The Guggenheim effect is seen as the process of gentrifying an area for cultural and economic reasons. Often cities and countries aim to create a cultural center for visual and performance art. Committees push parts of the city which were once barren or derelict to be cleaner, more sophisticated to attract a better group of residents.
The Guggenheim museum system exists in 5 places: Venice, New York, Abu Dhabi, Bilbao and Berlin. Each one has incorporated the culture of the area in which the museum is based, along with masters of contemporary art. There are extreme critics of this system however. Often these Guggenheim off-shoots are seen as franchises, the “Wal-mart” of art museums. Critics often cite that these Guggenheim off-shoots are countries’ or regions’ synthetic attempts at bringing culture to their area. This criticism does have some merit, and further bringing art and other culture by throwing money at it is something a plan which the United Arab Emirates knows all too well. The places which these “franchises” are located are often in run-down, previously industrial areas of town. This changes the landscape of these areas, however displaces all people living there in exchange for a synthetic cultural experience.
This synthetics art culture does not sit well with many in the art world. The museums in Bilbao, and Abu Dhabi are not just about the art. In fact the classification for which these museums fall into is more “art tourism”. The Guggenheim effect is credited by bringing both the museum and other attractions to the area. Hotels restaurants and other attractions are all brought to the area to support the museum. The influx of businesses and attractions often displace current business and residents through the high rent prices. The areas are seemingly transformed over night, luring in the high-class citizens with condos and high class living arrangements. This however has become a slow process. Many citizens’ opinions of the areas have not changed from its previous use. Often, wealthy older citizen still consider the areas to be rundown and crime ridden despite the new status as a cultural icon.
However there are also many positive aspects associated with the cultural expansion of the Guggenheim effect. The influx of art can absolutely be seen as a positive for run-down decrepit neighborhoods. Further, bringing fine art to a country or region thousands of miles away from New York or a comparable art center may inspire artists who previously were not able to see anything like contemporary art. The intersection of art and diplomacy is best exemplified through the Guggenheim effect. Exhibitions featuring controversial issues can be shown easily through this museum, pushing citizens’ thoughts and country-wide problems.
Besides the cultural aspects of building a synthetic cultural experience, the economics of the endeavor are quite compelling. In Bilbao, the building of the Guggenheim Museum Bilbao has created both jobs and revenue for Spain along with transforming a previously unattractive area. Roughly 4,500 jobs were created from the projects and over $200 million in tax revenue were collected from commerce related to the museum. One of the bigger perks is that the area of Bilbao was known for having one of the highest crime rates in the country, and essentially with the influx of the Guggenheim has helped clean up the area and change its reputation. 
(Guggenheim-Bilbao) 
(Maman sculpture outside the Guggenheim Bilbao)
The Guggenheim Effect’s influence on the art market can be vast. The ability for more people to view great art, both international and domestic exhibitions, increases the amount of collectors of fine art. The contemporary focus, and aspects of the home culture bring prominent issues to the forefront, and provide yet another intersection for art, culture and diplomacy. The museums provide an opportunity for cities to change the image of some parts from crime ridden to cultured, and provide jobs to an area which often desperately needs them. The negative effects of the expansion are often shown to be a displacement of the current culture. Instead of an organic rise of culture and art appreciation within a country, the mass marketing of the “McGuggenheim” forces art of different cultures and on to a new population, homogenizing tastes and preferences. Bringing an international art powerhouse to a country may also polarize the art market. Many criticize the current art market as being too consumer focused, with prices of works reaching tens of millions. A common criticism is that the Guggenheim museums are not for the average person in the UAE. Instead they are meant for the elite to gain exposure to Western contemporary art and increasing the collector base with the large amount of capital found in the UAE. There is no doubt that with more collectors (especially within the UAE where a vast amount of money is present) prices will rise at the large auction houses and the average collector may be driven out of the market.
Sources:
http://www.archdaily.com/11956/economical-crisis-and-the-bilbao-effect/
http://www.newcolonist.com/bilbao.html
http://www.nytimes.com/slideshow/2007/09/23/travel/20070923_BILBAO_SLIDESHOW_index.html