Tourism's Economic Impact - Tourism: Principles, Practices, Philosophies - page 313

typical situation, not all of the income generated in each round of expenditure is respent. Some
portion tends to be saved, and some portion tends to be spent outside the local economy. The greater
the proportion of income spent locally, the greater will be the multiplier.
The degree to which a local area is able to retain tourist income depends on how self-suf cient the
local economy is. If the local economy is able to produce the goods and services tourists buy, the
greater will be the multiplier effect. The more goods that have to be imported from outside the region,
the smaller the multiplier will be.
From the discussion, it is clear that when a tourist ' is spending injects funds into the economy of a
host area, an economic effect occurs that is a speci ed number of times what was originally spent.
Initially, this effect is thought of as an , as tourist expenditures become income

directly and indirectly to local people. However, there are additional economic phenomena. Increased
spending necessitates more jobs, which results in an

income multiplier

. Because money
changes hands a number of times during a year, there is a transactions multiplier. This is of particular
interest to governmental tax of cials where sales taxes are imposed. As business grows in a tourist
destination area, more infrastructure and superstructure are constructed. This results in a

employment multiplier

capital

multiplier . Examples are provided here of how an employment multiplier and an income multiplier

were determined.

Employment Multiplier

The employment multiplier varies from region to region depending on its economic base. In a study
titled Recreation as an Industry, by Robert R. Nathan Associates, county employment multipliers
calculated for the Appalachian region provide a good illustration of what typical multipliers are and
how they work. 9
The multipliers estimated in this study were based on county employment data. They represent the
approximate measure of the direct and indirect employment associated with each addition of direct
employment to the export sector of a county. Multipliers were estimated for 375 counties and three
independent cities. The smallest multiplier was 1.13, and the highest was 2.63. Thus, the county with
the smallest multiplier value would provide other employment opportunities for approximately
0.13 person for each person directly employed in servicing export demand, and the county with the
highest multiplier value would provide other employment opportunities for approximately 1.63 per-
sons for each person directly employed in servicing export demand. In general, county employment
multipliers vary directly with the population or total employment size of the counties: As county
population size grows, so does the multiplier value. This relationship is as might be expected, insofar as
import leakages would tend to be less where diversity of occupations is greater, and diversity is
positively associated with county population or total employment.

Income Multiplier

Jobs mean income, which stimulates the economy of the area in which the development occurs. How
much stimulation occurs depends on several factors. The management of a hotel, for example, takes
two actions with the revenue earned: It spends parts of the money on goods and services, and it saves
part of such funds. Economists refer to such actions as marginal propensity to consume (MPC) and
marginal propensity to save (MPS)—removing funds from the local economy. Such removal of these
marginal (extra) funds can be made in two ways: (1) they can be saved and not loaned to another
spender, or (2) they can be used to purchase imports. In either case, so doing removes the funds and
thus does not stimulate the local economy.
Economic research is needed in a tourist destination area to determine what these income
relationships are. If the results of such economic research were made available, many bene cial
results might be possible. For example, governmental bodies might be more inclined to appropriate