The Multiplier Effect

  February 28, 2022   Read time 1 min
The Multiplier Effect
Trade and foreign investment in medical and nonmedical tourism contribute directly to raising the gross domestic product. They also have a multiplier effect insofar as they result in forward and backward linkages throughout the economy.

The arrival of a tourist/patient has linkages that result in industrialization extending well beyond the tourist/health sectors, as well as rises in employment, incomes, and aggregate demand. These in turn increase production, employment, and income as the country moves on a growth trajectory.

While sales and output multipliers are relevant, employment and income multipliers are the most important measure of tourism’s role in economic growth. They measure the ratio of the initial increase in tourism expenditure to its fi nal impact on employment or income. The higher the multiplier coeffi cient, the greater the amount of additional employment or income created by an increase in tourism expenditure. In typical LDCs, each dollar spent by tourists creates $2 to $3 of output in the economy (so the coefficients range between 2 and 351).

The UNWTO claims that the tourism multiplier has a large growth potential for the following reasons. First, tourism is consumed where it is produced, usually in conjunction with other products and services. Second, since tourism is labor intensive, a broad range of workers receive its income and, in turn, spend it in the local economy. Third, given tourism’s diversity, the scope for broad participation is large, leading to development of the informal sector.
The net effect of tourism multipliers on the macroeconomy may be lower than expected due to leakages associated with the dependent nature of tourism.

Write your comment