Many funders, including international development banks, require that a cost-benefit analysis be carried out prior to the approval of project loans. Potential benefits of tourism projects include not only increased tourism receipts but also the employment and income multipliers they generate within the economy. Tourists rarely transact directly with the poor; thus, the poverty impacts of tourism development are largely indirect. Conventional cost-benefit analysis is likely to miss many if not most of these impacts, biasing cost-benefit analysis against funding tourism-development projects. This chapter describes a methodology for cost-benefit analysis that encompasses both the direct and indirect benefits and costs of projects. It applies this methodology to a variety of tourism-development projects in Latin America. The methods in this chapter are potentially applicable to cost-benefit analysis of other types of projects whose net benefits include indirect impacts on actors not directly affected by the project.
Economy-Wide Impact Evaluation