, there is still a need for sober analysis of the topic. Theeffects of investing in culture are diverse and vary by site,project and over time. In our opinion there is a need for a clearview of the total economic impacts of investing in culture,spanning from ticket sales and the like, to the more long term</p><p>2 E. Bowitz, K. Ibenholt / Journaleffects that may arise from culture such as migration decisionsor the societys ability to innovate.on society. The magnitude of these impacts will vary dependingon several factors, like for instance the type of project and whereit is being launched. In this chapter we will discuss the differentchannels through which the investment affects society, the useand misuse of economic impact studies of culture-relatedinvestment projects, and which channels or factors we believeare important when investigating a place like Rros.</p><p>There are several channels through which an investment canaffect the local economy. Different researchers focus ondifferent channels, and the boundaries between different chan-nels are not always clearcut. Analyses of local economic effectsof projects have been done especially for assessing the effects ofusing state funds for supporting industry in declining regions.The economic base model has been the basis for such studies.This model distinguishes between base industries, that generaterevenues from outside the region through regional export ofgoods, and other industries that mainly sell their products insidethe region, and hence do not generate new revenues. Theeconomic effects of investing in base industries are twofold.First, employment in the base industries is generated andsecond, increased employment and revenues are generated fromlarger domestic deliveries to the base industry. Such analyseshave been made for investment in different industrial projects orsectors, for the effects of tourism and for calculating theeffects of the cultural sector in a local economy.</p><p>Within the framework of economic impact analysis one cansay that a prerequisite for an investment having a net positiveeffect for a local economy is that it stimulates base industries.These industries mainly sell their products outside the localeconomy or sell products to the community that otherwisewould have been imported. This will raise exports or reduceimports to the region, thus stimulating the local economy.Supporting an industry that only addresses the local marketwill only result in a redistribution of income, but not bring inany new income to the economy.</p><p>The effects are diverse, they can be measured in differentways, and be assessed with different degree of difficulty. Inaddition, when analysing effects of cultural heritage or otherprojects, it is important, but difficult, to define effect of what.One most also assess which base industries that are beingaffected by the cultural heritage, and here tourism is of particularinterest. To be useful for decisionmakers, the effect of shouldbe associated with a decision or an investment project.</p><p>We propose below a classification of effects that may ormay not be important in investment projects. The fact thatearlier analyses have included these effects to a differentdegree, is an important source for the variety in results.</p><p>The effects of investment in culture can be classified asdirect and indirect effects.</p><p>3.1. Direct effectsultural Heritage 10 (2009) 1e8The direct effect of the project is economic impacts fromthe project itself. For instance, increased capacity or quality in</p></li><li><p>a museum financed by the state, will usually be associatedwith more jobs in the museum. The effects may be measured</p><p>municipal demand, and thus should not be counted as a direct</p><p>One should keep in mind that the support given to the</p><p>deliveries of goods and services from the local community tothe project.</p><p>3E. Bowitz, K. Ibenholt / Journal of Cultural Heritage 10 (2009) 1e8project could have been given to any other project, and thatsome of these projects could have generated larger effects forthe community. It is also important that the income fromincreased entrance fees and the like only should include feesfrom visitors from outside the region. Increased demand fromthe region will usually take place at the expense of other localspending. In some cases the project will reduce the propensityof local residents to travel outside the region for culturalexperiences, and if that is the case, increased demand fromlocal residents should also be accounted as an effect of theproject. For instance, one might imagine that support fora local theatre would make it less attractive to travel to a largercity for seeing theatre performances. Increased local spendingshould only be included if one can justify that this spendingotherwise would have been made outside the community.</p><p>The direct effects may be measured in sales, value added orin employment (number of persons or in full-time equiva-lents). Sales numbers tend to be inflated and often hard tointerpret. Usually they are large in relation to the localeconomy, and thus are often (mis)used in public debate. Valueadded or revenues are more tangible variables, as well are thenumber of employed persons or man-years. Especially insectors where intermediate inputs are large (such as retailtrade), effects measured in sales are often of little meaning forthe magnitude of effects.</p><p>3.2. Indirect effects</p><p>Various types of indirect effects of projects have beenassessed and analysed in regional economic analyses ofculture and other projects. These may be classified and definedin various ways; we use the classification in Ref. [3].</p><p>3.2.1. Inputeoutput effectsThe project needs intermediate inputs, such as energy,</p><p>transport, food, maintenance etc. These deliveries must partlybe imported from outside the region, but can to some extent bemet from the local economy. Inputeoutput effects are</p><p>1 State support can be justified as an expression of the willingness to pay foreffect.as higher employment in the museum. Another approachwould be to measure the effect of the support given from thecentral authorities and from higher entrance fees from externalvisitors. This second approach illustrates that the limitation ofthe economy that we assess the effects on, is important. Statesupport can be counted as a positive impact on the localeconomy, but for a larger region or the whole country this is ofcourse not so since the subsidy is only a redistribution ofresources.1 In the case of local public subsidies, an increasedsubsidy to the museum will take place at the expense of otherconservation of cultural heritage, and hence not necessarily be regarded as an</p><p>redistribution of income or spending.This demand increases production elsewhere in the localeconomy. It is important that only local deliveries are included.Increased production in other industrieswill in turn spur demandfor inputs to these industries, and hence we have a long, butdiminishing line of demand increases. By using an inputeoutput model one can estimate the total effects, but this impliesthat one has information about the deliveries of input factors inrelation to production for all the affected industries.</p><p>When calculating inputeoutput effects one alsomust considerthe utilization of the existing capacity, if there already is fullutilization then there will be no inputeoutput effects, at least notin a short time perspective, since the demand increase only willdisplace other production. But if there are idle resources in thelocal economy the inputeoutput effect will exist.</p><p>3.2.2. Multiplier effectsHigher local revenues result in increased demand. Parts of</p><p>this local demand are directed at local goods and services, andin turn give rise to higher revenues in firms that supply thesehigher local deliveries. This effect is also called the Keynesianeffect.</p><p>3.2.3. Acceleration effectsIn the investment phase, parts of the deliveries are from</p><p>local suppliers. These increased deliveries in turn give rise toinputeoutput and income multiplier effects. The accelerationeffects will be short-term, since they are present only in theinvestment phase.</p><p>3.2.4. Ancillary spendingVisitors to a cultural heritage site (or tourists arriving of</p><p>other reasons) will spend resources in the region on food, retailgoods, accommodation and the like,...</p></li></ul>

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