Tourism as a Development Mechanism: Evidence from Households in Indonesia

Indonesia is one of the fastest growing tourist destinations in the world, placing it in a position to use tourism as a mechanism for development and for poverty alleviation. In order to do so effectively, the country must consider the true impacts of tourism at the household level. Many studies of tourism in Indonesia investigate the case of one island or region, often using Input-Output models to measure the expenditure that flows through different areas of the sector and the amount of inputs from tourism that either reach or do not reach the rest of the economy, ultimately measuring the strength of the tourism’s multiplier effect. The multiplier effect is a theoretical model that suggests that in addition to the direct impacts of tourism, such as profits reaped by hotel chains, there are secondary and tertiary effects such as the inputs from sectors catering to new populations of hotel employees in an area. Although these Input-Output models are useful, they do not take into account larger macroeconomic variables that may be useful in explaining tourism’s impacts. This study uses a regression analysis to investigate the multiplier effect, specifically of the impacts of foreign tourist arrivals by province at the household level, using net profits from household owned business as a measure of income to households. Results of the model are ambiguous and do not suggest a clear relationship between the variables of interest. Future research on this topic is needed as Indonesia continues to develop and attract growing numbers of tourists