A response to Oxford Economics' Review

Critique of 'An Analysis of State Funded Tourism Promotion' not substantive, helpful

In a paper dated June 26, 2017, Oxford Economics (the parent company of Tourism Economics) published a review of our work on state-funded tourism promotion. As a faculty member who regularly participates on both sides of peer review (some two dozen times each year), I offer a brief response.

There are six critiques of our study offered in this review. A response to each follows in order:

Critique 1:

The first substantive critique is that our hypothesis test attempted to prove a negative (that state tourism dollars do not impact tourism industry in the state). Not only is this factually incorrect, but we actually did detect a positive impact of state spending on the tourism industry. The following quote is from the executive summary of our study:

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The results of this econometric analysis, based on data from 48 contiguous states over a 39-year period, find only a small positive impact of state-funded tourism promotion on the hotels and accommodations industry, no impact on recreation and amusements, and a microscopic one on arts and entertainment incomes.

And from page 24, referring to statistical estimation output in Graphic 3:

. . .[T]he estimates indicate that a $1 million increase in state-funded tourism promotion spending in the average state during this period would have resulted in about a $20,000 increase in GSP in the hotels and accommodations industry.

It is not necessary to have read to page 24 of this 36-page study to figure out that we did detect econometric evidence that state tourism spending increased hotel and accommodation GSP during the period under investigation. These are vanishingly small effects that argue against state tourism spending, but to claim our model cannot detect tourism, nor did do that, is factually incorrect. It can, and we did.

Critique 2:

The second critique restates the argument that our model cannot detect state tourism funding. The argument is that state tourism spending is so small, that it cannot be detected by econometric methods. Again, we offer the evidence of our published results. We did find evidence that state spending impacts the tourism industry. The problem is clearly not our method (which was described in the executive summary, and again in the data and methods section, and reviewed in the results section, and then summarized at the end of the study).

Critique 3:

Again, this critique restates the notion that our model cannot detect the effects of state tourism support on state tourism. Yet, we did find that state spending impacts at least some narrow sectors of tourism spending within a state. Our model, mathematically represented in equations 1 and 2 and described in detail in the accompanying text, did control for regional business cycle variation and lagging impacts of spending.

Critique 4

Oddly, the reviewer(s) contend that the category of arts, entertainment and recreation is unrelated to tourism, based on BEA analysis designed to capture extra-regional spending. That is wrong for two readily understandable reasons. The first is common sense. Tourism spending would necessarily attempt to influence the behavior of residents and nonresidents alike. But, more importantly, we don’t measure the level of spending, but its year-to-year change (while controlling for state specific conditions, like population and income changes). So, if even a modest share of the year-to-year change in arts, entertainment and recreation is based on tourism, it should be detectable to our model, as was the case in the hotels and accommodations sector.

Critique 5

Local and private sector funding for tourism does indeed accompany state spending. These spending levels are unknowable in a data form, so they must be estimated using fixed or random effects at the state level. We did this in our study.

Critique 6

Our study reviewed all the available existing literature we could find that evaluated the impact of destination marketing and state tourism promotion spending on the tourism industry. We find the research in this area to be largely unhelpful, with little effort to test the hypotheses of tourism spending by state governments on the industry itself. That is why we conducted this research. We did note one especially meritorious piece of analysis, which appeared in a respected economic travel journal. Our model, which is described thoroughly in our study, is an extension of that work.

In summary, we believe the Oxford Economics review to be largely lacking of a substantive or helpful critique. We are open to thoughtful criticism of our work, which we found useful in the pre-publication period when this work was subject to peer review by scholars unknown to us. We find little else to address in this review by Oxford Economics.

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