Assessing the Impacts of the Cultural Industry

May, 2004


The word "impact", when used in the phrase "economic impact analysis", has two somewhat different interpretations within the economics of the arts and culture. The first arises when the economic impact study under consideration relates to an institution such as an art museum, or an event such as a festival. In these cases the impacts are specific, seen for example in the effects of the institution or event on incomes or employment in the surrounding city or region. The impact in this sense is quite literal; the question is asked as to how the existence of the project affects economic activity, and the interest of the analyst frequently lies in comparing the with-project and without-project scenarios in order to demonstrate the benefits flowing from the project investment. Well conducted, with due regard for economic and statistical rigour, such studies can be very useful. However the pitfalls are many, as has been documented in the literature (Seaman, 1987, 2002; Bille Hansen, 1995; van Puffelen, 1996; Frey, 2004). There have been a number of dubious applications of the technique over the years; it seems that poorly-executed studies are particularly likely to arise when the motive is advocacy rather than objective economic analysis.

In this paper I want to turn attention to the second sense in which "impact" is used in the analysis of artistic or cultural phenomena. This sense is much broader, relating to the economic effects of whole industries or groups of firms or institutions in the cultural sector, rather than to a single project. In this context, interest is likely to centre on the economic "contribution" rather than "impact" of the industry or sector, assessed in terms of its levels of output, employment, export earnings, etc. Nevertheless, the phenomenon of impact may not be far away, because an analysis such as this may be able to be used to assess the impact of an exogenous shock affecting the industry, such as the sudden imposition of a tax or subsidy.

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