Economic Impacts of Inbound Tourism under Different Assumptions Regarding the Macroeconomy

Abstract

On what is taken to be the 'Standard View', increased tourism expenditure from inbound markets has direct, indirect and induced effects on a host destination, leading to increased production, income and employment. Strong links between tourism and other sectors of business reduce import leakages from tourism expenditure thereby enhancing the multiplier effects of the injected expenditure on domestic output, value added and employment. The usual technique for analysing these effects is input-output analysis. This paper argues that economy-wide effects must be taken into account in determining the impacts of increased tourism expenditure on a destination, and that the 'Standard View' is superficial and very often misleading. An expanding tourism industry tends to 'crowd out' other sectors of economic activity, reducing the demand for traditional exports and import competing industries. The extent of these 'crowding out' effects depends, in turn, on the workings of labour markets, changes in prices and the real exchange rate, and the macroeconomic policy context. It is argued that these mechanisms can only properly be taken into account using Computable General Equilibrium (CGE) models rather than input-output modelling. The paper then looks at applications of CGE modelling to tourism growth in both nations and regions, classifying the various studies according to assumptions made about labour markets and government policies. The discussion has relevance for estimating the economic contribution of tourism in all destinations. The paper concludes with some observations regarding the use of CGE modelling in tourism contexts internationally and issues for further research.

A quantitative framework for assessing public investment in tourism – An application to Haiti

“…Table 5: Change in sectoral real value added, exports, and imports (percent deviation from base) Source: Authors' own elaboration. Certainly, the key mechanisms which determine the size of the economic impacts resulting from increased tourism demand include: factor supply constraints, exchange rate appreciation, and current government economic policy (Dwyer et al, 2000).…”

“…Furthermore, where public resources are used to finance tourism investment, private consumption growth tends to slow thereby constraining the potential positive income and employment impacts of tourism-based growth. Thus, to assess the net welfare impact of tourism investment, country-context is critical, especially the consideration of factor supply constraints, domestic capacity to service the tourism sector, and the macroeconomic and fiscal policy environment (Dwyer, Forsyth, Madden, & Spurr, 2000;Dwyer, Forsyth, & Spurr, 2003.…”

A Framework for Ex-Ante Economic Analysis of Tourism Investments: An Application to Haiti

“…In other words, if wage increases are constrained and extra labor used would otherwise have been unemployed, these types of 'crowding out' effects are less substantial. Certainly, the key mechanisms which determine the size of the economic impacts resulting from increased tourism demand include: factor supply constraints, exchange rate appreciation, and current government economic policy (Dwyer et al 2000). In Appendix D we perform a detailed sensitivity analysis of our model results.…”

“…Furthermore, where public resources are used to finance tourism investment, private consumption growth tends to slow thereby constraining the potential positive income and employment impacts of tourism-based growth. Thus, to assess the net welfare impact of tourism investment, country-context is critical, especially consideration of factor supply constraints, domestic productive capacity to service the tourism sector, and the macroeconomic and fiscal policy environment (Dwyer, Forsyth, and Spurr 2003, Dwyer et al 2000, Dwyer, Forsyth, and Spurr 2004.…”

Computable general equilibrium modelling: an important tool for tourism policy analysis

“…CGE estimated destination-wide measures of tourism's economic impact, provide information unavailable on the other approaches (Dwyer et al, 2000 especially concerning industry interactive effects and the economic impacts in different government jurisdictions.…”