The Multiplier Effect

Tourist spending can have successive and magnified effects on the host country's economy in three ways. First, tourist spending creates direct revenues, called the direct-multiplier effect. Second, the recipients of direct expenditures spend that money to purchase necessary goods, for an indirect-multiplier effect. Third, the beneficiaries of the direct and indirect spending in turn spend that revenue on unrelated goods and services, thus creating an induced-multiplier effect. Given the increasingly higher tourism multipliers, tourism's contribution to Singapore's economy has increased over time. Tourism contributed 11.9 percent to Singapore's GDP in 1992, about half of that from direct revenues. Indirect and induced sources contributed about equally to the other half. While the direct effects of tourist expenditures on the Singapore economy are predominant, the indirect and induced effects are also significant, indicating strong sectorial linkages within the local economy, especially with respect to the hospitality industry.