Economic Impact of Tourism in UK: essay

Research Background The tourism sector in the United Kingdom had been among the faster growing areas of the service economy until the events of 2001. This is evidenced in the fact that vast resources are channeled on marketing the United Kingdom overseas and on marketing individual regions as destinations for domestic tourism. However, it has been difficult assessing the degree and rate of growth of the sector holistically. One of the consequences of the limited economic information foundation on tourism is that firms and development authorities take decisions founded on a very restricted suite of information.

As such, attempting to evaluate the impact of tourism on the United Kingdom’s economy with regard to the 2012 Olympics is a difficult endeavor. Among the reasons are that, not much is known in the United Kingdom about how tourism actually generate value added ; the degree to which it supports foreign earnings; or how far growth in visitor spending supports investment or the creation of employment, directly or indirectly. The problem is partly definitional, with difficulty in comprehending the sector emerging as a result of a narrow conception of what tourism actually represents.

Tourism encompasses a diverse set of industries such as hotels, travel agencies, restaurants, and transport services. It is also important to understand tourism in terms of demand side. Any definition of tourism spending should encompass all consumption of goods and services by visitors to an area. A published national account is a general starting point for comprehending and accounting for the contribution of industries to the economy.

However, the complexity of tourism demand and its association to the supply of tourism products implies that it is hard to constitute the sector through conventional accounting framework especially with regard to the forthcoming 2012 Olympics. In this paper, the importance of tourism to the economy of UK will be assessed in line with the forthcoming 2012 Olympic Games. The assessment of the economic importance of the Olympic to a host city, its region and country has become an important aspect of the overall evaluation of the value of hosting the Olympic Games.

One fact that cannot be denied is that the event will be characterized by an influx in the number of tourists which will in turn impact on the economy. The wider economic impact of the event encompasses the impact that the visitors to the event have on the local economy through their expenditures in the host city, the developmental benefits of targeted infrastructural investments in deprived areas and the long term legacy benefits that the increased exposure to the international media brings through increased tourist arrivals and tourism receipts in the years after and before the event.

The integration of these impacts is very complex and cannot therefore be determined on a purely financial performance of the organizers of the events or the additional revenues that the Olympics bring to the country. It is what these factors have on the economy of the nation that is the subject of economic impact assessments. Aims and objectives The research has single basic objectives. This is to measure the impact of the 2012 Olympic summer games on the GDP of the United Kingdom.

Even though the research objective and associated measures were conceptually simple, the organization and administration of the required data collection were both complex and demanding, especially with regard to the limited resources available to support the project. Brief review of literature A recent review of research on the impact of major sporting event is provided by Kasimati. In this paper and other similar papers, no study of the Olympics has been found prior to the Los Angeles Games of 1984.

The Economic Research Associates analyzed the Economic Impact of Los Angeles Olympics. The study employed an input-output model founded on a standard input-output model used in the United States for local impact analysis. The study indicated that the impact of the games on Southern California to be 2. 3 Billion dollars, with 73,375 jobs being supported. Kim and colleagues assessed the economic impact of the Seoul Games and found an economic impact of about 1. 6 billion dollars, with an employment increase of 336,000 jobs.

Two studies have examined the economic impact of the Athens games. Balfousia-Savva et al. and Papanikos employed macroeconomic multipliers. The studies indicated that the impact of the games was 10. 2 billion dollars and 15. 9 million dollars respectively, in medium run scenarios between 2000-2010 and 1998-2011. The employment impact was calculated as 300,400 and 445,000 jobs respectively. Both the studies considered the economic impact of the event on Greece as a whole. Methodology

The methodology employed in this study is founded on a dynamic computable general equilibrium model of the United Kingdom and London economies. Before the employment of this model, spending impacts are estimated under a number of categories, and the level of uncertainty over these estimations is also estimated. Sources and acquisition of data The database employed predominantly relies on 2002 data. The United Kingdom Supply and Use Tables (2004) are the primary source of data. They supply all he production and use data required at a fairly detailed level.

For this study, annual Business Inquiry data has been used along with data on tax revenues to derive a database with more detail in the accommodation, transport, restaurant and entertainment sectors. The only source of data that contains data for an earlier year is the UK Tourism Satellite Account (2004), which contains data based on 2000 even though updated to 2004 using totals from the international passenger survey (2004), leisure day visits survey and UK tourism survey for domestic tourism. Method of data analysis

The following stages were undertaken when the economic impact assessment of tourism and the Olympic were being conducted. First, the impact of tourism and games on spending by organizations and individuals were calculated. Spending, especially by event organizing committee, encompasses infrastructural spending in pre-games period together with spending in the game period itself . Spending by individuals include the transport, accommodation, food and entertainment expenditures of spectators as well as athletes, officials and other media representatives.

Care was taken to differentiate spending by residents from spending by non-residents. Secondly, this expenditure was categorized by products, and thirdly, a model was employed to calculate how this spending translates into income and employment. Input-output model was used as the primary means of translating spending effects into income and employment effects. A number of economic Impact Analyses have been conducted of Olympic Games using this model. The input-output model enables the value added of each industry to be examined.

The impact on tourism’s gross value added, total gross value added, imports and employment of changes in final demand expenditures is derived using the input-output model. The final demand expenditure for tourism exports contains foreign tourist’s demands for various goods and services, and their direct spending on taxes and imports. On every product demanded by tourists, the gross value added, imports and employment impact is calculated by assuming that the industry and produces that product employs its inputs of value added and imports in a constant proportion to output.

The ratios derived in this way are then multiplied onto tourism exports of every product to derive the gross value added and import impact of foreign tourism spending on each product, and are summed to give the GVA and import impact of all tourism spending. The import impact figure encompasses tourists’ direct purchases of imports. The impact of tourism exports on the Gross domestic Product can then be derived by adding taxation on the tourists’ spending onto the total GVA impact. Results The total GDP change in the UK resulting from the Olympics is estimated at 1. 9 pounds.

This figure represents the difference in GDP between the without games and with games scenarios. The bulk of the GDP gain is realized in 2012 it with minimal gains spread over the years prior to and after the games. A large impact on GDP will be realized in London in the years leading to the game and after the game. The figures for London will be significantly larger than the UK figures due to the fact that spending in London by UK residents outside London visiting the games will increase. The largest impact in 2012 will result from the running of events and the spending of visitors to events.

The post-game period will be characterized by the legacy effect, with increased tourism demand from overseas. This is also the period in which consumers choose to save less and consume more since there will be less pressure on prices than before and during 2012. Before 2012, the Olympics raise returns to capital and increase prices which induce a small shift towards saving and investment. After 2012, a process of readjustment occurs as the economy returns to a more normal situation. The effects related to tourism have notable minimal consequences both on welfare and GDP.

When price and resource constraints are present in a model, tourism multipliers appear to be much lower than in input-output based models. This is one major difference between the input-output founded studies where the effect of visitor spending and the legacy effect would be a much larger fraction of the total spending generated and other models. Timescale The previous studies have identified a number of different types of impact. It is therefore important that the London 2012 study should incorporate the full impact.

These impacts can be categorized into pre-Game, during-Game and post-Games. There is however no actual consensus on the duration of impact as they are bound to overlap and be defined by the nature of impact. For instance, the cut off point should not be seen as the opening ceremony of the Game as the Paralympic Games would take place before this date. Many visitors would be in the host city before this date and will therefore be causing an economic impact that may be best categorized under “during game period”.

The pre-game impact encompasses the impacts of the construction phase of the project, other costs as well as increases in visitor arrival. The during game impact relates to revenues from staging the games, and the impact of visitors during the games. The post game impact includes the impact after the game which includes a higher profile of the city and increased visitor arrivals to the city due to this profile. Conclusion This study has assessed the economic impact of the London 2012 Olympic Games. A computable general equilibrium model has been used.

Findings have been analyzed with regard to the overall impact of the Games, impact on tourism and other individual sectors of the economy, and the overall impact of different types of spending effects. The main conclusions from this research are that the London 2012 Olympics would have an overall positive effect on the UK economy, with an increase in GDP over the period of 2009-2016 and an additional full time equivalent jobs being created for the United Kingdom. The impacts are concentrated in 2012 and in the period after the games.Other analysis indicates that the overall impact of the Olympics is unlikely to be negative.


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