Performance and strategy of Cultural Tourism: an economic point of view

Ugo Gasparino, Elena Bellini, Barbara Del Corpo, William Malizia, Dino Pinelli Luxembourg 21 | 09 | 2006

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The ‘PICTURE’

‘Performance and strategy’ of Cultural Tourism assessed at several levels:

– Economic– Social and cultural– Environmental– Crowding and congestion– Community attitude– Taxes– …

balance an array of impacts that may positively or negatively affect the local community and the other Stakeholders - possibly redistribute the benefits

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Direct benefits

'Tourism Industries'Hotels, Restaurants, Theaters, Stores, etc.

'Tourism Industries'Hotels, Restaurants, Theaters, Stores, etc.

DIRECT Expenditures by

Tourists and Travelers

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Direct effects on sales

Tourism in Syracuse, impact on Sicilian

economy

Direct benefit

548 €

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Indirect benefits

Payments for Supplies and

services

Imports

Imp

orts

Payments for Supplies and

Services

Imports Imports

SUPPLIERSto 'Tourism Industries'

• Agriculture

• Manufacturing

• Wholesale & Retail Trade

• Transportation, Communication & Utilities

• Finance, Insurance & Real Estate

• Business & Personal Services

• etc…

SUPPLIERSto 'Tourism Industries'

• Agriculture

• Manufacturing

• Wholesale & Retail Trade

• Transportation, Communication & Utilities

• Finance, Insurance & Real Estate

• Business & Personal Services

• etc… ADDITIONAL

INDIRECT

(Suppliers to Suppliers – firms buy additional goods and

services from one another for their own production)

ADDITIONAL

INDIRECT

(Suppliers to Suppliers – firms buy additional goods and

services from one another for their own production)

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Indirect effects on sales

Tourism in Syracuse, impact on Sicilian

economy

Direct benefit Indirect benefit

548 € 374 €

244€+86€+29€+9.7€+3.3€+2.2€+0.4€…

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Impact on Households

Wages, Profits, Interest, Rent etc.

Wages, Profits, Interest, Rent etc.

Wages, Profits, Interest, Rent

etc.

HOUSEHOLDS(local community)added spending

power

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Induced benefits

Wages, Profits, Interest, Rent etc.

Wages, Profits, Interest, Rent etc.

Wages, Profits, Interest, Rent

etc.

Purchases of Goods and Services

Imports

HOUSEHOLDS(local community)added spending

power

ADDITIONAL INDUCED (Households added spending power).

• Agriculture• Manufacturing• etc…

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induced effects on sales

Tourism in Syracuse, impact on Sicilian

economy

550 € 375 €+ 225 €

Direct + indirect benefit Induced benefit

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induced effects on sales

Tourism in Syracuse, impact on Sicilian

economy

1150 €

Indirect+Induced effect, Output

multiplier: ~ 2.1

550 €

Direct benefit Total benefit

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Economic Multipliers flexibility

Regional economic multipliers used to estimate the

secondary [indirect + induced] effects of visitor spending.

• They help to translate the direct spending estimate of the final impact on:

– sales, income, employment, tax revenues,…

by applying a model of the region‘s economy

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Employment Multiplier

Tourism

Tourism is one of the most “labour intensive” economic sector

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Economic Multipliers cautions

Regional economic multipliers used to estimate the

secondary [indirect + induced] effects of visitor spending.

• They help to translate the direct spending estimate of the final impact on:

– sales, income, employment, tax revenues,…

confusion and misunderstanding sometimes associated with the

interpretation and analysis of multipliers:

– use of different alternative definitions, such as normal vs. ratio

multipliers

– caution must be exercised when comparing multiplier values from

different studies as multiplier values may differ across destinations or time

by applying a model of the region‘s economy

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induced effects on output

Impact on SyracuseImpact on Sicily

Indirect+Induced effect, Output multiplier: 2.1

Indirect+Induced effect, Output multiplier: 1.3

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Multipliers Impact analysis

• An impact analysis is not a benefit-cost analysis.

• An impact analysis is not a measure of net welfare change.

• An impact analysis does not provide insight into longer term structural change in response to external stimuli.

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Assumptions of Input-Output analysis

Most of these limitations become increasingly binding the greater the simulated change in the impact analysis.

– the model is static and assumes that there are (unlimited) 'idle resources' [including labour, land, natural resources and capital] to flow freely to the tourism sector: any increase in final demand simply met instantly

– prices of goods, services and factors of production fixed: do not respond to increasing demand – perfect elastic supply)

– the model is linear; for additional output - all inputs are proportionally increased [however, hotels could have occupancy rates less than 100%…]

– the outputs of each sector are homogeneous [a sector cannot increase the output of one specific product unless it proportionally increases the output of all its other products]

– technologies of production are fixed [all firms in each sector employ the same technology, and there are neither economies nor diseconomies of scale and no substitution among inputs. Furthermore, the employment/output ratio is also fixed]

– requires substantial data and effort to apply it properly [the smaller the region the more need for the local knowledge]

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Cultural tourism vs. ‘sun&beach’ tourism

Profiling tourists

Profiling tourists: Cultural Tourists and other VisitorsFindings from PICTURE case studies

Barbara Del Corpo et al., in Session 2

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The case studies: SyracuseDirect impacts

Direct impact of one cultural tourist

485 € 585 €

Direct impact of one sun&beach tourist

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The case studies: SyracuseDirect impacts

Total impact of one

cultural tourist

1015 € 1225 €

Total impact of one

sun&beach tourist

Very similar output multiplier (Indirect+Induced effect): 2.1

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The case studies: SiracusaSyracuse: length of stay

Cultural 2.7 daysSun&Beach 8.7 days

Average length of stay:

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The case studies: SyracuseDirect impacts

Daily total impact of one

cultural tourist

375 € 140 €

Daily total impact of one sun&beach

tourist

Very similar output multiplier (Indirect+Induced effect) 2.1

direct+indirect+induced direct+indirect+induced

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one step beyond multipliers…

Tourism dynamics

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Traditional economic approach

• Economic impact from Input/output analysis mainly reflects the extent of inter-linkages and leakages of the local economy of concern

- limitations of Input/ Output method, data used and assumptions made multipliers can be over-optimistic (or even deceiving*)

- nothing is said about negative economical, environmental and socio-cultural costs elsewhere in the economy

* a sensitivity analysis can be useful to adjust uncertainty of results

any increase in tourism will look good

• the results should be treated with caution:

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More advanced approach

economies general equilibrium systems with sectoral interactions

– resources are limited tourism competes with other activities for resources [tourism tends to pull resources out of other productive uses]

– prices are not fixed prices (goods, services, land, housing) respond to increasing demand (may lead producers to change inputs, altering the production structure)

Input-Output models are 'dominated' by CGE (Computational General Equilibrium) models: a CGE model can be set up to reproduce exactly the results of an Input/Output model.

– The increased costs caused by the competition for scarce resources reduce the competitiveness of other sectors [they tend to be displaced – i.e., trade diversion]. Tourism expansion might have a negative impact on traditional activities

– more modest economic contribution [than predicted by Input/Output]

– uneven redistriburion of benefits (land used in non-tradeable sectors).

– higher costs of living for local residents [inflated prices of goods, services and land – their income does not increase proportionately

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Syracuse – principal componentsComputer & Co

Real Estate & Renting

Hotels & RestaurantsHealth & Social Work

Construction

Electricity, Gas & Water Supply

Wholesale & Retail TradeMining (non energy)

PCA - Principal Component Analysis

[share of employment]

1st component reflects 'Specialization patterns'

2nd component reflects 'Displacement effects'

[explaining, respectively, 44% and 25% of the variance of the original data]

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Statistical Analysis

are income and prices higher in (cultural) tourism-specialised cities? – Level regression [structural differences in a very long-term

perspective - perfect labour mobility]

are income and prices growing faster in tourism-specialised cities? – Growth regressions [structural differences in a shorter-

term perspective – scarce labour mobility]

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Econometric Analysis: the Database

Twelve countries

• Austria, Belgium, Denmark, France, Germany, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden and the United Kingdom

• Snapshots at two different time windows• 1991 vs. 2001

Fine geographical detail

• generally NUTS 3 (sometimes NUTS 2) Three main sources

• Eurostat REGIO• Cambridge Econometrics, Cambridge, UK• Michelin Guide

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Economic variables• local prices (hotels and restaurants)• employment (by broad sector)• unemployment and active population• application for patents and application per patents in high-tech sectors

Demographic variables• population by age, civil status, gender, level of education, nationality

Tourism specialisation variables• number of (and beds in) hotels• number of (and beds in) campsites• passengers in local airports• flag for presence of World Heritage Cities

Other control variables• flag for rural (density < 150 Km2 )/non-rural• flag for coastal/non-coastal• flag for time (1991 vs. 2001)• regions and countries treated as fixed effects

Number of beds in hotel / capita

World Heritage Cities

Econometric Analysis: the Database

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European map: GDP/capita

GDP/capita [ € ] 

Difference [%]1991 ÷ 2001

Year 2001

WHC (World Heritage Cities)

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European maps: hotel prices

Michelin Guide - € / night in hotel (average value – excluding outliers) 

Difference [%]1991 ÷ 2001

Year 2001

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European maps: hotel beds / km2

Difference [%]1991 ÷ 2001

Year 2001

“Density” of hotel beds [ bed / km2 ] 

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European maps: hotel beds / capita

Difference [%]1991 ÷ 2001

Year 2001

“Density” of hotel beds [ bed / capita ] 

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Econometric Exercise: Main Results

World Heritage Cities tend to present higher levels of local prices higher ‘quality of life’ [in terms of Roback];

Tourism specialisation has a positive impact on the level of both income and prices higher productivity [businesses not only consider objective factors as connectivity or profitability to locate themselves,

but also qualitative soft factors such as attractivity and standard of living];

This effect is stronger in World Heritage Cities cultural tourism has a stronger impact on local economies than other types of tourism;

In the short term, tourism specialisation shows a positive effect on the growth of prices, but not on income growth.

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Final remarks

There is no general and "one fits all" recipe to “optimize” the economic impact of cultural tourism

Public policies can focus on: the characteristics of tourists, local 'tourist industries‘, inter-linkages in local economy, residents’ behaviour,…

Need of coordination, strong and co-operative partnership with all private and public stakeholders [integrate tourism policy into broader government policies, e.g., Local Agenda 21]

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Final remarks

Market forces might allocate the benefits to a relative small share of Stakeholders [mainly owners of immobile factors in the

tourism industries] policies to ‘extract’ those rents and redistribute them ‘appropriately’ the perceptions of the impact of tourism must be continually assessed [pro-actively identify trouble areas]

in the short run higher growth can be achieved by increasing exploitation of natural and cultural amenities, but, in the long run, tourism regions flourish only if prices of tourism-related goods grow faster than, e.g., those of innovation-intensive goods shift from quantity to quality-based tourism policies

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Final remarks

Economic impact assessement is crucially different from cost/benefit analysis

Cultural tourism is too often seen as a free marginal use of already existing resources [whose demands can be accommodated

without extra cost or the displacement of other users] Heritage costs money

Tourism produces external costs whose burden can be born by the local community needs of economic instruments such as fair and nondiscriminatory ‘environmental taxes’

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Corso Magenta 6320123 Milano - Italy

Via Po 53 bis10124 Torino - ItalyWeb http://www.feem.it

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– higher daily expenditure [cultural tourists are, on average, older and of higher education and socio-economic standing than 'sun&beach' counterparts, preference for hotel accommodation [not so dependent upon the cost conscious organised package product]

– shift in products [from low cost, homogeneous mass products to a wider range of ‘higher cost’ products]

– more interested in the consumption of ‘heritage features’ such as, food, wine, speciality shopping, cultural performances and evening entertainment

– more dependent on small medium-sized enterprises [SMEs encourage entrepreneurs] and less on "all-inclusive" big tour vacation packages

– a more differentiated product is likely to spread both benefits and costs more evenly, among economic sectors and socially

Cultural vs. ‘Sun&Beach’ Tourism/1

Cultural tourism is often assumed [rather than proofed…] to have higher local benefits and lower local costs than beach resort tourism:

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– more spread also spatially and temporally reduced high-risk seasonal jobs reduced impacts ['sun&beach' tourism seasonal/ weather dependency causes higher temporal and spatial concentrations - often in areas with physical environmental shortages or vulnerabilities]

– Impact mainly on ‘well developed’ urban economy limites price hikes [that negatively affect local residents whose income does not increase proportionately] and the related rise in real estate [less second homes]

– earnings can support urban renewal to the benefit of tourists and residents alike [e.g., transport infrastructure and public utilities: sidewalks, lighting, litter control, public restrooms, water, sewer, …] and preserve/ restore/enhance heritage/cultural offer and Community’s identity

– community involvement could enhance local awareness, esteem and pride [sense of ‘identity' and 'well-being' of local communities]

Cultural vs. ‘Sun&Beach’ Tourism/2

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– cultural tourist not only the ‘stereotypical’ (advanced) middle aged / higher income / staying in hotel couple ’ but also day visitors, cruising, ‘young backpacker’, …

– the length of stay can be much shorter than sun&beach tourists:

greater fragmentation of holidays which multiplies short visits cultural tourism products very rapidly consumed [smaller cities ‘day

visitors’]: sites and attractions need to be combined within larger packages.

– sun&beach tourist is spatially concentrated but relatively static, [e.g., within a single resort or even a single hotel]. Cultural tourist is mobile, requires transport and spatial networks [not only move into and out of destination regions, they also move around when on holiday].

– mobility and higher incomes couòd give greater access to sensitive ‘attractions’ may have higher negative impact on the environment

Cultural vs. Sun&Beach: however…

There is always an ‘however’ that could disturb such hopeful expectations:

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– although not so strongly seasonal dependent, in some destinations ‘cultural annual events’ can concentrate tourist fluxes.

– sun&beach resorts may develop substantial numbers of return visits, even to a specific resort or hotel ['loyal clientele']. Cultural tourists tend to have pre-marked sites that must be visited if the place is to be 'authentically experienced'. Instead of ‘collecting’ a repeat is better to expand the ‘collection’ somewhere else.

– cultural tourists could be more selective in their expenses, they could be more satisfied by ‘free landscape/heritage fruition’ than by ‘purchasing goods’

Cultural vs. Sun&Beach: however…

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The case studies: SiracusaSyracuse: age distribution

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The case studies: SiracusaSyracuse: salary