The regional economic impact of Tourism Ásgeir Jónsson The Department of economics University of Iceland ajonsson@hi.is http://www.hi.is/~ajonsson/ Njáll Friðbert Traustason Þórhallur Ásbjörnsson The Tourism foundation University of Akureyri 11/13/2018

The number of forreign visits to Iceland The number of foreign visit to Iceland has grown exponentially – about 6% a year- since 1960. The number of forreign visits to Iceland

The service sector has been leading the way in economic growth in Iceland since 1994

Many visits - small nation The population of Iceland is almost too small to support the infrastructure, scale economics, specialization needed for a developed economy. Foreign visits have similar effect as population a similar effect as a population increase, without the welfare costs. This is especially true since the main thrust of the taxation is indirect or even user fees, such as the levies on gasoline which one has to pay to use the road system. Iceland would also be unable to maintain an international airport with the current flight frequency or number of destination without the foreign visits. However, the tourist industry holds another promise for Iceland … …to resurrect the service economy of the depressed rural areas.

If we arrange all provinces of Iceland on a circle… The change in population distribution in the 20th century becomes quite stark Population distribution in 2000 Population distribution in 1900 Reykjavík & suburbs Akureyri & Ejafjörður

The collapse of the service economy The population of many rural areas in Iceland has been shrinking very rapidly for the past few years. This is particularly true for townships in the East, West (Vest fjords) and North, which lie at sea and are surrounded by mountains. For townships in these parts of country a 10-20% total population decline since 1980 is not uncommon. However, the loss of young people is far greater in these towns, where about 60% of the individuals born in 1968-72 have left their home since 1988. In these areas the local service economy has collapsed, partly due to better transportation and partly because the population has gone below the threshold needed to sustain specialized service business.

The data used Earned income statistics – data obtained directly from firms by tax authorities, classified according occupation and legal residence. Available by region. Accommodation or number of nights spent – compulsory reports by all suppliers to the National data registry, but may be unreliable. Available by month and by region. Number of days spent – surveys taken from random sample of foreign visitors by tourist board, available by month but not by region. Currency exchanges – information gathered by the Central bank from the commercial banks. available by month but not by region.

However, the tourists spent their time in the rural areas… but their money in Reykjavik Days spent in Reykjavik % of total days spent in Iceland Earned income from tourism in Reykjavik % of total earned income from toursm in Iceland

Only 11% of earned income from tourism is not spent in close approximity to either Reykjavik or Akureyri – the main population centers of Iceland

Tourism is essentially a service industry Large population centers simply have an advantage in services, with regard to quality, diversity and even price. Therefore, money from tourism is mostly earned in Reykjavik… Indeed, in many parts of Iceland it is almost impossible for tourist to spend money on anything else than gasoline, hamburgers and perhaps accommodation. Moreover, foreign visits to the rural areas are confined to the summer months and can thus not create a stable year long employment. Tourism in the rural areas is therefore mostly operated by workers from Reykjavik, spending the summer months out in the country.

Tourism in the rural areas are confined to just three months a year Nights spent in the rural areas by month Nights spent in Reykjavik by month

Foreign currency exchanges ISK by each night spent by a foreign visitor The conference effect The sleeping bag effect

Foreign currency exchanges ISK by each day spent by a foreign visitor The sleeping bag effect

The regional impact of tourism The regional impact of tourism can be clearly seen if the earned income from tourism divided according to regions. Tourists spend more in the cluster but also in close proximity from them. These are the only regional economic impact measures available given the current available data. These may somewhat exaggerate the impact in Reykjavik since a higher proportion of e.g. restaurants & catering may serve local than is the case in the rural areas. Many people, living in Reykjavik, are also working in the tourist industry out in the rural areas. However, these are the best measures available.

Earned income ISK from each night spent on paid accommodation of a foreign visitor

So is tourism just for city dwellers? The

Asphalt roads in Iceland

Conclusion The decline