Tourism Poverty

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Development Policy Review , 2013, 31 (2): 177-202

The Authors 2013. Development Policy Review 2013 Overseas Development Institute.Development Policy Review 31 (2)

Assessing the Role of Tourism in PovertyAlleviation: A Research Agenda

Paul Winters, Leonardo Corral and Adela Moreda Mora

Understanding the tourism-poverty link is critical if tourism is to be used as amechanism for reducing poverty. Yet, the available empirical analysis isinsufficient for this. This article proposes a research agenda for closing this

gap in the literature. It argues that, while analysing the link poses peculiarchallenges, models exist to do so. Second, it contends that the key question isnot whether the link exists but under what conditions it is strongest. Finally, it

maintains that the best way to analyse the link is to incorporate accuratediagnosis and evaluations into tourism projects, using the approaches andconcepts of the literature on impact evaluation.

eywords Tourism, development, poverty, impact evaluation

1 Introduction

Tourism is expanding rapidly around the world and is increasingly seen as a potential driverof economic development and a means of alleviating poverty in developing countries. Thisview has been particularly promoted by the World Tourism Organisation which states thatthe power of tourism one of the most dynamic economic activities of our time can bemore effectively harnessed to address the problems of poverty more directly (WTO, 2002:17). While there is a broad consensus regarding tourisms potential to alleviate poverty, theproblem noted in the literature is the lack of empirical evidence of the extent of this link(Mitchell and Ashley, 2010; Goodwin, 2007; Jamieson et al., 2004). Even though thepotential mechanisms through which tourism can alleviate poverty are well established, themagnitude of these links is not. For example, Mitchell and Ashley identify three primarypathways through which tourism makes an impact on poverty: (i) direct effects, (ii)secondary effects, and (iii) dynamic effects. Yet, they note that insufficient analysis hasbeen conducted in these areas, arguing that tourism researchers could try harder toestablish tourism-poverty links (2010: 135). On similar lines, Jamieson et al. state that thereis a need for more sophisticated modelling to better understand tourism-poverty linkages(2004: 33).

*Respectively, Associate Professor, Department of Economics, American University, 4400 MassachusettsAvenue, NW, Washington, DC 20016, USA ([email protected]); Lead Economist, Office of StrategicPlanning and Development Effectiveness; and Lead Tourism Specialist, Environment, Rural Development andDisaster Risk Management Division, Inter-American Development Bank, Washington, DC 20577, USA. Theywish to thank participants at the workshop on Tourism for Development held in Washington, DC in October

2010 for helpful feedback on an earlier version of this article. Paul Winters is grateful to the Office of StrategicPlanning and Development Effectiveness at the IDB for financial support for this research. The viewsexpressed here are those of the authors and should not be attributed to the IDB or its member countries.


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178 Paul Winters, Leonardo Corral and Adela Moreda Mora


In this article, we first argue that models do exist to improve our understanding of thislink, even though analysing it poses peculiar challenges. In particular, it is possible toinvestigate the link using simulations and data collected for the purpose of conducting suchan analysis. In fact, this has already been done in the case of the Galapagos (Taylor et al.,2003; 2009) and this and similar models can be applied elsewhere. The problem is thatthese models have rarely been used for tourism research and little concerted effort has beenmade to quantify the link.

Second, we contend that simply attempting to quantify the link between tourism andpoverty is an insufficiently interesting question. The link, in some form, almost certainlyexists. The interesting question is under what conditions this link is likely to be strongest.In answering this question, we believe that three hypotheses should be carefully consideredand tested. The first is that the link is determined by the broader context, ormacroenvironment, in which tourism investment occurs, suggesting that the relationshipdepends on wage conditions, infrastructure access, location of tourist activity, and so on.Second, the tourism-poverty link depends on the tourism-specific assets and institutionsthat are put in place to promote tourism development; that is, the link primarily depends onthe relationships that are consciously established between stakeholders in tourismdestinations, including those in the private and public sectors. Third, it is the type oftourism that determines the link; that is, whether some products and markets of tourism such as cruise ship, cultural tourism, sun and beach, ecotourism, etc., or international,domestic, high-end or low-end are more or less conducive to poverty alleviation. Whileeach of these factors is likely to play a role in the tourism-poverty link, we argue that it isthe stakeholders relationships that matter most and that one role of the public sector, in co-ordination with donors, is to foster the development of a tourism-specific institutionalstructure conducive to poverty alleviation. Of course, the lack of empirical evidence leavesthis as a hypothesis to be tested.

Third, we maintain that the best way to address questions regarding the role of tourismin development and poverty alleviation is to incorporate accurate diagnosis and evaluationsinto tourism projects, funded either by governments, multilateral development banks,bilateral development agencies or by non-governmental organisations, and to use theapproaches and concepts of the literature on impact evaluation to assess the impact ofpublic investment in tourism. This, combined with the general strengthening of datacollection and improved approaches to assessing tourism, is the best means to determine therelationship between tourism and poverty alleviation.

The objective of this article is therefore to propose an agenda for assessing theconnection between tourism and poverty alleviation in developing countries. Towards thisend, the next section provides a brief overview of the theoretical link between tourism andpoverty and the issues in assessing this link. Since these have been discussed elsewhere, thesection provides the highlights of these relationships and summarises the literature. Thefollowing three sections (Sections 3-5) focus on elaborating the three propositions notedabove. Conclusions and a summary of an agenda for future research are presented in thefinal section.


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Assessing the Role of Tourism in Poverty Alleviation 179


2 Tourism poverty link: conceptual framework and issues

Expanding tourism is not a development objective in itself. The benefits of tourism comefrom the fact that the receipts from tourism have an impact on local economies as well ason areas linked to them. Whether international or domestic, tourism brings consumers tothe product and tourists consumption of goods and services at the location provides thebenefits of tourism. Tourism is therefore akin to exports in that goods and services areprovided to distant consumers, except that the consumer comes to the product rather thanvice versa and the benefits are at least partially provided directly rather than throughexternal intermediaries. It is this direct tie to consumers that is often highlighted inconsidering the poverty-reduction potential of tourism, since it raises the possibility oflinking the poor directly to consumers. In this section, we consider the relationship betweentourism and development and more specifically, poverty alleviation. Details of thetheoretical relationship between tourism and poverty are beyond the scope of this articleand are noted elsewhere, most recently by Mitchell and Ashley (2010). In this section, thekey aspects of the relationship are highlighted, focusing on the (i) direct, (ii) secondary and(iii) dynamic effects.

The direct impacts of tourism come from tourists purchasing goods and services, whichprovide non-labour income to owners of businesses serving tourists and labour income tothe employees of those businesses. The immediate beneficiaries of these expenditures arethus the owners of the business and the labour used in the industry. Whether tourism has adirect monetary benefit for the poor depends on whether they own enterprises in either theformal or the informal economy that sell to tourists, or if they work for those enterprises.They are more likely to work for tourist enterprises if the latter hire unskilled labour, whichwill include the poor (or formerly poor). A number of factors may influence who willdirectly benefit from tourism, including labour-market conditions, the formality of thetourist economy, public policy and investment in tourism and tourism-related infrastructure,the relationship between the public and private sectors, and the type of tourism as well asthe types of tourists. Understanding the direct impact of tourism, then, requires consideringthese factors.

The secondary effects of tourism are the result of the spending of receipts earnedwithin the sector. They are divided in the literature between indirect effects , which refers tothe purchase of inputs from other firms to support the tourism industry, and induced effects ,which refers to the spending of income earned by tourist-business owners and employees(Dwyer et al., 2004). These intersectoral linkages occur because tourism businesses need tobuy goods and services from non-tourism sectors, and owners and employees of tourismbusinesses purchase goods and services outside the sector. Furthermore, these purchasesgenerate additional rounds of spending, creating additional benefits. In addition to private-sector spending, the government may obtain revenue from the tourism industry, which,depending on how it is spent, can influence the local economy (Blake et al., 2008). Thecombination of these various secondary effects creates a stream of money flows, the sum ofwhich can be referred to as a multiplier effect. Studies of tourism multiplier effects suggestthat the secondary effects of tourism are of the order of 60% to 120% of the direct effects,so that every tourism dollar spent has a value of $1.60 to $2.20 in income generated(Mitchell and Ashley, 2010). Of course, along with influencing the flow of income in theeconomy, the secondary effects of tourism can also influence prices and wages in the


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economy. As with direct effects, the influence of these secondary effects on the poordepends on whether they own or are employed in linked activities, which ultimatelydepends on a number of factors, but which provides an avenue for public interventionsaimed at linking the poor to the sector.

In terms of the overall local benefits of tourism, there is a question of how linked thetourism economy is to the local economy, and concerns have been raised about theleakage of tourism expenditures to outside the tourist region, thereby reducing themultiplier effect within the region. First, some of the tourism costs of transportation and theplanning of visits will be undertaken outside the destination. Furthermore, since not allgoods and services can be purchased locally, there is inevitably a share of tourism receiptsthat will be spent on products from other locations. But when local linkages are limited,issues are raised about the value of the tourism industry to local development and povertyalleviation. This is potentially an issue if resources are not being efficiently allocated, andefficiency gains can be made through investments that minimise leakages, thus increasingthe local multiplier effect.

The final effect of tourism relates to its long-term or dynamic effects on the localeconomy. These dynamic effects refer to the benefits that tourism provides by inducinggreater investment in infrastructure, human capital formation, business development,agricultural production and similar activities. This investment can come from the private orthe public sector and may be partially the result of increased government revenues due totourism. While investment may be primarily for the tourism sector, it is likely to havespillover effects on other activities, creating a more dynamic economy in the long run. This,in turn, will have impacts on development and poverty alleviation. In the literature, this isreferred to as the tourism-led growth hypothesis, and it postulates, like the export-ledgrowth hypothesis, that tourism can become a main determinant of overall long-runeconomic growth (Balaguer and Cantavella-Jorda, 2002). The manner in which this occursis through enhancing economy-wide efficiency and through financing the import of foreigncapital goods, which raises the level of capital formation (Nowak et al., 2007).

Conceptually, these three mechanisms through which tourism can influence povertyare well understood. The challenge has not been in understanding the conceptualunderpinning of this link, but rather in obtaining empirical evidence on the magnitude ofthe link so as to shed light in deciding on the most effective interventions. To accuratelyassess the magnitude of the link requires identifying empirical approaches that allow thetourism-poverty relationship to be determined. In the next section, these approaches arebriefly discussed and a particular set of approaches is argued to be the most promising interms of identifying at least the static nature of the relationship between tourism andpoverty.

3 Approaches to understanding the tourism poverty link

Two general empirical approaches to potentially understanding the tourism-poverty linkcan be identified. The first approach includes a range of simulation models from simpleinput-output models to more complicated multiregional computable general equilibriummodels and economy-wide models. The second approach includes econometric analysis oftourism-growth linkages using time-series macroeconomic data, and similar, though less


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common, analysis of tourism-poverty linkages. In both sets of models, the focus tends to beon the influence of tourism on income generation or growth as opposed to explicitly onpoverty. Each of these is considered below.

3.1 Models to assess direct and secondary effects

The primary goal of tourism-based simulation models is to quantify the total impact oftourism on the economy or the impact of short-run growth in the industry. The first step isto determine the direct impact of tourism through increased tourist receipts. Information onhow tourists spend their income on goods and services for their travels is required to knowthe manner in which tourist receipts flow into the economy. With this information, a senseof the direct impact of tourism on income earnings and employment can be determined. Thesecond step is then to ascertain how tourist expenditures flow through the economy throughthe spending of tourism enterprises, owners and employees and, subsequently, through non-tourism-sector firms and individuals that receive this expenditure. The rounds of spendingflows need to be mapped. It is in conducting this step that a model for understanding theselinkage effects is necessary.

The most basic models for mapping the economy-wide effects of tourism are input-output (IO) models and social accounting matrices (SAMs). IO models map flows betweenfirms within an economy, taking account of all income and all expenditures by the industry.A SAM follows along similar lines, but adds additional flows to other institutions such ashouseholds, the government and the rest of the world. In both models, the expenditure andincome flows within the economy being mapped need to add up so that all economicactivity is included. The models are defined for some geographic area, such as a country asa whole or a region or state within the country. For understanding tourisms impact on theeconomy, a tourism sector needs to be identified, as do its links to other industries,households, government and the rest of the world. Defining what is included in the tourismsector presents challenges, although the definitions are becoming systematised through theuse of Tourism Satellite Accounts and recommendations on their creation (United Nations,2008). Once the tourism sector is defined with all the flows into and out of the sector, themodel can be used to calculate the multiplier effect of additional tourism spending in theeconomy.

IO models and SAMs have methodological limitations that restrict their usefulness inanalysing the impact of tourism. Key among these limitations is the fact that the models donot include prices or wages. This limits the ability to assess the impact of shifts in tourismdemand, since it does not factor in that (i) tourists and other consumers will respond toprice changes, and (ii) tourist businesses and other firms will respond to changes in inputprices and wages (Blake et al., 2001). These limitations can potentially create biasedestimates of tourism impact and are the motivation for moving to the use of ComputableGeneral Equilibrium (CGE) models. CGE models take the SAM as the basic data for theeconomy, but add in behavioural assumptions and constraints reflecting a view of theeconomy founded in economic theory. Using theoretical models of the economy,parameters for these models estimated using real-world data and data on the economyembodied in the SAM, CGEs can simulate the functioning of an economy. As with theSAM, the CGE can incorporate the role of tourism in the economy, provided a tourismaccount is included along with the necessary model parameters that define the relationship


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between tourism and the rest of the economy. The CGE then allows for an assessment ofthe role of tourism by examining how changes in tourism receipts are transmitted throughan economy. Because it incorporates wages, it allows an estimate of the influence oftourism on employment and earnings.

The value of a CGE model in assessing the impact of tourism is dependent on themanner in which the model is created and, in particular, on the underlying SAM. CGEstend to be aggregate models that look at an economy as a whole. As such, while the overalleffects of tourism can be assessed, it is hard to identify where the benefits of those effectsmight be concentrated, including whether most of the gains are in the regions wheretourism investment is occurring. Furthermore, such models may not be appropriate forsmaller local tourism activities. This is less a result of the approach, but rather because ofthe aggregate level of the data usually incorporated in the model. One solution to thisproblem is to build CGEs and the underlying SAMs at the regional or local level and focusthe analysis at this level. Another alternative is to use multiregional CGE models thatincorporate greater detail at the local level and include relationships between regions.

The level of aggregation of CGEs is also a key issue in assessing the poverty effects oftourism using CGE models. In the underlying SAMs, households may not be sufficientlydisaggregated to get a sense of poverty effects. That is, a single or a limited number ofhousehold categories are identified in the SAM, and poor households are not separatelyrecognised in any way. Using a CGE to assess the impact of growth in tourism receipts canprovide an estimate of gains in employment and income through greater wage earnings andtourism profits. However, without a clear categorisation of households into groupings thatare linked to economic well-being, it is not possible to determine whether jobs and wagegains went to poor households. The link between poverty and tourism cannot bedetermined.

An alternative option for evaluating tourism related to CGE models is disaggregatedeconomy-wide models, which combine CGE models with microeconomic models, such asagricultural household models (Taylor et al., 2005). The difference between these modelsand pure CGE models is that (i) the data come from data collected at household and firmlevels in the region of interest, and (ii) the models can incorporate specific microeconomicissues, such as market limitations. This approach has been used by Taylor et al. (2003 and2009) to assess the impact of tourism on the Galapagos. The benefits of these models lie inthe fact that they integrate the strengths of CGE models in their ability to incorporatelinkages within the economy and to include wage and price effects, while at the same timebeing locally relevant by including local data collection. The downside of this is that theyare data-intensive, which of course comes with a cost.

Few models explicitly analyse the impact of tourism on poverty. For Brazil, Blake etal. (2008) use a CGE modelling approach to provide an economy-wide analysis of thedistributional effects of tourism expansion. They are able to conduct this analysis since theunderlying SAM is constructed to include four categories of household (lowest income,low-income, medium-income and high-income), with the lowest group defined as earningless than an approximation of the poverty line. Their results show that there is a welfaregain to Brazil of $0.45 for every $1 unit of additional tourism spending and that tourismbenefits the lowest income sections of the Brazilian population. However, it is the low-income households (not the lowest income) that are the main beneficiaries of tourism


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expansion through higher earnings and prices. Furthermore, it is the high and mediumgroups that gain more from tourism-induced expansion of government revenue andspending.

Examining tourism in Thailand, Wattanakuljarus and Coxhead (2008) use a CGEmodel to look broadly at the issue of whether tourism-based development is good for thepoor. They find that, while tourism does increase aggregate household income, it worsensincome distribution. The reason is largely owing to the fact that tourism is not relativelylabour-intensive in Thailand. Thus, the gains from tourism do not accrue to unskilled labourand instead tend to benefit other factors of production. Since other factors gain relativelymore, income inequality appears to be exacerbated. While providing broader insights intothe general equilibrium effects of tourism on inequality, the article says little about thedirect link between tourism and absolute poverty.

Using a disaggregated model for the Galapagos, Taylor et al. (2003 and 2009)document the link between tourism and other industries on the islands, showing largereffects than studies that just examine direct tourism expenditures. They also show that,while there were large increases in income largely driven by the expansion of tourism, therewere only limited gains in income per capita within the islands because of substantialmigration from the mainland. In terms of poverty, the most that can be said is related toincome gains in certain sectors, such as fishery and agriculture, which tend to be dominatedby poorer producers.

While the use of simulation models to examine the link between tourism and povertyhas been rare, the potential for using such models clearly exists. CGEs and other economy-wide models have been used in a number of cases to address poverty issues, includingissues such as trade and poverty, environmental policy and poverty, and agricultural policyand poverty. The key in these cases has been the creation of CGEs or economy-widemodels with disaggregated household-level data as in the case of Blake et al. (2008), or thecreation of models linked to microsimulations that use poverty data. In these cases, theanalysis can assess the impact of policies on poverty. For example, Taylor et al. (2005) usea disaggregated, rural, economy-wide model to assess the impact of maize-price changes inMexico and examine the impact on different farm types using land-size categories as anindicator of wealth. The potential to analyse tourism-poverty links clearly exists.

3.2 Models to assess long-term or dynamic effects

The long-term or dynamic effects of tourism on development have been primarily assessedthrough the use of macroeconomic time-series data on tourism (usually internationaltourism) and economic growth. The question that dominates this literature is the role oftourism in inducing economic growth. Like exports, tourism at least international tourism links economies to the rest of the world and is an earner of foreign exchange. Theliterature on the export-led growth hypothesis posits that exports (i) provide foreignexchange for importing capital goods for capital formation, and (ii) enhance efficiencythrough competition with foreign firms and through the creation of greater economies ofscale than would occur without access to foreign markets. A similar argument can be madefor tourism, and this hypothesis can be tested (Balaguer and Cantavella-Jorda, 2002).

The hypothesis has primarily been tested for developed countries, in particular Spainwith its large tourism sector. Balaguer and Cantavella-Jorda (2002) confirm the hypothesis


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through co-integration and causality testing, with their results indicating that economicgrowth in Spain has been responsive to the expansion of international tourism and thatexternal competition has played an important role in Spanish economic growth. Alongsimilar lines, results of an analysis by Nowak et al. (2007) support the hypothesis thattourism earnings finance the import of capital goods, which affects the growth of theSpanish economy. Furthermore, they are not able to reject the hypothesis that tourismimproves the efficiency of productive resources. Results from developing countries are inline with these results. Narayan et al. (2010) find a link between international tourismreceipts and economic growth in four Pacific Island economies heavily reliant on tourism.For Latin America, Fayissa et al. (2009) using panel data from 17 countries in the regionfind that tourism revenue is positively linked with economic growth. Evidence from 42African countries produces similar results (Fayissa et al., 2008).

The aforementioned studies focus on the tourism-economic growth link as opposed to atourism-poverty link. While economic growth is necessary to induce poverty reduction, it isnot a sufficient condition. Few studies have sought to directly examine the long-term linkbetween tourism and poverty. One study from the United States by Deller (2010) uses aspatial analysis to examine the impact of tourism and recreation activities on rural poverty.The analysis finds that the expansion of certain recreational activities (golf, tennis andswimming facilities) does put downward pressure on poverty rates, while others haveneither negative nor positive effects on poverty. The results at least challenge the notionthat tourism and recreation generate low-income jobs in developed countries. Fordeveloping countries, Croes and Vanegas (2008), using data from Nicaragua, find a causallink not only between tourism and economic expansion, but also to poverty reduction asmeasured by the poverty headcount. They conclude that the empirical evidence suggeststhat tourism has the potential to help Nicaragua reduce poverty.

3.3 Moving forward

Clearly, the empirical evidence on the tourism-poverty link is limited and insufficient toprovide investment and policy guidance, and more should be done. Additional studies usingtime-series data and empirical approaches in developing countries would, of course, behelpful in establishing the role tourism plays in economic growth, development and povertyalleviation. Yet, the limitation of these studies lies in the fact that, while they provideinsight into the value of developing-country governments investing in tourism, they do notprovide insight into the types of investment the government should promote, and areunlikely to do so in the future.

On the other hand, CGE and economy-wide models have the potential not only to helpassess the tourism-poverty link, but also, if used wisely and in conjunction with a carefuldiagnosis of the tourism sector, to provide insights into the types of public investment thatare likely to enhance the value of tourism in poverty alleviation. The primary limitation ofthese models has been in the lack of disaggregated household-level information and inparticular the identification and inclusion of poor households. As argued above,overcoming this limitation is possible. Of course, the value of these models will be limitedif they are not employed carefully, with forethought about the questions that should beasked with them. The next section puts forward a few key questions.


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4 Tourism poverty link: hypotheses to test

If governments wish to promote tourism as an engine of economic growth and a mechanism

to reduce poverty, the key question they need to answer is under which conditions the linkbetween tourism and poverty is likely to be strongest. Indeed, a deeper understanding isneeded as to why in some destinations an important portion of tourist expenditure is spenton imports or repatriated by foreign workers and companies, while in others the tourismsector has successfully stimulated linkages with different sectors of the local economy.Furthermore, a greater comprehension of when local tourism links are likely to benefitpoorer households in local communities is required. In this section, we consider the generalfactors that are likely to influence the link between tourism and poverty.

Figure 1 presents a framework for analysing key factors that can directly or indirectlydetermine the effectiveness of tourism in achieving local development and poverty-

alleviation goals, and hence require in-depth understanding. Specifically, we focus on threefactors noted in the Introduction (i) the broader context, characterised as economic forcesand other external forces, such as natural disasters, that influence the evolution of thetourism sector; (ii) the destinations tourism-specific assets and institutions, which includethe natural, human, physical, and other forms of capital as well as institutions such asstakeholder relationships that govern the destination and underpin its potential; and (iii) thetype of tourism, meaning the tourism products and markets that constitute the vehicle forachieving development results.

From a development-objective point of view, the aim is to identify interventions thatcan alter this interplay of factors to deliver the desired outcomes discussed in Section 2 of

this article; mainly, promoting economic growth that maximises the multiplier effect(minimises leakages), provides substantial benefits to the poor, and optimises governmentrevenues that can be reinvested into enhancing the destinations assets. In the followingsub-sections, we discuss why each factor might be considered relevant for defining thetourism-poverty link and what evidence exists in support of each view.

4.1 The broader context

The evolution of the tourism economy can depend largely on the context in which theindustry develops, which is primarily a function of government economic policies, and

largely outside the realm of influence of actors within the sector. Global forces, or thegeneral macroenvironment, are widely recognised as important factors to consider inmanaging tourism destinations. 1 Among other factors, regulations about foreign ownershipof assets (hotels, restaurants and properties), rules of foreign direct investment, exchange-rate policies, labour-market regulations and how they influence hiring and wages,regulation and policies in other markets, the education system that determines theavailability of skilled labour, and public infrastructure investment can all influence theworkings of the tourism industry. Not only will the broader context influence the directeffects of tourism on poverty, but also the secondary effects since these factors have an

1. See, for example, the discussion of the importance of the macroenvironment in Chapter 4 of Ritchie andCrouch (2003).


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impact on the manner in which tourism receipts are transmitted through the economy, andultimately whether the poor benefit.

One key issue that has been raised about the broader context relates to the ownership oftourism assets, finance and knowledge, which at least partially depends on governmentrules regarding tourism investment. Through its regulations, investments and actions, thegovernment influences the conditions in which private investment ensues. In particular,concerns are often raised over foreign ownership of tourism businesses. Sindiga (1999)highlights ownership and power distribution as key in determining who actually gets the(direct) tourism receipts. Direct foreign investment in developing destinations may occur inthe form of complete ownership or joint ventures with local partners. The differentcombinations of bargaining power and control under both options influence who obtains thelarger share of tourism receipts. Under conditions of complete foreign ownership, situationsof dependence are hypothesised to arise with few linkages between tourism and the localeconomy (Britton, 1982; Brohman, 1996; Khan, 1997; Lacher, 2008). Under joint ventures,where in principle power is more likely to be symmetrically allocated, direct foreigninvestment means co-operative access to tourism markets and benefits. However, if foreigncompanies possess a high level of negotiating power, even under joint-venture schemes,they may establish an advantageous relationship in which all the risk lies with the hostcountry. This is, for instance, potentially the case of foreign tour operators that do not offercompensation to hoteliers for unused capacity when demand is lower than anticipatedwithin the contract period (Sinclair et al., 1992). Who obtains the receipts of tourismdepends on investment policies, and this in turn is likely to influence how those receipts areused.

Along with asset ownership, government policy influences the ability to hire labourand the terms under which those labourers will be hired, including the cost of the labour. AsBanerjee and Duflo (2008) point out, a key characteristic of the middle class around theworld is that they have steady, well-paying jobs. They tend not to run businesses, except asa strategy to supplement income, and appear willing to abandon those businesses for steadywage employment. Even in rural areas, a positive correlation is found between the share ofincome earned from rural non-farm wage employment and overall income levels (Winterset al., 2010). Whether workers can get steady, well-paying jobs in the tourism industry or inthe secondary industries linked to the sector depends on the functioning of labour marketsand the type of labour (skilled or unskilled) available.

Even beyond labour markets, how markets function in an economy, including whetherthey exist and the degree to which they are regulated, taxed or subsidised, can determine themanner in which tourism develops and influences the rest of the economy. For example, ifthe banking sector is poorly developed and there is restricted access to credit, includingthrough microfinance institutions, the ability of entrepreneurs to take advantage ofopportunities stemming from tourism may be limited. If agricultural markets are not welldeveloped or output does not meet industry quality standards, the tourism industry mayseek agricultural products elsewhere. In particular, linkages between tourism and the localeconomy may depend largely on, if and how local markets function.

Beyond these economic considerations, other general non-economic factors, includingclimatic, environmental, sociocultural, political, geographical and demographic forces,clearly affect the sector (Ritchie and Crouch, 2003). For example, the prevalence of natural


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disasters and local vulnerability to disasters will influence the manner in which the sectordevelops, as will terrorism and international political considerations.

Given the role of the broader context in the evolution of the tourism sector, it may playa key role in determining the tourism products and markets that develop and how thoseproducts and markets influence ultimate objectives of economic growth, high localmultiplier effects, poverty reduction and enhanced government revenue. Testing thishypothesis would require analysing tourism in different contexts to see, for example, iftourism has a greater poverty-reducing benefit when tourism enterprises are owned byforeign companies or by local entrepreneurs, or when labour markets have more regulationsuch as minimum wage laws, as opposed to when regulations are minimal. By empiricallyexamining tourism in different contexts, the importance of these factors in determining thedesired outcome can be examined, and potential interventions can be identified to mitigatenegative unintended consequences.

4.2 The destinations tourism assets and institutions

The broader context is unlikely to be the primary factor that determines the role of tourismin poverty alleviation. Rather, the evolution of the sector and how it is linked to the rest ofthe economy, including the poor, is likely to be a function of the destinations tourism-specific assets and institutions what Ritchie and Couch (2003) refer to as themicroenvironment of the destination. Assets refer to the endowment of the tourismdestination, including the natural beauty, the physical infrastructure, the availability ofspecialist skilled labour, and the cultural factors that make a destination attractive totourists. While assets influence the type of tourism products and markets, in this section wefocus primarily on the institutional and governance structures in place at the destination as akey factor, often overlooked, that can influence the outcome of tourism interventions onpoverty and local development.

Following the New Institutional Economics (NIE) literature, institutions can be definedas the rules of the game of a society, which are composed of formal rules, informalconstraints (such as norms of behaviour), and the enforcement characteristics of those rules(North, 1995). Organisations, which are groups of individuals with a common purpose, arethen the players in this game. In the case of tourism, the organisations, or the stakeholdersas they are called in the tourism literature, include the variety of businesses in the tourismindustry, related industries, tourists, local and national governments, and workers, amongothers. From this perspective, the factors that determine how tourism influences the localeconomy and poverty alleviation depend on who the stakeholders are and how they interact.If policy-makers want to boost tourism benefits to the poor, they need to recognise thattourism consists of a system of stakeholders relationships that allow the delivery of thetourism experience. The stakeholders relationships affect how the tourism economy andsupply chains are structured, and how far linkages develop into the local economy (Ashley,2006).

Since much of our interest is in public policy with respect to the tourism sector andhow this can be used to induce tourism development that is poverty-reducing, it is worthnoting explicitly the role of one key set of stakeholders government entities. At thenational, regional and local levels and through a variety of agencies, the government can


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play a critical role in the way in which the tourism sector develops, even beyondinfluencing the broader context noted in the previous section. National governments cancreate incentives for tourism investment, including tax and import-duty exemptions, importfacilitation measures, subsidies and guarantees. Concerns have been raised that theseincentives can facilitate leakages, especially when governments do not designcomplementary strategies to increase the negotiating power of local tourism firms, and donot cultivate a culture of local entrepreneurship so that local links can be established for theprovision of tourism goods and services. Governments also invest in tourism-specificinfrastructure, and in tourism marketing campaigns that can influence the way in whichtourism develops.

The manner in which the government takes these actions and how it engagesstakeholders in the tourism sector can influence the pattern of tourism development. Localcommunity power has been considered by some to be a corner-stone of equitabledistribution of tourism returns (Aref et al., 2009). Ashley and Roe (1998) refer tocommunity power as a range of situations from passive involvement to full participation.Tosun (2000) identifies operational, structural and cultural barriers to tourism communitypower in many developing countries. Without community control, it may be the case thatresidents will be unable to negotiate access to local tourism resources, since they lack asense of ownership. This can potentially limit their ability to participate directly orindirectly in the sector.

By identifying key stakeholders and making an effort to understand their interests,positions and bargaining power, it should be possible to reach a full explanation of whytourism linkages within the local economy are weak or strong. As stated by Ashley andMitchell, a good understanding of stakeholders interactions is needed, both to act as adiagnosis (to determine what to do), and as a baseline (for measuring future impact)(2008:6). Since organisations tend to address the needs and interests of those groups withthe greatest influence (Johnson and Scholes, 1999), a deliberate strategy to maximise thepoors access to jobs and tourist markets may be needed if tourism benefits are to reach theless well-off groups in society. Before being able to catalyse change, policy-makers need toanswer the following questions (Lewis, 2006): (i) who are the main stakeholders?; (ii) whatare their goals?; (iii) how much power do they have to promote their interests?

The first question remains an important challenge. Freeman (1984) defines astakeholder as any actor (group or individual) who can affect, or is affected by, theachievement of an organisations purpose. In the tourism context, all the groups andindividuals who are affected by a destinations development are stakeholders (Ritchie andCrouch, 2003). Therefore, the stakeholder concept refers to individuals or groups that havean interest or interact in a system. However, which actors should be considered asstakeholders is not always clear, because there is no single motivation in tourism planningand development, but as many as there are interests and expectations. Thus, deciding whichplayers to include in the analysis and planning of a tourism destination is case-specific. In apro-poor tourism strategy, it is important to reach a full understanding of who are the poorthat need to be targeted, since poor may be defined under different parameters (Ashley,2006): unskilled or semi-skilled labour?; young people, indigenous minorities or women?;less developed regions?; those living below the national poverty line?; or the poorer half,third, quarter of society? In relation to the second question, an understanding ofstakeholders goals is needed to identify their motivations and analyse the coherence


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between the stakeholders preferences and the objectives pursued by a pro-poor tourismpolicy. Finally, the third question helps to identify critical junctures that may enhance orconstrain the benefits of tourism for different stakeholder groups, and give more visibilityto certain groups, to the detriment of others.

Of course, getting a grasp of the institutional context in which tourism functionsrequires analysis. There are a variety of methods that may help gain an accurate andinformed diagnosis about stakeholders relationships in the tourism sector. For instance,systematic analysis of stakeholders allows key stakeholder identification, mapping anddescription. The concept of stakeholder theory and analysis originated in organisationalresearch and strategic management, and now is found in diverse disciplines. In this context,Mitchell et al. (1997) assert that stakeholder relevance is related to the tenure of threeattributes: influence, legitimacy and determination. The possession or lack of these threeattributes helps to define the stakeholder typology. The main benefits of stakeholderanalysis is that better insight can be gained in terms of stakeholders significance andpriorities, and of the main associated risks for the success of a deliberate pro-poor tourismstrategy. Limitations of stakeholder analysis are primarily related to the subjective nature ofthe exercise and the constant need for updating.

Alongside the concept of stakeholder analysis has evolved the network analysistechnique, which has a long tradition in the social sciences field and refers to datacollection and analysis procedures designed to study relations among specifically connectedactors (Timur, 2010; Marsden, 1990; Baggio, 2008). The knots in the system are the peopleor organisations, while the ties represent the relationships. The basic unit of analysis isrelationships (formal or informal), since they are usually more systematic and repetitivethan individuals (Timur, 2010). Network analysis focuses on the pattern of relationshipsthrough measures such as range, density, centrality and clustering (Timur, 2010; Rowley,1998; Burt, 1980; Scott, 2000; Krackhardt, 1992). Deciding which actors to include in theanalysis has been among the key challenges of network analysis (Rowley, 1997). Scott etal. (2008) have reviewed the use of network analysis in tourism and found that the majorapproach is qualitative in nature, illustrating the relationships of pre-identified groups. Incomparison, much network analysis outside tourism adopts quantitative methods, toidentify and define a group.

Value Chain Analysis (VCA) is another tool that allows the description of a range offunctional activities, service providers and customers in the framework of supply chains. Ithas been applied in some pro-poor tourism strategies as a way to increase participationopportunities for the poor. In this context, the tourism chain is conceptualised as the systemof stakeholders relationships that allows the delivery of the tourism product, and the unitof analysis is the whole tourism sector. The VCA analyses how the poor participate in thetourism chain, and how their positions can be enhanced (Ashley and Mitchell, 2008;Mitchell and Ashley, 2009).

Whichever the approach, the critical issue is to understand the stakeholders involved,the extent of relationships, and the degree to which the poor are involved. Of course,involvement does not necessarily imply substantial benefits being accrued to the poor, sothat would still need to be measured. The hypothesis that we wish to test, then, is that it isthe institutional context that determines whether tourism development brings about povertyreduction. Of course, an implicit assumption in this view is that a richer institutional


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context defined as one with more concrete relationships and particularly one in whichrelationships are fostered to improve local interaction with the tourism economy is likelyto enhance local benefits and the poverty-alleviating effects of the tourism economy. This isin contrast to an institutional context in which there are fewer stakeholders or weakerrelationships. If this is the case, it implies that promoting a tourism sector without takinginto consideration the stakeholders involved and the relationships within the sector is lesslikely to be successful than a tourism development strategy that carefully considersstakeholders and their relationships.

4.3 The type of tourism: products and market segments

Tourism can be distinguished by the characteristics both of the destination and of thetourists visiting that destination. Depending on the broader context and tourism assets andinstitutions, the destination may emphasise cultural tourism, sun and beach tourism,ecotourism or business tourism, among others. The type of tourist may be differentiated aswell, including domestic or international, and high-end or low-end tourists (depending onthe spending levels). Of course, the type of destination influences the type of tourists thatvisit, so these two factors may be closely related.

As a general rule, international and high-end tourists may appear more desirable thandomestic and low-end tourists since they potentially spend more and bring in foreigncurrency. However, they may stay in more exclusive hotels, eat at expensive restaurants,and generally participate in relatively high-priced activities. Providing services for thisclientele may then involve more outsiders in the tourism industry which will potentiallylead to fewer local benefits, especially for the poor. The risk is that tourists are kept in anenclave and economically separated from locals. Alternatively, domestic and low-endtourists may not spend as much, but may be more likely to stay and eat at locally-ownedestablishments and participate in activities that involve more locals, thereby providinggreater benefits. It may be that relatively poor backpackers provide greater local benefits ifthey are willing to stay with local communities (Hampton, 1998). Of course, the type ofdestination these tourists visit may matter. Sun and beach tourism brings tourists to adestination, but may keep them largely isolated from the local economy, while, on the otherhand, cultural tourism may draw tourists into towns and communities where they spendtheir money. The benefits of tourism are likely to depend on how the characteristics of thedestination and the tourists influence the direct and secondary effects of tourismexpenditures.

While this hypothesis seems to have shaped tourism policy in some developingcountries over the last decades, it has not been corroborated by empirical evidence. Forinstance, Mitchell and Ashley (2010) have recently compiled different examples thatquestion the hypothesis that the type of tourism affects the strength of local linkages. Theyshow evidence that reveals both strong and weak linkages in the case of cultural tourism(Laos and Cambodia respectively), of business tourism (Vietnam and Ethiopia), and ofpackage beach tourism (the Gambia and Tunisia). This challenges the assumption thatcertain types of tourism necessarily produce weak local linkages.

Furthermore, Dwyer (2005) points out that the volume of tourist expenditure is notdirectly proportional to its local economic impacts, since these also depend on the type ofgoods and services purchased, not just the quantity. In many cases, the spending pattern of


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domestic tourism may be more closely linked to locally-produced goods and services, andmay be a better tool to foster backward economic linkages than a higher-spendinginternational tourist who is more dependent on imports. It is not always the highest-spending tourist segment that generates the highest benefit. This conclusion defies some ofthe tourism development strategies that target up-market tourists without any priorassessment of their spending patterns.

This initial evidence suggests that there is no single answer to what type of tourism ormarket segment should be prioritised, since any type can have strong or weak local linkagesdepending in each case on the behaviour of tourists, but also of private companies, localcommunities (including the poor) and government (Ashley, 2006). Therefore, furtherempirical evidence is required to draw firm conclusions to test the hypothesis that it is thetype of tourism that matters most in establishing local linkages and creating the poverty-reducing benefits of tourism.

4.4 Moving forward

Testing the hypotheses that the three general factors highlighted in this section play criticalroles in the tourism-poverty link would necessarily involve a series of studies. The onlyway to establish empirically the extent of the tourism-poverty link in varying circumstanceswould be through multiple quantitative studies across a range of tourism situations. Whilethis can be done by analysing a variety of tourism sites in developing countries, we argue inthe next section that one clear way forward is to use tourism investment projects,particularly those funded by multilateral development banks, to test these hypotheses.

5 Tourism projects: informed diagnosis and impact evaluation

A number of research methods have been highlighted in the previous sections that canprovide useful insights into the tourism-poverty link. In some cases, these approaches havebeen employed to provide such insights. However, there are two potential arguments for notrelying solely on the aforementioned approaches. First, a key motivation for analysingtourism-poverty links is to provide insights into what policies and projects could be used topromote such linkages. One way to do this is to look directly at existing policies andprogrammes to see if they have successfully achieved this objective. Second, unpacking thekinds of factors that influence the tourism-poverty link requires robust analyticalapproaches that seek to identify empirically the link between poverty alleviation andtourism promotion. The use of robust analytical techniques is facilitated by examiningsituations where the tourism context is changing, such as when a new tourism policy orproject is put in place. For this reason, we now argue that what is needed is to incorporateaccurate diagnosis and evaluation into tourism projects, using the approaches and conceptsof the literature on impact evaluation.

5.1 Impact evaluation

Interventions undertaken by the public sector through development projects provide anopportunity to examine whether particular approaches to development are effective in


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achieving objectives. This is because the projects induce some form of change in conditionsthat can be assessed. For this reason, in the past decade there has been a dramatic increasein the evaluation of development projects using quantitative impact-evaluation techniques.This expansion is part of a broader trend of evidence-based policy-making that seeks toensure that public policy brings about the intended results (Gertler et al., 2011). Impactevaluation is one component of an overall strategy to assess a projects developmenteffectiveness; it seeks to establish a causal relationship between a project and the desiredoutcomes of that project by using counterfactual analysis.

When well designed, impact evaluations can help not only to determine if a project hasmet its objectives, but to provide lessons on which project investments tend to work andwhich do not. Furthermore, by conducting impact evaluations across a range of projects, itis also possible to determine which approaches are most successful at achieving specificobjectives, such as greater income gains for poor households. Evaluating interventions istherefore useful in providing insight into the process of development as well as into the bestapproaches for addressing development problems.

While evaluating tourism projects is challenging, the concepts from this literature areextremely valuable. For this and a number of reasons noted below, understanding thetourism-poverty link is likely to be more successful if done as part of development projects.To show how this may work, we first examine tourism projects in developing countries andthen consider how these can be evaluated to gain valuable insights into the role of tourismin poverty alleviation.

5.2 Public investment in tourism with particular reference to the IDB

Public investment in tourism as a mechanism for promoting development has a longhistory. The basic rationale for such investment is twofold. First, the benefits of tourism interms of driving economic growth, generating employment and earning foreign exchangeare unlikely to be realised at a socially optimal level if investment is left solely to theprivate sector. There are a number of reasons why this is the case. As with other industrialclusters, location matters since the geographic concentration of tourism activities assists inmaking those activities competitive. In general, clusters promote competition through: (i)increasing the productivity of firms by means of better access to specialised inputs andemployees, information, customers, marketing channels and institutions, and public goods;(ii) a greater ability to innovate through better contact with suppliers and customers; and(iii) lower barriers to entry due to better information and opportunities in existing clusters(Porter, 1998). The investment in one tourism activity can have positive externalities forother activities, and these benefits are not captured by the individual investor. To ensureoptimal investment, the government may need to provide support to the development of thedestination. Some of this support may need to come in the form of public goods, such asroads and water and sanitation, which generally require government support. Tourism, ifbased on natural resources, may also have positive (or negative) externalities for theenvironment, which may also justify government intervention. Ultimately, one motivationfor public investment is to address different forms of market failures.

The second motivation for tourism investment is to help meet a compelling socialobjective. One key objective is poverty alleviation through enhanced employment for poorhouseholds. This can be used to justify public-sector investment in particular regions within


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a country where poverty is concentrated. It may also be used to justify public investment incertain types of tourism activities that are identified as being more closely linked to povertyalleviation. Of course, tourism can also be promoted as a general strategy to generateemployment and income for the population as a whole. In some cases, it may also be usedas a means to maintain or preserve cultural heritage or natural resources deemed valuableby the public.

To get a more practical sense of the types of public investments used to supporttourism, the following discussion provides an overview of the experience of tourisminvestment in the last few decades financed through development projects. The focus is onthe particular approaches and specific projects the Inter-American Development Bank(IDB) has supported, since this is the experience we know best, but the IDB approachgenerally tends to reflect the broader trends in the rationale for public investment and donoragency in the sector (Hawkins and Mann, 2007).

Three major phases in the motivation for the IDBs support of tourism projects can bediscerned. The first phase took place during the 1970s and 80s, when the IDB supportedpublic investment projects focused on expanding the economic contribution of tourism,particularly in obtaining foreign exchange. The projects aimed at attracting internationaltourism by providing infrastructure, water and sanitation supply, access to and bettermanagement of sites of cultural and natural interest and financing schemes for private-sector development. These first interventions were of paramount importance indemonstrating the viability of the tourism sector in Latin American and Caribbean (LAC)countries, and gave rise to now consolidated destinations, such as Cancun in Mexico.

In the second phase, during the 1990s, tourism began to play an overall greater role in thegrowth strategies formulated in the LAC countries, because of its perceived resilience toeconomic fluctuations and its capacity to generate jobs, income and foreign exchange,stimulate private investment and produce government revenue. Along these lines, Brazil sawin tourism a unique opportunity to develop its economically lagging Northeast region, andrequested the IDBs support for two consecutive projects in the Tourism DevelopmentProgram (PRODETUR). The first of these, initiated in 1994 for a total of US$ 1.1 billion,upgraded and expanded eight international airports, built or rehabilitated 877 km of highwaysand access roads, provided access to drinking water and sewerage services to 1.1 millionpeople, undertook conservation work on 22 cultural heritage sites, and implemented efforts toconserve protected areas. 2 Although, according to the evaluation of the programme carriedout by the Tribunal de Contas da Unio (2004), this project was successful in stimulatingeconomic growth, it did not, however, promote policies sufficiently to prevent or mitigate thenegative social and environmental impacts of rapid growth.

The PRODETUR experience led to an explicit recognition that tourism is a multisectoraland multidimensional process. As a consequence, during the third phase, the IDB made adistinct effort to broaden the planning, policy-making and local ownership of the tourismdevelopment supported by its loans. The concept of tourism development was directly linkedto the concept of sustainable development, calling for the expansion of tourism to be keptwithin acceptable environmental and social parameters. Supported projects emphasised

2. For a detailed report of these programmes see: http://www.bnb.gov.br/content/aplicacao/PRODETUR/Apresentacao/gerados/apresentacao.asp


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community involvement, environmental conservation and greater inclusion as pillars ofachieving sustainable development. With this renewed approach, the IDB approvedPRODETUR II for Brazil in 2002, with a mandate to address the environmental legacies ofprevious investments, before expanding into other areas, improving the quality of life for thepopulation living permanently in the selected destinations, and putting mechanisms in place toguarantee responsible tourism. 3 While investments in public infrastructure remained animportant component of these new programmes, during this phase the emphasis shiftedtowards achieving socio-economic objectives.

In this current phase and in alignment with other donors (Hawkins and Mann, 2007),there is a renewed and expanding international interest in the role of tourism to help meet theUnited Nations Millennium Development Goals. With this mandate in mind and therecognition that specific interventions are necessary to ensure that the benefits from tourismreach those who need them most, the key development outcome that is driving the IDBscurrent support for projects is the distributional impact of tourist expenditure. The IDB isactively exploring and combining a number of approaches that will shed some light on thedifferential impact that may be attained per tourist dollar spent. 4

Although the focus on projects has become increasingly sophisticated in an attempt torespond to the complex nature of tourism, and each of the three reviewed phases hasimproved the working assumptions on which the tourism programmes have been designedand executed, the IDB (and other multilateral agencies) still face a series of challenges thatmust be satisfactorily addressed. The paucity of information available to date has inhibited thedevelopment of stylised facts on the impact of tourism in developing countries, and projectsare designed, implemented and evaluated on a case-by-case basis. This approach producesmicro studies based on empirical data, but their external validity limits generalising theseresults to a level that could be useful for policy prescriptions that are pro-poor. A more robust,systematic analysis is needed, to provide insight into interventions that can optimise tourismoutcomes for the local economy and the poor in developing regions.

5.3 Tourism projects and impact evaluation

As can be seen from the previous section, tourism projects provide investments to achievesome set of development objectives, which, as noted above, have evolved over time. Toachieve those objectives requires an informed diagnosis being conducted to identify priorityinvestments to help promote the sector. These investments have, explicitly or implicitly, aninternal logic in that they assume that, through the designated investments, tourism will insome way be enhanced and through that enhancement certain social objectives will beachieved. In effect, this diagnosis and the subsequent investment strategy generate ahypothesis, or set of hypotheses, about how tourism can be expanded to generate socialbenefits. Evaluating that investment is then a test of the validity of the hypotheses. Bylooking at the diversity of tourism situations within and across projects and by examiningdifferent approaches to promote tourism, multiple hypotheses can be tested. This will thenshed light on the relationship between tourism development and poverty alleviation.

3. See PRODETUR II loan proposal at http://www.iadb.org/en/projects/search-project-documents,1302.html4. See IDB (2011: Chapter XI).


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The standard challenge of any evaluation of the impact of a development project isdetermining the counterfactual that is, what would have happened in the absence of theproject. To truly understand the impact of a project on a given indicator of interest,information would ideally be available on project beneficiaries with the project and thosesame beneficiaries without the project. The indicator could then be compared between thesetwo situations to see if the project had made an impact. Of course, beneficiaries cannot besimultaneously in and out of the project, thus making it necessary to find a substitute to actas the counterfactual. To be legitimate, the counterfactual, or control group, would need toresemble the project beneficiaries, or treatment group, except that they would not haveexperienced the project. Thus, any differences in the indicator could be attributed to theproject.

From an impact-evaluation standpoint, evaluating the impact of tourism projects onpoverty presents two significant challenges. The first challenge relates to attribution. Asnoted above, the key to any impact evaluation is to identify a reasonable counterfactual thatcan represent beneficiaries in the absence of the project. The problem with evaluatingtourism projects is the highly non-random placement of tourism destinations they aresited on the basis of unique characteristics related to their tourism potential. Other regionsare thus, by definition, different from the tourist region, making it difficult to find anadequate counterfactual. An additional issue relates to the widespread secondary effects 5 oftourism projects. Even if a tourism region similar to the target region can be found, it maybe indirectly affected by the project, which makes it a poor counterfactual.

The second challenge relates to the measurement of the secondary effects of tourismprojects, which, as noted in Section 2, can be as large as the direct effects. In terms ofimpacts on poverty, the secondary benefits may be greater than the direct poverty effects if,for example, the sector mostly hires skilled workers. Capturing these secondary effectsbecomes crucial. However, measuring these effects is complicated by the fact that tourismnot only transmits income into the economy through multiple pathways and a variety ofsectors, but may also have effects on prices and wages which need to be taken intoconsideration in evaluating the impact of tourism projects.

The strategy we propose to evaluate tourism projects and fill the knowledge gapsrelated to the role of tourism in development and poverty reduction, includes two primarycomponents: (i) improved data collection on tourism and tourism receipts, and (ii) bettermodelling and assessment of secondary effects. With respect to data collection, this shouldinclude not just the collection of data on tourist arrivals, but also a range of informationabout their activities and spending patterns. Total receipts are insufficient andunderstanding secondary effects requires information on the details of spending. Thisinformation is most useful if collected in a comparable manner across regions withincountries and across countries so that there is a harmonisation of tourism statistics. By

5. Secondary effects are generally considered an important issue in impact evaluation for two reasons. First,because they can potentially contaminate the control group. That is, the control group may receive benefitsfrom a programme indirectly and if this is not recognised the benefits of the programme will beunderestimated. The second reason is that these benefits should be measured, especially if they are an

important portion of total benefits. See Angelucci and Di Maro (2010) for a discussion of secondary orspillover effects.


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means of a combination of these efforts, the strategy is to increase data-collection efforts sothat a critical mass of data is available on tourism in developing countries.

Eventually, these data can then be used to assess the impact of tourism projects bycomparing regions in which intervention has occurred with those where no activities havebeen undertaken. The approach mirrors that taken by Chomitz and Wertz-Kanounnikoff(2005) who faced a similar problem in evaluating a programme to reduce deforestation inBrazil. In this case, the deforestation programme explicitly targets areas wheredeforestation is easily observed and is likely to be unauthorised. Comparisons with nearbyforests that do not meet these criteria are not valid comparisons. The solution is to identifysimilar areas using geographic and socio-economic data to act as a counterfactual for theeffectiveness of these programmes. This is combined with a double-difference approach 6 todetermine if deforestation in the target areas declined, relative to other areas, after theprogramme was instituted. Similarly for tourism, if data on tourism receipts are availableacross a number of countries and regions, it is possible to determine if tourism trends in aregion targeted by a development project are greater than the trends in similar, but non-targeted, tourism regions.

The second component of the impact-evaluation strategy is the use of simulationmodels discussed in Section 3.1 detailed CGE models or economy-wide models tocapture the secondary effects of tourism projects. These models provide an understandingof how the spending of tourism receipts is transmitted through the economy and the effect ithas on prices, wages, economic sectors and households within the economy. If sufficientlydisaggregated to include both a tourism sector and poorer socio-economic groups, it will bepossible to trace how project-induced tourism receipts permeate through an economy. Thetwo parts of the strategy then provide attribution of project impact on tourism receipts andthe direct and secondary impacts of the changes in receipts on the economy.

Of course, taking this approach requires substantial data collection, which providesanother practical motivation for using tourism projects as a basis for understanding tourismreceipts. Tourism projects in developing countries should make a special effort to includefunding for improved tourism data collection as well as funding for systems of monitoringand evaluation. For most multilateral- and bilateral-financed development projects, this isnot an option, because of increasing pressure to show development effectiveness. Itprovides a unique opportunity to expand the knowledge base on tourism and poverty.

5.4 Moving forward

For the reasons noted in this section, tourism projects and the evaluation of these projectshave the potential to expand our understanding of the tourism-poverty link and testparticular hypotheses about the conditions under which this link is most likely to bestrongest. The approaches to evaluating these projects and simulating their effects on theeconomy are generally known and with adjustments can prove quite valuable. Of course,additional analyses such as those noted in Section 4.2 for examining stakeholder

6. The double difference refers to difference across time and difference across space. Thus it allows forcomparisons of trends between a control and treatment group that are independent of initial differences.

Provided the pre-intervention time trends in the treatment and control were, on average, similar prior to theintervention, this allows for an unbiased estimate of programme impact. See Gertler et al. (2011) for this andother approaches to evaluating the impact of development projects.


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relationships are of great importance and play a clear role in understanding tourismdevelopment and poverty alleviation. We have focused less on them here since they arealready being used, while simulation models and impact evaluation have been less used foranalysing the link between tourism and poverty. No single approach can provide all theanswers, since all provide benefits and face limitations. The challenge is to systematicallytriangulate different methods to gain informed and accurate diagnosis, while developingempirically demonstrated propositions with applicability outside the specific context inwhich they have been derived.

6 Conclusion

Understanding the tourism-poverty link is critical if the tourism sector is to be used as amechanism for reducing poverty and achieving the Millennium Development Goals. Thisarticle shows that not only is the conceptual foundation of the tourism-poverty link wellunderstood, but appropriate methods for empirically analysing that link already exist. Theproblem is that these methods have not been adequately employed across a range ofsituations to provide sufficient insights into this link. In this article, we put forward aresearch agenda for using these methods, particularly within the context of tourism projectsin developing countries, to expand our understanding of tourism-poverty links. The agendaincludes three general components.

First, the types of simulations already used by tourism researchers, such as CGE andeconomy-wide models, should continue to be employed, but should be modified asdiscussed in Section 3 to incorporate the impacts of tourism expansion on poverty. Whilethis requires obtaining additional data and modifying in some cases the level at which ananalysis is conducted, it is the best means for quantifying the extent of tourism-povertylinks. If this type of analysis is carried out across a range of tourism circumstances, greaterinsights will be provided on these links.

Second, to provide input for tourism policy-makers on how to direct policies andinvestments, it is insufficient to consider solely whether tourism development is linked topoverty reduction. Instead, a focus of the research should be directed to understanding theconditions under which the relationship between tourism and poverty is greatest. To do thisrequires researchers to carefully consider why the link may vary, and in this article we havehighlighted three general factors that are likely to influence the link. Our personal view is thatstakeholder relationships at tourist destinations play a critical role and that tourism projectsshould make a conscious effort to fully understand these relationships and intervene toinfluence them in a manner conducive to inducing local linkages and poverty reduction. Thisremains a hypothesis that needs to be empirically tested across a range of circumstances.

Third, to establish a causal link between tourism and poverty reduction, researchersshould work with governments, multilateral development banks, bilateral developmentagencies and non-governmental organisations and use the approaches from the impact-evaluation literature to identify the impact of tourism projects on poverty. Not only doessuch an approach allow hypotheses embodied in tourism investments to be tested, butprojects can also provide the necessary funding and data to conduct such an analysis.Through a strategic systematic analysis of a range of projects, insights into which publicinvestments in tourism are most likely to bring about poverty reduction will be provided.


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first submitted March 2011 final revision accepted April 2012

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