Multiplier Effect of Vietnam’s Tourism Spending Lower than Regional Average

Nhat Trung

05:11 11/07/2019

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Every 1 dollar of tourism spending in Vietnam that was retained in the domestic economy (i.e. did not leak abroad through imports) created an additional 0.6 dollars in income for the rest of the economy.

Multiplier Effect of Vietnam’s Tourism Spending Lower than Regional Average
The multiplier effect of tourism spending on the total economy, however, is lower in Vietnam compared to regional and global averages. The World Travel and Tourism Council (WTTC) estimates that, in 2017, every 1 dollar of tourism spending in Vietnam that was retained in the domestic economy (i.e. did not leak abroad through imports) created an additional 0.6 dollars in income for the rest of the economy via (i) the additional indirect demand it generated for other economic sectors with backward and forward links to tourism, and (ii) the additional spending it induced among employees earning income in these linked sectors. 
This tourism GDP multiplier value of 1.6, however, is considerably smaller than elsewhere in developing Southeast Asia, where it averaged around 2.4 in 2017, and also lower than the global average for the tourism sector of 3.3. 
The same is true for the tourism spending multiplier impact on employment in Vietnam—around 1.7, compared to regional and global averages of 2.5 and 2.6, respectively. This points to a need to strengthen tourism sector linkages to the rest of Vietnam’s economy, enabling workers and firms in other sectors to indirectly benefit from Vietnam’s growing tourism.
Beyond its aggregate economic benefits, tourism, due to its tendency to employ high shares of low-skilled, rural, and youth workers, has had high pass-through effects on poverty reduction and increased shared prosperity in Vietnam. Using structural path analysis based on Vietnam’s 2011 social accounting matrix (SAM), Figure 12 maps how the tourism sector, represented by hotels and restaurants, disproportionately benefits households in the bottom 40 percent of the income distribution in Vietnam.
Over half of the benefits of increased spending on tourism flow directly to the bottom 40 percent. An additional 10 percent of benefits are passed indirectly to the bottom 40 percent through the top 60 percent households, predominantly through sectors such as food, agriculture, and services.
Furthermore, tourism also appears to have facilitated some redistribution of income from richer to poorer localities in Vietnam. On average, provinces and municipalities with lower levels of income per capita in 2012 experienced relatively faster growth in tourism revenues per capita in the subsequent 5 years. 

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