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Tourism Dollars – Is It Really Free Money to the State?

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Sungsoo Kim and Chad R. Miller

It is the general perception of public administrators of state-sponsored tourism that tourism-based economic development contributes to creating jobs, wealth and improving the tax base without significant investments. The idea behind it, simply speaking, is that tourism, by selling intangible products (services), unlike traditional industries (automobiles and computers), plays a major role in bringing tourists who spend a large amount of money during a relatively short period of time.

Kim Miller augustFor example, tourists stay at a hotel to rest, recharge and prepare for the next day’s journey. They go to restaurants to experience different types of foods, or just satisfy their hunger, and explore and participate in various activities during their trips. Their money circulates within the state, and of course, some portion of this money goes to employees, suppliers and owners, who, in turn, re-spend it in the state, thereby boosting the state economy. In this regard, tourism-promoters must emphasize their potential use of both natural and man-made attractions to entice tourists and their associated expenditures into the state. The latter is “new money” that stimulates state economic activities through linkages of tourism with other sectors of the economy in the state. In fact, potential benefits of the tourism-based economic development go beyond tangible economic revenues, such as enhancing quality of life for residents.

However  to enjoy this premium given by tourism, it is necessary for the state tourism organizations, such as Chambers of Commerce, Convention and Visitor Bureaus, and Destination Marketing Organizations to spend substantial money to promote their tourism. Interestingly, Korel Goymen, as noted in a 2000 Annals of Tourism Research article titled “Tourism and Governance in Turkey,” examines the roles of the state in tourism by several stages. Here, stages refer to “the changing role of the state and evolving points of emphasis.” For instance, in the early days of a state tourism-based economic development, “state should play a pioneering role, such as huge investments are required to provide basic infrastructure and facilities to open up areas of the state to tourism and to attract growth.” In this time, private sectors, such as hotels, restaurants, tour operators and transportation providers should invest their money to build tourism environments and further host tourists in their state.

On the contrary, in the later stage, “the state acts more like a coordinator, or catalyst for the development of tourism.” At the same time, the state needs to fill the gaps left by the private sector, if they exist. In other words, the state should hire intelligent agents who know how to lead, plan and promote state-sponsored tourism, as well as efficiently run it in the early stage, whereas they must assist private sectors and support tourism in the later stage. In this regard, strictly speaking, investment by the state is necessary for the state to appreciate tourism money or to raise their revenues by tourism, which eventually reinforces the tax base of the state.

In a 2011 Journal of Tourism Research article titled “Are State Expenditures to Promote Tourism Effective?” John Deskins forecast a series of regression models (using a panel of state-level data for the years 1985 to 2003) to find “the effect of public tourism promotion spending (TPS) on state tourism growth, gross state product growth and state employment growth, when such spending is financed through own-source revenues.” Importantly, the effect of higher TPS on tourism is totally dependent on the existing level of tourism expenditures in the state. For example, the ads to promote tourism featuring the revived “I Love NY” slogan are estimated to cost New York $161 million between 2011 and 2015. Also, for promoting Gulf Coast tourism, $179 million was provided to Alabama, Florida, Louisiana and Mississippi between 2010 and 2013.

Of course, tourism or tourists’ dollars are very attractive to all states because its total contribution to the global gross domestic product was approximately $5,992 billion in 2011. Previous studies prove a causal relationship between tourism-based economic development and economic growth. In other words, state-sponsored tourism has strong links to economic growth in states. For example, Rabah Arezki, Reda Cherif and John Piotrowski, in a 2009 International Monetary Fund white paper titled “Tourism Specialization and Economic Development” indicates “an increase of one standard deviation in the share of tourism in exports leads to about 0.5 percent point in additional annual economic growth.”

However, before they enjoy the tourism dollars contributing to their economy, the state must be aware that tourism-based economic development requires basic necessary infrastructures, skilled manpower (e.g., agents at tourism organizations who know how to plan and lead along with private sectors), investments, including from private sectors, and residents’ support, as well as significant budgets for tourism promotion and development. More importantly, state-sponsored tourism should be enjoyed by the tourists and residents. Without residents’ participation, all efforts to have tourism or tourism-based economic development in states will go in vain. Lastly, tourism will create new actors in states, such as local organizations and administrators, unions, perhaps voluntary bodies or other tourism-related organizations.

Tourism is interrelated to other sectors of the economy in states and open to influences from the general political, social and economic systems. As with any management of public-private investment collaborations to facilitate sustainable growth in the economy, in this regard, state-sponsored tourism efforts need a consensus from all stakeholders before the state promotes tourism-based economic development. It is also important for public administrators to effectively budget and finance for administration of state-sponsored tourism for it to be successful.

State-led economic development efforts to attract tourism dollars require the expenditures of public dollars. It requires professional public administrators to work collaboratively with numerous stakeholders. Tourism is an integral part of a state’s overall economic development effort and needs to be funded accordingly.

 

Authors: Sungsoo Kim is an assistant professor in the Department of Economic Development & Tourism at the University of Southern Mississippi. Dr. Kim’s scholarly activity relates to his broad interest in the hospitality and tourism industry in the areas of strategic marketing, service marketing and economic impact study. Currently, he serves on the editorial board member of the Journal of Travel and Tourism Marketing and is a reviewer for several top-tier journals in the field. Kim can be reached at [email protected].

Chad R. Miller is graduate coordinator of the Masters of Science in Economic Development Program in the University of Southern Mississippi Economic Development & Tourism Department. He has Ph.D. from the Virginia Tech Center for Public Administration and Policy (CPAP). Miller can be reached at [email protected]

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