the rate of extreme poverty in non-indigenous rural areas, but it has not been sufficient to improve poverty in indigenous areas.

Growth of the tourism sector can be a major new source of off-farm income in rural and in some indigenous areas, resulting in a significant decline in rural and indigenous poverty. This reduction can occur through several channels: employment creation, higher wages, and access to newly provided infrastructure and community services developed as part of the tourism area. Tourism development can also benefit the local population through indirect effects, such as changing prices for land and agricultural products.

But tourism growth can also have adverse social and poverty consequences at the local level. Communities can lose access to natural resources, for example, traditional fishing grounds and forests; water quality may deteriorate with development of mass tourism and real estate construction in coastal areas; households that are net consumers of agricultural commodities and services would be adversely affected if their prices rise; in some circumstances, the social fabric in the indigenous communities may be damaged by tourism development. Despite the significant aggregate gains from the growth of the tourism sector for the country, at the local level this impact may be ambiguous. The direction and the magnitude of the welfare impact at the province, district and community levels crucially depends on the extent to which the growth of economic activities associated with the tourism sector stimulates the local economy, and to what extent the poor and indigenous community participate in this growth.

# **4. Approaches to Measuring Economic and Social Impact at the Local Level**

The tourism sector can play an important role as part of a country’s overall growth strategy and contribute to poverty reduction, and from a macroeconomic perspective the sector is clearly an important source of economic growth in Panama. However, the tourism sector’s impact on the local economy and people at the destination level is unclear. Global experience reveals that tourism can have significant direct benefits at the local level by generating employment and improving wages, and several indirect effects such as stimulating growth in tourism-related activities (for example, services, transportation, and handicrafts). On the flip side, many of these benefits may accrue to people and factors of production outside of the region. This ―leakage‖ of benefits increases when hotels and other tourism establishments hire non-local labor and use other inputs, including agricultural products, which originate outside the region. Tourism development can also have negative cultural and social effects on local communities, negating many of its economic benefits.

Benefits to the poor from tourism development don’t depend as much on the type of tourism, but on how the tourism economy is structured.<sup>9</sup> The key factors are the way supply chains work, how far backward and forward linkages extend into the economy and reach the poor, and how tourists spend their money. For example, a comparison of case studies of tourism development in Ethiopia, Lao PDR, The Gambia, and Tunisia has contrasting findings with respect to the impact on the poor (Ashley 2006). Cultural

> 9 The following review of the four case studies is based on Ashley (2006).

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