Economic Impact Analysis: A Look at Useful Methods.

In today's environment, where tourism continues to be an important sector of the economy and recreation and parks departments are under more pressure to develop self sustaining programs and activities, economic impact studies are becoming more widely used by agencies interested in maximizing the economic benefits of recreational visits and activities. Economic impact studies provide information on the amount and nature of spending generated by an agency/organization, facility, program, or event and are completed for a variety of purposes. Not only can the figures generated through the analyses help garner public support for proposed developments, but they can also help determine what specific actions or plans will provide the most benefits to a community or region. Additionally, economic impact studies have the potential to help target specific markets to increase economic activity within a region, determine the financial feasibility of offering different facilities or programs, and project future profits derived from recreational/ tourism development projects.

Another type of study commonly confused with economic impact studies is a willingness to pay project. While willingness to pay projects provide important insight on the value that visitors/users place on recreational resources, and can help managers gain public acceptance for conservation of these resources, they generally do not provide actual expenditure data associated with a resource or program like an economic impact study.

Economic impact studies usually focus on the expenditures that visitors or recreational users make that are related to attendance at a particular event, program or facility. The expenditures users make within the region encompassing the site are recycled throughout the area and may sometimes significantly add to the local economy. While some agencies consider only the expenditures that users make on-site, such as admission fees and money spent on vendors, these expenditures usually make up only a small portion of the total economic impact resulting from the recreational activity under scrutiny. To adequately assess economic impact, all expenditures related to a recreational activity or facility need to be included. These include travel expenses such as gasoline, airfare, cab fare, and food while en-route to and from the destination, accommodation and hospitality expenses for restaurants, taverns, hotels, motels, inns, or bed & breakfasts while at the destination, as well as expenses made for film, souvenirs, suntan lotion, etc.

Economic benefits associated with recreation can take several forms, including visitor expenditures, increased tax revenues, increases in nearby property values, purchases of trail-related equipment, corporate relocations, job creation, and reduced health costs (Moore, Gitelson, & Graefe, 1994). Moore and Barthlow (1997) recently summarized the findings from several economic impact studies and found that nearly all of the studies they examined indicated that recreational development and activity resulted in economic benefit to the regions in which they occur. However, the extent and type of economic impact can vary substantially among regions and the type of recreational activity.

Methods of Determining Economic Impact

At the most basic level, economic impact analysis techniques estimate average per-person spending, multiply this by the total number of visitors/ users to determine the direct spending associated with the area or activity under investigation, and then apply multipliers to estimate secondary or indirect economic effects. These terms will be discussed later in this article. Some studies include the use of computerized input-output models such as IMPLAN (Minnesota Implan Group, Stillwater, MN) to create detailed descriptions of how money entering a region travels through the economy and creates additional income and employment.

While a wide variety of techniques are available for estimating economic impacts, each with its own advantages and disadvantages, two primary methods are most common in recreational settings. They are (a) directly collecting expenditure data from visitors to a site, program, or event, or (b) estimating spending patterns based on previous studies done at similar sites. The decision of what method to employ should be based on several variables including agency resources, how quickly the data is needed, availability of secondary data, and study goals. Generally speaking, the more accurate and detailed the information needed, the more expensive and time-consuming the data gathering technique.

Collecting data on-site is the obvious choice when attempting to determine the economic impact of an existing facility, program, or event. In these cases, random samples of visitors are interviewed via on-site and/or mailback surveys that ask them to report the amount of money they spent related to their visit. These expenditures are then totaled to determine an average per-person expenditure figure. This figure is then multiplied by the total number of users to determine the total direct economic impact resulting from the site or event.

The total number is a useful figure, but does not show where or how money is spent within the region. Therefore, asking users to list their expenses within several expenditure categories is usually recommended. At a minimum, separate categories for transportation, admission fees, food and beverage, souvenirs, and overnight accommodations should be included. However, any number of categories can be utilized to determine very specific expenditure patterns that may be of interest to sponsors or other special interest groups. The main advantage to this method is that the information collected is specific to the site or event where it is collected, and thus should offer very accurate and relevant data on the resulting economic impact. Additionally, non-economic questions concerning satisfaction, knowledge of other events, and a variety of other variables can be collected at the same time for little or no additional expense.

Determining economic impact through the direct collection of data, however, can be a time consuming and expensive endeavor due to the need for collection and analysis of expenditure and behavior data derived from a sample of visitors. These data parameters can become increasingly difficult when there is very little time to collect data, and when little or no existing baseline data is available for the specific set of visitors in question. Furthermore, if the economic impact to be assessed is for a project or facility that is in the proposal stage, collection of data from visitors is not always possible. One possible solution to this problem is to estimate the economic impact using secondary data sources. This involves the extrapolation of spending averages from previous studies to a new site of interest, and does not require that empirical data be collected. However, it does involve an extensive review of existing data and literature, which may still require a significant commitment of time and effort.

Estimating economic impact from secondary sources requires a three-step process (see sidebar). The first step is to conduct a review of previous studies to identify economic impact analyses that have been completed at other areas. It is important that these areas are as similar as possible to the project under investigation to avoid making inappropriate comparisons. For example, a special event in a small community should not expect to produce a comparable economic impact as a special event in a large city. Similarly, a new softball complex is not likely to produce results similar to those for a recreational trail. The second step in the process is to determine the average expenditure from the studies that were examined in the first step. Although this seems relatively simple, some studies look only at direct expenditures made during visits, while others are more comprehensive and may include spending for durable goods related to recreational use (Moore, Gitelson, & Graefe, 1994). Even within studies of direct expenditures, the spending categories and units of measurement (e.g., per person per day versus per group per trip expenditures) often are not consistent. Thus, determining an average spending pattern from existing data can be complicated and must be done with care to insure that comparison of data is appropriate. Finally, the average spending data should be extrapolated to an estimate of the number of visitors/users that do or are projected to exist for the facility or event under investigation.

This process should yield a ballpark estimate of economic impact derived from several sources that are similar in scale and attributes. The advantage of this method is that data are used from several sources, which can minimize the effect of extreme situations and provide relatively safe and defensible figures. However, this method does not account for any site-specific attributes that may greatly influence the amount of economic activity that a particular resource, program, or event may generate.

Going Beyond Direct Expenditures

Both of the above methods of determining economic impact focus on generating direct expenditure data. However, the analysis can be carried further by putting the expenditure data into an economic impact modeling package. These computerized databases model the economic impact of expenditures on the economy of a defined region, and are based on the economic multiplier or rate of money leakage that is known to occur within the region (McIntosh & Goeldner, 1984). In addition to direct impacts, these models are able to estimate indirect and induced impacts for a region under study.

Direct impacts result from the initial spending by visitors to the region. The indirect impacts result from the businesses that make purchases from other businesses as a result of the initial spending. The induced impacts reflect the increases in household spending resulting from increases in compensation. For example, the total money spent to eat in restaurants is the direct impact. The local expenditures made by the restaurant as a result of the increased customers represent the indirect impact. Some examples would be the additional groceries needed by the restaurant or additional laundry expenses.

The additional compensation received by the employees of the restaurant also causes additional purchases in the local economy resulting in the induced impact. Some models are capable of calculating the number of jobs generated through the increased economic impacts, as well as the impacts on various production and industry sectors of the region. The most common of these models is IMPLAN which is available form the Minnesota IMPLAN Group in Stillwater MN. This company also provides a wealth of economic data for each state and county in the country and provides training for the use of its products.

Economic impact created by a variety of recreational activity can be estimated with, or without, collecting on-site data. The raw ingredients include estimates of spending behavior and projected use levels. Several areas of caution should be observed when choosing a method of determining economic impact. Researchers and managers should make sure that all parties involved in a study are aware of the limitations that a methodology imposes, and agree to its use. When resources and time permit, and the economic impact to be determined is for an existing event or facility, the on-site collection of data is likely to produce the most accurate and meaningful results.

However, as time and financial resources continue to become restricted, estimating economic impacts through analysis of secondary data may gain popularity as a viable alternative. The inherent limitations of the method, however, suggest that this methodology may be best suited for purposes of projecting future economic impacts from non-existing facilities, or justifying an approved action or a favored plan rather than for making decisions on controversial issues.

References

McIntosh, R., and Goeldner, C. (1984). Tourism: Principles, practices, philosophy (4th ed.). New York: John Wiley & Sons.

Moore, R.L., & Barthlow, K. (1998). The economic impacts and uses of long distance trails: A case study of the Overmountain Victory National Historic Trail. USDI National Park Service.

Moore, R. L., Gitelson, R. J., & Graefe, A. R. (1994). The economic impact of rail-trails. Journal of Park and Recreation Administration 12 (2), 63-72.

Hans Vogelsong is an assistant professor of recreation and leisure studies at East Carolina University. Alan R. Graefe is an associate professor of recreation and park management at Penn State University.

Research Update is edited by Cheryl A. Estes, Ph.D., assistant professor in recreation and leisure studies at East Carolina University in Greenville, North Carolina.