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Demystifying the Demystifying the

Tourism Satellite AccountTourism Satellite Account

Presented to thePresented to theSustainable Tourism Destination Planning and Sustainable Tourism Destination Planning and

Development LaboratoryDevelopment LaboratoryBlackstone Valley, RIBlackstone Valley, RI

bybyDr. D. C. Frechtling, Professor of Tourism Studies, Dr. D. C. Frechtling, Professor of Tourism Studies,

School of Business,School of Business,The George Washington University,The George Washington University,

May 22, 2008May 22, 2008

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Topics for Today

Concepts of tourism’s economic impact Who cares? Alternative measurement methods The Tourism Satellite Account (TSA) -

where it came from, what it is, What it does, what it does not do

Can there be regional TSAs? What about the Rhode Island “2006 Tourism

Satellite Account”? Recommendations Q & A

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Who Am I? Native of Washington, DC Economist for U.S. Congress, U.S. Treasury

Dept. Founded the U.S. Travel Data Center and first

Tourism Economic Impact Model in 1970s President of a hotel marketing firm Full-time Faculty for the GWU Master of

Tourism Administration degree since 1991 Consultant to the World Tourism Organization

(UNWTO) 1988-2000, on standard tourism economic impact terms and methods

Member of UNWTO Committee on Economic Statistics and the TSA since 2002

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Visitors, Spending and Impacts• “Visitor is a traveler taking trips outside his/her usual

environment [for] less than one year for a main purpose other than being employed by a resident entity in the economy (or place) visited.” (IRTSrev5, ¶2.2)

• “Tourism expenditure refers to the amount paid for the acquisition of goods and services for and during their trips by visitors or by others for their benefit through a monetary transaction, for their own use or to give away.” (IRTSrev5, ¶4.2)

• “Economic impact studies aim to measure economic benefits, that is the net increase in the wealth of residents resulting from tourism, measured in monetary terms, over and above the levels that would prevail in its absence.” (TSA-RMF2008, Annex 6)

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Visitor Spending is Not Enough!

Internal Tourism Consumption – the most inclusive measure of the acquisitions by visitors in an economy, equal to tourism expenditure plus imputed consumption of vacation home accommodations, temporary exchange of dwellings for vacation purposes, net costs of hosts receiving visitors in their homes, subsidized transportation and lodging provided by employers, and government financing of certain non-market services for visitors such as education and recreation services. (TSA:RMF 2008 ¶¶2.25-26)

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Who Cares About the Economic Consequences of Tourism?

• Public Officials Benefits to residents of investing in tourism promotion Benefits to residents of investing in visitor facilities Importance of salutary visitor policies Value of partnerships with business Annual economic contributions of tourism development

• Business owners and managers Value of government funding of tourism promotion and development Value of partnerships with government and each other Extent of the network of tourism industries

• Employees of tourism establishments Role in contributing to economic health of community

• Residents of host communities Value of receiving visitors Raise support for government funding and salutary policies

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All Boils Down to . . . What are the [economic] benefits of

tourism?

Who receives these benefits (by industry)?

How much do they receive?

How are these changing? – seasonally

over business cycles

in response to marketing mixes

in response to events and shocks

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Alternative Estimation Methods

1. Tourism Direct Economic Impact Models (TEIM) – Travel Industry Association, Dean Runyan Associates

2. Tourism Satellite Accounts (TSA) – UNWTO standards applied annually by about a dozen countries

3. Simulated Tourism Satellite Accounts – World Travel and Tourism Council, Global Insights

4. Input-Output Models (I-O) – U.S. Department of Commerce, some individual states

5. Computable General Equilibrium Models (CGE) – Australia, New Zealand, UK

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TSA Genesis and Pedigree

TSA authorized by 1993 System of National Accounts

World Tourism Organization (UNWTO) led development with OECD, Eurostat, UN Statistical Commission and several national statistical offices

TSA: Recommended Statistical Framework and supporting document, International Recommendations on Tourism Statistics, accepted by the United Nations in 2008

• These documents are the internationally accepted authority on the TSA

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What the Tourism Satellite Account Is

Tourism = “specific types of trips: those that take a traveler outside his/her usual environment for less than a year and for a main purpose other than to be employed by a resident entity in the place visited.” (TSA: RMF 2008, ¶2.2)

Satellite = dependent on and subordinate to a larger entity, here the 1993 System of National Accounts

Account = a set of tables “which records, for a given aspect of economic life, the uses and resources or the changes in assets and the changes in liabilities and/or stock of assets and liabilities existing at a certain time” (SNA 1993 ¶2.85)

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TSA’s Primary Distinguishing Feature

It is a national AccountAccount• Demand• Supply• Employment

The others are Models, “simplified versions of something complex” (Encarta Dictionary)

• TEIM

• Simulated TSAs

• CGE

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TSA Produces 4 Macroeconomic Aggregates

1. Internal Tourism Expenditure (ITE) - by residents and international visitors

2. Internal Tourism Consumption - ITE plus value of vacation homes to owners, residents hosting visitors, government subsidies of recreation services, etc.

3. Tourism Direct Gross Value Added - a measure of income generated

4. Tourism Gross Domestic Product - comparable to overall GDP

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Focus on 10 Tourism Characteristic Products/Industries Sold to Visitors

Standard for all countries 1. Accommodation for visitors (including paid

and imputed rent) 2. Food and beverage serving industry 3. Railway passenger transport 4. Road passenger transport 5. Water passenger transport 6. Air passenger transport 7. Transport equipment rental 8. Travel agencies & other reservation services 9. Cultural industry

10. Sports and recreation industry

Others can be added by a country

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TSA Structure is Tightly Defined

1. Seven interconnected accounts (tables)

2. One additional account for visitor spending abroad

3. Two additional accounts not yet fully elaborated: Tourism Gross Fixed Capital Formation and Tourism Collective Consumption (government support of tourism)

4. Table 10 Nonmonetary Indicators of Tourism - visitors, nights, establishments

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Essential TSA StructureTourism Supply

Table 1. Inbound tourism expenditure by products and classes of visitors

Table 4. Internal tourism consumption by products

Table 6. Total domestic supply and internal consumption (at purchasers' prices)

Table 5. Production accounts of tourism industries and other industries (at basic prices)

Table 2. Domestic tourism expenditure by products, classes of vistors and types of trips

Other components of tourism consumption: (a) Services of vacation accommodation on own account; (b) Tourism social transfers in kind; (c) Other imputed consumption

Table 7. Employ-ment in the tourism industries

Outputs

Internal Tourism Expenditure; Internal Tourism Consumption

Tourism Direct Gross Value Added (TDGVA); Tourism Direct Gross Domestic Product (TDGDP)

Gross Value Added of the Tourism Industries (GVATI)

Tourism Direct Employ-ment)

Tourism Demand

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What the TSA Can Tell Us Tourism’s contribution to the national

economy• Gross Domestic Product

• Employment

Value added by the tourism industries compared to other industries• Additional value created by production

• A measure of incomes: labor, profits, interest, dividends, rent

• Can break out individual tourism industries

Annual change in size and contribution Tourism’s economic contribution compared

to other countries

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What the TSA Cannot Tell Us Return on Investment in plant and

equipment

Variations in business receipts or profits

Government revenue generated by tourism

Monthly or seasonal changes

Variations over the business cycle

Impact of special events and shocks

Multiplier effects through indirect and induced spending

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Regional TSAs UNWTO recognizes concept and

its value But here is no conceptual

framework comparable to 1993 System of National Accounts

Two competing approaches possible Inter-regional (top-down)– derived

from the national TSA, outputs consistent with national totals

Strictly regional (bottom-up) – development from ground up with or without reference to the national TSA structure and definitions

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Regional TSAs Other conceptual difficulties

Not all variables can be represented at the regional level, e.g., international imports and exports

Not all variables can be regionalized, e.g., inter-regional transport, national government activities

Heavy data requirements, few resources

But progress at hand: INTERNATIONAL CONFERENCEMEASURING TOURISM ECONOMIC CONTRIBUTION AT SUBNATIONAL LEVELS, Malaga, Spain, 29-31 October 2008

http://www.iafet.com/inicio.asp?idioma=ing

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Strictly Speaking, 2006 Tourism Satellite Account for Rhode Island is not a TSA

UNWTO does not sanction regional TSAs yet

TSA-RI does not follow UNWTO principles for a TSA – Accounting exercise, not modeling

Elaborate seven interconnected tables

Focus on tourism characteristic products and activities

Present four main aggregates (now conflates tourism value added and Gross State Product)

Limit to direct contributions only (excluding multiplier)

Limit to “tourism” effects

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But the Global Insights Report Provides Useful Information on Visitor Impact

Visits Expenditures Employment Wages Taxes Broken down by sub-state regions

Visitors Expenditures

Indirect effects

These help answer the questions that a TSA cannot

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Recommendations Term the Global Insights study for Rhode

Island a “simulated tourism satellite account” for the state with the focus on – Four TSA macroeconomic variables Adopting same set of industries as U.S. Travel and

Tourism Satellite Account (USTTSA) Adopting other USTTSA definitions and conventions

Provide the additional data on Rhode Island as outside the TSA structure Visits, wages, taxes, indirect effects generated by

visitors Sub-state regions

Eliminate the “under 50 mile” generated activity: this is not tourism!

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Expected Results

Valid comparisons with national TSA Valid comparisons with other states that

pursue UNWTO approach RI tourism industries’ contribution versus

other industries’ Consistent measurement over time Supplemental data useful to tourism

business managers Improve understanding of Tourism’s impact

in the state for Government officials Business owners Managers Residents

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Questions?

Doug Frechtling

Department of Tourism & Hospitality Mgmt.

George Washington University

Office telephone = 202-994-4456

Email = frechtli@gwu.edu

Website = http://home.gwu.edu/~frechtli

Department website = www.gwutourism.org