Demystifying the Tourism Satellite Account

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Demystifying the Tourism Satellite Account

• Presented to the
• Sustainable Tourism Destination Planning and
  Development Laboratory
• Blackstone Valley, RI
• by
• Dr. D. C. Frechtling, Professor of Tourism
  Studies,
• School of Business,
• The George Washington University,
• May 22, 2008

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Topics for Today

• Concepts of tourisms 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. (TSARMF 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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TSAs Primary Distinguishing Feature

• It is a national Account
• 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 Structure
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What the TSA Can Tell Us

• Tourisms 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
• Tourisms 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
  CONFERENCE?MEASURING TOURISM ECONOMIC
  CONTRIBUTION AT SUBNATIONAL LEVELS, Malaga,
  Spain, 29-31 October 2008
• http//www.iafet.com/inicio.asp?idiomaing

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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 Tourisms 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 [phone]
• Email frechtli_at_gwu.edu
• Website http//home.gwu.edu/frechtli
• Department website www.gwutourism.org