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

1. 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

2. The ‘PICTURE’ • ‘Performance and strategy’ of Cultural Tourism assessed at severallevels: • 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

3. Direct benefits 'Tourism Industries' Hotels, Restaurants, Theaters, Stores, etc. DIRECT Expenditures by Tourists and Travelers

4. Direct effects on sales Direct benefit 548 € Tourism in Syracuse, impact on Sicilian economy

5. Indirect benefits Imports Payments for Supplies and services SUPPLIERS to '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) Payments for Supplies and Services Imports Imports Imports

6. Indirect effects on sales Direct benefit Indirect benefit 244€+86€+29€+9.7€+3.3€+2.2€+0.4€… 548 € 374 € Tourism in Syracuse, impact on Sicilian economy

7. Impact on Households Wages, Profits, Interest, Rent etc. HOUSEHOLDS (local community) added spending power Wages, Profits, Interest, Rent etc. Wages, Profits, Interest, Rent etc.

8. Induced benefits Wages, Profits, Interest, Rent etc. HOUSEHOLDS (local community) added spending power Wages, Profits, Interest, Rent etc. Imports Purchases of Goods and Services Wages, Profits, Interest, Rent etc. ADDITIONAL INDUCED (Households added spending power). •Agriculture • Manufacturing • etc…

9. induced effects on sales Direct + indirect benefit Induced benefit 375 € 550 € + 225 € Tourism in Syracuse, impact on Sicilian economy

10. induced effects on sales Direct benefit Total benefit Indirect+Induced effect, Output multiplier: ~ 2.1 550 € 1150 € Tourism in Syracuse, impact on Sicilian economy

11. 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

12. Employment Multiplier Tourism is one of the most “labour intensive” economic sector Tourism

13. 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,… by applying a model of the region‘s economy confusion and misunderstandingsometimes associated with theinterpretation 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

14. induced effects on output Indirect+Induced effect, Output multiplier: 2.1 Indirect+Induced effect, Output multiplier: 1.3 Impact on Sicily Impact on Syracuse

15. 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.

16. Assumptions of Input-Output analysis • the model is staticand 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 productionfixed: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] Most of these limitations become increasingly binding the greater the simulated change in the impact analysis.

17. Profiling tourists Cultural tourism vs. ‘sun&beach’ tourism Profiling tourists: Cultural Tourists and other VisitorsFindings from PICTURE case studies Barbara Del Corpo et al., in Session 2

18. The case studies: Syracuse Direct impacts Direct impact of one cultural tourist Direct impact of one sun&beach tourist 485 € 585 €

19. The case studies: Syracuse Direct impacts Very similar output multiplier (Indirect+Induced effect):  2.1 Total impact of one cultural tourist Total impact of one sun&beach tourist 1015 € 1225 €

20. The case studies: Siracusa Syracuse: length of stay Average length of stay: Cultural 2.7 days Sun&Beach 8.7 days

21. The case studies: Syracuse Direct impacts Very similar output multiplier (Indirect+Induced effect)  2.1 Daily total impact of one cultural tourist Daily total impact of one sun&beach tourist direct+indirect+induced direct+indirect+induced 375 € 140 €

22. Tourism dynamics one step beyond multipliers…

23. Traditional economic approach • Economic impact from Input/output analysis mainly reflects the extent of inter-linkages and leakages of the local economy of concern anyincreasein tourism will look good • the results should be treated with caution: • limitations of Input/ Output method, data used and assumptions made  multiplierscan 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

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

25. Syracuse – principal components Computer & Co Hotels & Restaurants Health & Social Work Real Estate & Renting Construction 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] Electricity, Gas & Water Supply Wholesale & Retail Trade Mining (non energy)

26. Statistical Analysis • are income and priceshigher in (cultural) tourism-specialised cities? • Level regression[structural differences in a very long-term perspective - perfect labour mobility] • are income and pricesgrowing fasterin tourism-specialised cities? • Growth regressions[structural differences in a shorter-term perspective – scarce labour mobility]

27. 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

28. Econometric Analysis: the Database Number of beds in hotel / capita World Heritage Cities • 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

29. Europeanmap: GDP/capita WHC (World Heritage Cities) GDP/capita [ € ] Year 2001 Difference [%] 1991 ÷ 2001

30. Europeanmaps:hotel prices Michelin Guide - € / night in hotel (average value – excluding outliers) Year 2001 Difference [%] 1991 ÷ 2001

31. Europeanmaps:hotel beds / km2 “Density” of hotel beds [ bed / km2 ] Year 2001 Difference [%] 1991 ÷ 2001

32. Europeanmaps:hotel beds / capita “Density” of hotel beds [ bed / capita ] Year 2001 Difference [%] 1991 ÷ 2001

33. 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 higherproductivity[businesses not only consider objective factors as connectivity or profitability to locate themselves, but also qualitative softfactors 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.

34. Final remarks • There is nogeneral 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 inlocal 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]

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

36. Final remarks • Economic impact assessement is crucially different from cost/benefit analysis • Cultural tourism is too often seen as a freemarginal 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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38. Cultural vs. ‘Sun&Beach’ Tourism/1 • Cultural tourism is oftenassumed[rather than proofed…] to have higherlocal benefits and lower local coststhan beach resort tourism: • 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

39. Cultural vs. ‘Sun&Beach’ Tourism/2 • more spreadalso 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]

40. Cultural vs. Sun&Beach: however… • There is always an ‘however’ that could disturb such hopeful expectations: • cultural tourist notonlythe ‘stereotypical’(advanced) middle aged / higher income / staying in hotel couple ’ but also day visitors, cruising, ‘young backpacker’, … • the length of staycan be muchshorterthan 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 touristis 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

41. Cultural vs. Sun&Beach: however… • 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 couldbe more selective in their expenses, they couldbe more satisfied by ‘freelandscape/heritage fruition’ than by ‘purchasinggoods’

42. The case studies: Siracusa Syracuse: age distribution

43. The case studies: Siracusa Syracuse: salary