Economic Impact Analysis: A Look at Useful Methods

Parks & Recreation, March, 2001 by Hans Vogelsong, Alan R. Graefe

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.