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Some clarifications on the tourism growth puzzle

Egon SMERAL - Economist, Autrian Institute of Research, WIFO, Vienna, Austria

 

INTRODUCTION

Many tourism experts believe that tourism is the fastest growing economic activity and will in the future become the largest sector of the world economy. 

RECTIFYING THE TOURISM GROWTH MIRACLE

• In general, world tourism has an income elasticity of demand greater than 1.
• Fast growing tourism demand is an empirical fact for many countries. Not all tourism products are luxuries.
• Knowledge-based services are the fastest growing activity – NOT tourism.
• In 1998, world tourism exports amounted to 5.9% of the world exports of goods and services.
• If tourism is to constitute the largest part of the world export of goods and services it would take approximately 109 years to meet the goal.

LET'S LOOK OVER THE FENCE

• The tourism industry, which produces mostly embodied services, offers fewer opportunities for productivity growth through technical progress than industries which produce disembodied services.
• The impact of technical progress is a major reason for the relatively faster growth of "other" service exports which are mostly disembodied services or knowledge-based services.
• The relatively slow growth in labor productivity reduces tourism growth.
• One major outcome of low productivity growth is the rise in relative prices for tourism products.
• The relatively slow growth of labor productivity in the tourism industry is one of the main reasons why tourism has a positive image as an above-average employment generator.
• One has to consider that, with increasing per capital income level, the relative price of embodied tourism services deteriorates very rapidly once a certain development level is reached when the potential for productivity improvements has been fully exploited.
• In tourism, diminishing returns to capital become effective – apart from the effects of high income levels in developed countries in general – as tourism intensity reaches a certain level.
• The new tourism destinations have gained advantages from their backwardness, as tourism is easy to imitate, as well as from their opportunities to realize high returns to capital.
• This might explain why tourism in poor countries grows faster than in rich countries.
• In general, it seems tourism is more or less a poor man's good.

Nominal elasticities with respect to GDP, 1980-1998, on a US$ basis

	Tourism Exports	Tourism Imports
world	1.45	1.39
low income countries	2.38	2.87
middle income countries	2.58	1.78
hight income countries	1.25	1.36

Source : World Bank, own calculations.  

  

Development of per capital GDP and the degree of specialization in international tourism

Source : Own calculations.

  

New growth theories

• Advanced countries could also realize high growth rates.
• According to the new growth theories, growth can result:
• from accumulation of human capital, involving education and training of present and future workers,
• "learning by doing",
• worker empowerment,
• research and development.

Will tourism be the fastest growing activity and also the largest sector in the long term ?

Some pro's :

• Technical and organizational progress allows high productivity gains as well as high income increases, which become distributed more equally on a world wide scale.
• Moving instead of staying (belonging) becomes the main motivation.
• Technical progress lowers the negative environ-mental impact of traveling close to zero (hydrogen revolution).
• Technical knowledge will be passed rapidly to the developing countries.
• The tourism specific accumulation of human capital fosters tourism growth strongly 

Some con's :

• Working life will be increasingly competitive, so that there will be less time to travel, also as the retirement age is expected to be raised.
• The advent of more travel by more people (Russia, India, China) will be restricted by rising environmental problems, increasing accidents and capacity constraints (e.g. for air and car travel). The conditions for sustainable tourism growth would deteriorate in the long term.
• There are increasing conflicts between investors who wish to maximize their shareholder value and the conditions for sustainable tourism growth. A lack of physical capital for developed tourism areas could be the consequence.

Some con's (contin.) :

• In the developed countries saturation with travel experiences will foster leisure consumption at home or in the second home. This might reduce the negative impact of tourism on the environment, but will increase "tourism" expenditure in terms of definitions of Tourism Satellite Accounts.
• Technical progress is not fast enough to reduce the negative environmental impact of mobility significantly in the next one or two generations.
• Technical knowledge is monopolized by the rich countries.

 

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