Economic Impact Analysis: A Useful Tool in Estimating Tourism Impacts

What is Economic Impact Analysis?

Economic impact analysis takes a snapshot of an entire existing economy at a specific point in time. It traces the flows of spending (ripple effect) associated with tourism activity in a region to identify changes on employment, income and government tax revenue at a regional and provincial level.

It is based on the premise that initial or direct effects alone are poor measures of the total impact of tourism on the economy. It is often the case that indirect and induced effects are just as large, if no greater than direct effects.

Let's suppose a tourist travels to Alberta from the USA and spends $50 at a gas station traveling in the province. In an economic impact analysis, the focus is not on the amount of sales (in the case $50) as such, but rather on the impact of those sales on the provincial economy. If you consider:

  • The gasoline station owner must take part of the $50 spent by the tourist and buy more gasoline from a wholesale distributor as well as pay wages and salaries. This first round of effects is commonly referred to as the Direct Impact.
  • In the second round, the wholesale gasoline distributor buys additional items, pays salaries and wages, all with parts of the $50. This round of effects is commonly referred to as Indirect Impact.
  • The gasoline station employees and the employees of the wholesale distributor spend part of their salaries on groceries, rent, automobiles and so on. This is referred to as Induced Impact.

Like the ripples resulting from a stone hitting a pool of water, the initial amount of tourist spending circulates throughout the economy and creates a "multiplier" effect.

Demand Economic Impact Model (DEIM)

DEIM was developed for the Government of Alberta in 1993. It is a sophisticated input/output model that considers information from a demand side perspective (i.e. what is purchased or "demanded" by visitors).

The model accepts inputs organized by visitor origin and incremental expenditure categories commonly utilized in tourism surveys such as expenditures on accommodation, meals, transportation etc. The model is specific to Alberta and is divided in to eight economic regions to assess both regional and provincial tourism impacts attributed to tourism activity in a specific region. The model has been reviewed and accepted by Alberta Finance for use in estimating tourism impacts.

Input information required to assess expenditure information through DEIM?

In order to credibly assess the impact of an event or visitor spending in a particular region of the province, good expenditure information is required and is usually obtained in the form of a survey. Data collected would include visitor origin, main purpose for visit, duration of trip and various other questions relating to specific expenditures while traveling.

For instance, if we are assessing the impact of an event, only expenditures of non-resident visitors (incremental) attending the event would be captured and not the local residents.

The survey data would then be adequately aggregated and weighted and the summary expenditure information entered into DEIM to assess the tourism impacts.

What key variables are we measuring with DEIM?

  • Value Added Impact (GDP-net):

    Measures the total value of expenditures on the final goods and services sold in the economy. This is the measure used to report on the total economic impact of an event or the effects of visitor spending.

  • Sales (Gross Output):

    Equal to the value of the total turnover of goods and services needed at each stage of the productive process to fulfill a tourist expenditure. While indicative of total activity in the economy, total sales involves double counting and is not a good measure of economic impact.

  • Employment:

    The amount of labor time used in production, measured in full-time equivalent (FTE) person years.

  • Taxes:

    Linked directly with the level of government receiving it (federal, provincial and local).

  • Leakages:

    The direct income for an area is the amount of tourist expenditure that remains locally after taxes, profits and wages are paid outside the area and after imports are purchased, these subtracted amounts are called leakages.

  • Multiplier:

    The multiplier may be regarded as a coefficient, which expresses the amount of change generated in an economy by an additional unit of tourist spending. Multipliers are the end result of impact analysis, not the starting point. Multipliers are calculated within the model based on the pattern of initial expenditures and the interrelationship of industries represented by the Alberta Input/Output matrix.

Applications

DEIM has been used to understand the economic significance of several hallmark/regional events and visitor expenditures on the regional and provincial economies.

Sample projects include:

  • The Economic Impact of Banff, Jasper and Waterton National Parks
  • The Economic Impact of the 8th IAAF World Track and Field Championships
  • The Economic Impact of Provincial Heritage Facilities
  • The Economic Impact of Tourism in Alberta
  • The Economic Impact of Film in Alberta
  • The Economic Impact of Guided Outfitting
  • The Economic Impact of the 2005 World Expo Calgary Bid

Guides for Measuring Tourism Economic Impact

Through the cooperation of nine provincial and federal groups, including Alberta Tourism, Parks & Recreation, a series of guides have been developed to assist tourism stakeholders collect the required input data for economic impact assessments.

To access economic impact analysis and assessment studies, see:

Statistics & Publications - Tourism Research:

For further information about economic impact analysis for tourism, contact:

  • Bill Hodgins, Manager, Tourism Business Competitiveness and Investment
Last reviewed/revised: December 9, 2013