International tourism specialisation of small countries

Abstract

International tourism has expanded enormously over recent decades, fuelled by changing consumer tastes, advances in transport and new holiday destinations. The present study aims at analysing the linkages between economic growth and tourismbased economies. An econometric model for a selected number of small countries has been implemented to investigate the nature, magnitude and overall significance of the demand for tourism. Countries were selected to capture regional diversity, differences in market orientation and a range of experiences, from emerging to long-standing industries. The results show that tourism can be a significant engine of economic growth, when the elasticity of substitution between manufacturing goods and tourism services is < 1. Finally two stylised facts emerged, namely: (i) countries specialised in tourism register good economic performances; (ii) these same countries have small dimensions as defined by international trade theory. Copyright Keywords: specialisation; demand for tourism; small countries. INTRODUCTIONT he aim of this paper is to analyse the relationship between economic growth and international specialisation in tourism. The interest for the topic arises because the economic literature attributes the economic performance of a country mainly to its manufacturing sector. In contrast, this study highlights the importance of tourism, i.e. a part of the tertiary sector, as a possible source of income and economic growth and gauges the tourism demand for a set of countries.The work is organised as follows: part one deals with the international specialisation patterns of a group of selected countries. Part two discusses the correlation between economic growth and specialisation in tourism and lays out the conditions to generate economic growth. Part three presents an econometric analysis of the aggregate demand for tourism. INTERNATIONAL SPECIALISATION INDICESTourism is one of the most important tradable sectors. It accounts for about 9% of world gross domestic product (GDP) and employs around 200 million people worldwide. Between 1970 and2003, international tourism receipts experienced a 29-fold increase, rising from US$17.9 billion to US$523 billion annually (WTO Tourism Highlights and WTO News, 2004). With about 700 million international travellers per year tourism has become a dynamic source of income and a strategic sector for development in many countries.To understand the link between economic growth and tourism a number of economies classified by World Bank analysts as high To detect the factors that drive these positive performances, the Balassa index (Balassa, 1965) has been calculated. This index allows understanding of the structure and determinants of international trade and identifies the origins of comparative advantages. Formally, the Balassa index is given by where x yi stands for country i's exports of commodity y. Note that i = 1 . . . M countries and y = 1 . . . N commodities. The Balassa index has a lower bound of zero and no upper bound. A country that is mo...

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