Vous êtes sur la page 1sur 38

ECONOMIC IMPACT ANALYSIS OF TOURISM IN THE PHILIPPINES

USING INPUT-OUTPUT MODEL1

1
A thesis proposal submitted in partial fulfillment of the requirements for
graduation with the Degree of Bachelor of Science in Economics, College of
Economics and Management, University of the Philippines Los Baños. Prepared at
the Department of Economics under the supervision of Prof. Jhoana V. Alcalde.

Creissa Anne A. Rostrata

CHAPTER I
INTRODUCTION

Background of the Study

Tourism is becoming one of the fastest growing sectors in the world. It plays an

integral part of economic development strategies in developing nations since the 1960’s

(Lin and De Guzman, 2007). For decades, it has been a major component in the increased

of economic activity in the different parts of the world. It created jobs in both large and

small communities and provide additional income in the community. In fact, the growth

of this sector has large impact on employment, foreign exchange earnings, balance of

payments and the economy in general (Pao, 2005).

In the Philippines, tourism plays an important role in the economy. It started to

flourish in the 1970’s up to 1980’s. Fast growth in Philippine tourism was more obvious

in the early 1990’s. In the year 2000, net tourism income in the Philippine totaled to 2.1

billion U.S dollars. Moreover, based on the PTSA study conducted by Virola (2003),
total tourism expenditures amounted to Php 140 billion in 1994 and increases at Php 274

billion in 1998. This implies an average annual increase of 11%.

Although tourism has become a fast-growing industry, pertinent economic analyses

have been somewhat limited, possibly because it is not a single independent industry but

rather comprises businesses from different sectors (Tooman, 1997). Yet, interest in the

effects of tourism on the economy and on employment has grown gradually as the role of

tourism as an industry has become emphasized.

The economic contribution of tourism is not a new field of research. Both the demand

and supply sectors of the industry have been under the scrutiny during the past few

decades. The scope of tourism has been developed and grown immensely, but still, the

structure of investigation has remained largely unchanged. “The links between tourists

and tourism enterprises constitute the mainstay of the economic impact analysis of

tourism” (Paajanen, 1999).

In general, economic impact analysis estimates the changes in economic activity

within a region resulting from an action. In tourism, Archer (1989) defines economic

impact analysis as an approach used to measure inter alia the amount of income,

government revenue, employment and import generated in an economy by direct and

secondary effects of visitor expenditure.

Moreover, there are a variety of methods that can be used to measure the economic

impacts and effects associated with tourist expenditure. Any assessment of the overall

economic impact of tourism requires detailed information about the visitor expenditures,

prices, tax revenues, and expenditures by other sectors of the economy. Also, most of the

studies incorporate the application of multiplier to determine the impact of tourism. The
common methods used for the economic impact analysis of tourism include the input-

output analysis, computable-general equilibrium model and simple multiplier analysis.

Stynes (1999) defines the different levels of tourism impacts. Direct effects are the

changes in economic activity at the first round of spending. This involves the impacts on

businesses directly selling to tourist. Secondary effects, which are composed of indirect

and induced effects, are the changes in the economic activity from the subsequent rounds

of re-spending tourism income. Indirect effects is defined as the changes in sales, income

and employment within the region in “backward-linked industries” supplying the goods

and services to tourism businesses while induced effects are the increased sales within the

region from household spending of the income earned in tourism and supporting

industries. Furthermore, the sum of direct, indirect, and induced impacts constitutes the

total impact of tourism.

In this study, input-output analysis was used to evaluate the economic impact of

tourism in the Philippines. This method of impact analysis for tourism has been widely

used in the analysis of tourism in many countries.

Statement of the Problem

The Philippine government recognizes the importance of tourism industry as a major

contributor in the country’s economic growth. In fact, tourism development is among the

top priority of the country as stated in the Medium-Term Philippine Development Plan

(MTPDP) for 2004-2010.

As cited by Nhu (2007), the MTPDP 2004-2010 includes the tourism industry as one

of the sectors that has a potential to boost the Philippine economy. MTPDP 2004-2010
stated that tourism industry is one of the top priorities for the national development

because it was considered as a powerful and efficient industry such that its impacts on

social development are broad and deep.

The Philippines also adopted the Tourism Satellite Accounts to provide an overview

on the status of tourism in the country. Although considered as a reliable measure to

identify the role of tourism in the Philippine economy, the Philippines Tourism Satellite

Account (PTSA) concentrates more on reporting the status of the tourism sector. Also,

even though it provides a measure for the tourism expenditure, it does not offer the

comprehensive view on the impact of tourism in the economy.

Despite the recognition of the tourism contribution in the Philippine economy, still,

only limited studies has been conducted to emphasize the economic impact of tourism in

the country. As discussed, it includes the PTSA study of Virola under the National

Statistics Coordination Board. Nhu (2007) also conducted a study on the impacts of

tourism in the economy using a CGE model which also utilized the 1994 input-output

table to identify the tourism subsectors.

In response to this, the study intends to investigate the economic impact of tourism in

the country and provide a more comprehensive view on the total effects of tourism

expenditure in the economy. This also identifies the sectors that have relationship to the

tourism industry and evaluates the impacts on tourism subsectors. Moreover, the study

will evaluates the status of the tourism industry in the country using the latest available

data on the tourism sector.


Significance of the Study

“The recognition of tourism and leisure as a fast growing industry has led to its

identification as a potential driver of regeneration in economically disadvantaged

localities” (Jones and Munday, 2001). Unfortunately, while tourism is becoming more

dominant, yet, the impacts of tourism to a community are not widely understood.

Faulkner and Tideswell (1997) stressed that economic impact analysis can provide

tangible estimates of tourism’s contribution to an economy. In applying an economic

model, economic impact analysis can provide estimates of the total economic impact of

tourism activities that will influence an economy. The economic contribution under

consideration often results in public policies or decisions that are favorable to tourism

development.

The analysis of the impact of tourism in the Philippines provides a more empirical

view about the importance of tourism in the country. The study traces the flows of money

from tourist spending since it revealed the interrelationship among economic sectors and

provide an estimate about the changes that take place in the economy due to the changes

in the trends of tourism in the country. Aside from that it shows how the tourist arrival in

the Philippines contributes to the progress of some businesses and sector that may be

affected by tourism.

With the use of the input-output analysis, a wider perspective on the tourism impacts

could be obtained. It details how changes in one or more sectors in an economy will

affect the total economy. Although this model has various restrictive assumptions, it can

still be considered as a suitable method for economic impact analysis of tourism

(Fletcher, 1999).
Objectives of the Study

Generally, the objective of the study is to assess the economic impact of tourism in

the Philippines. Specifically, it aims to:

1. Provide an overview on the status and trends of Philippine tourism

2. Identify the sectors that are linked with the tourism industry and evaluate

the linkages among them

3. Evaluate the impact of tourism in the Philippine economy in terms of

output, income, employment indirect tax, and imports generated

4. Identify policy implications regarding the development of tourism industry

in the country.

Scope and Limitations of the Study

The study is limited in an economic perspective for assessing the impact of tourism.

Moreover, the scope of the analysis is the impact of tourism in the Philippine economy

which excludes the analysis of social, cultural, political and environmental impact of

tourism.

The study also utilized the input-output model in the evaluation of tourism impacts

which also works on various assumptions and restrictions.

A wider scope of analysis may include the social cultural and environmental impacts

of tourism. Additional research could also identify the costs of tourism and compared it

with the revenues that can be generated in tourism. Moreover, other methods for

analyzing tourism impacts can also be done particularly the computable-equilibrium

model.
CHAPTER II
REVIEW OF RELATED LITERATURE

As cited by Calma (1997), tourism is viewed as “a manifestation of modern’s

society’s need for recreations and leisure”. It is a result of paid vacation and available

disposable income of the aging society. It is also an expression of an informal

communication and technological change which makes mass travel to distant places

possible.

Crawford (1991) observed that the growth of tourism can be attributed to

demographics, transportation deregulation, unprecedented development of

accommodation, previously unimaginable political alliances and aggressive initiatives of

forces associated with travel and migration. Tourism is also considered as a volatile

industry in which potential visitor can easily abandon popular destination because of

great competition and also due to threats to health and security, range of pressures and

peculiar influences that may affect tourism’s role in development.

Today, the trend of tourism was described as the age of mass tourism or tourism

activities that takes place in large scale. According to the World Bank assessments,

tourism today is one of the largest developing world industry. The World Tourism

Organization announced that 2006 was a peak year for world tourism (WTO, 2006).

Figure shows that the number of tourists visiting other countries increased by 4.5%

against the year 2005 and amounted to 842 million persons. Data also shows that the

greatest influx of tourists occurred in South Asia.

According to the estimates of the WTO, the number of international movements of

people around the world will surge to 1602 million by 2020 while tourism receipts will
reach some 200 billion US dollar. Furthermore, World Tourism Travel Council estimates

that the scale of the world tourism industry which is roughly 10.4% of world’s GDP in

2004 will increase up to 10.9% in 2014. “The long-term forecasts point to a mature but

steady phase of growth for world Travel & Tourism between 2009 and 2018, averaging a

growth rate of 4.4% per annum, supporting 297 million jobs and 10.5% of global GDP by

2018 (WTTC, 2005).

Although tourism is now one of the world’s fastest growing industries, previous

studies emphasized that tourism is likely to grow much faster in developing countries

than in developed countries. It is the most promising complex and understudied industry

in developing countries today. In 1950’s, most studies assured that the extension of the

industry in developing countries was a good thing that certain problems of the industry

can be surpassed through time (Lin and de Guzman., 2007).

Generally, tourism tends to play a major role in the economy of poor countries.

According to the World Tourism Organization (WTO), tourism contributes over 2

percent of gross domestic product (GDP) and 5 percent of exports to the economies of 11

of the 12 developing countries (Ashley and Goodwin, 2001).

Impacts of Tourism

Tourism industry has been the focus of study in recent times due to emerging

consensus that this sector increases foreign direct income, creates employment

opportunities, stimulates the growth of the tourism industry and triggers economic growth

as a whole. Thus, the development of the tourism sector has become an important target

of many countries (Lee and Chang, 2007).


Moreover, tourism became one of the main sources of income in the balance of

payments in many countries. In fact, in some small countries which are highly dependent

on tourism, the income from the sector outweighs exports of goods (Martin, 2004).

Some described tourism as an “invisible export industry” where there is no tangible

product. And the fact that tourists have to travel to a destination to make personal use of

facilities they desire, only few freight cost are incurred by the host country because the

means of travel are generally foreign-owned (Martinez, 1997).

Most studies give emphasis on the economic impact of tourism due to its undeniable

effects on several countries’ economy. Tourism increases employment opportunities.

Additional jobs, ranging from low-wage entry level to high-paying professional positions

in management and technical fields generate income and raise standards of living.

Particularly, in rural areas, the diversification created by tourism helps communities that

are possibly dependent on only one industry. As tourism grows, additional opportunities

are created for investment, development and infrastructure spending. Likewise, tourism

often induces improvements in public utilities and transport infrastructure. It encourages

new elements to join the retail mix, increasing opportunities for many business

enterprises that boost a community’s tax revenues (Kreag, 2001).

“Tourism as a source of employment is particularly more important for areas with

limited alternative sources of employment.” This sector easily influences employment

since tourist activities are more labor-intensive. Leones (1995) emphasized that because

of tourism’s labor-intensive character, its impact on direct employment was considerable.

Indeed, “the very flexible nature of tourism employment, together with what are often

moderate skill requirements, may render it suitable for those who cannot obtain more
formal employment.” Thus, by employing formerly unemployed labor, or more fully

utilizing the underemployed, tourism may increase regional output or incomes while

incurring low opportunity costs (Jones and Munday, 2001).

In terms of foreign exchange earnings, tourists are expected to spend money on goods

and services during their vacation. This money injected to the local economy creates

foreign exchange (Belisle and Hoy, 1982). Tourism also affects the balance of payments

(BOP) of a certain country since tourist spending gives rise to inward and outward

currency flows which favors to the BOP of developing countries.

Tourism, for some is not just a simple industry but a series of activities. As such,

tourism touches many different industries such as lodging, recreation, entertainment,

retail trade and transportation. The challenge lies in measuring tourism share of these

factors (Pike, 2007).

Moreover, researchers have been concerned with developing models to estimate the

economic impact of changes in the final demand for more than a century. Most of the

models use some form of ratio as a means of expressing the relationship between an

exogenous change in final demand and the resultant change in economic variables such

as income, employment and government revenue.

Economic impact can be seen on its effects on (1) income, including all forms of local

income, (2) employment, generally expressed as full-time equivalent jobs, (3) output,

including sales and transactions multipliers which are adjusted for changes in inventories,

(4) government revenue, in terms of tax revenues and operational surplus, and (5)

imports, including goods, services and repatriated income (Fletcher, 1999).


There is also a question of impact levels. It is important to recognize that economic

impacts occur across a wide range of economic variables and at three different levels.

The above variables can be estimated in three levels of impact- direct effects, indirect

effects, and induced effects. Stynes (1999) defines the different levels of impact of

tourism

Direct effects, also known as first-round effects, are those economic impacts derived

directly from changes in tourist spending as it occurs in the tourism-related

establishments. As an example, direct income effects will include the increase in wages,

salaries, and profits accruing to hotels as a result of an increase in tourist spending in

those hotels.

Indirect effects or secondary effects are those effects that occur because of the

increase purchases of the tourism-related businesses. These are the effects on sales,

income and jobs resulting from the secondary round of purchases tourism enterprises

makes to other sectors in the region.

Induced effects are related to sales, income, or jobs, resulting from the household

spending as a result of income earned from visitor spending. During the direct and

indirect effects, local income will have accrued in the form of wages, salaries, profits,

rent and dividends. When this money is re-spent within the local economy, this will

generate additional economic impacts. Furthermore, the sum of the direct, indirect and

induced effects constitutes the total economic impact of tourism.


Tourism in the Philippines

The Philippine government is aware of the importance of tourists in the country

because of the income generated from tourism in the form of tax and contributions in

business operations. Since the total employment in the industrial sector in the country is

still moderate, tourism sector creates possibilities to have employment for many people.

In fact, there is a claim that developing the industrial sector is more difficult than tourism

(Hogeschool, 2008).

However, it was only in 1970’s when tourism sector was emphasized as a significant

contributor to the countries development especially in the aspect of foreign exchange

generation, employment creation, regional development and the promotion of small and

medium enterprises. In 1970’s, the country experience a boom in the construction of

tourism infrastructure and support facilities. Nevertheless, the development was

concentrated within Metro Manila area which possessed the greater potential for growth

and development at that time (cited by Calma, 1997).

The tourism sector in the Philippines derives its business from both foreign and

domestic markets. In addition, most of the existing attractions of the Philippines are

located mainly in Luzon area reflecting the size and concentration of tourism to this area.

Other major attractions are located in Visayas and Mindanao. However, although many

are outstanding, they have generally been difficult to access and therefore have placed a

lesser role in Philippine tourism.

In developing countries like Philippines, tourism sector is highly dependent on the

climate and scenic attraction of its country. Since the Philippines is composed of 7,107
islands, tourism focuses more on the development and beautification of beach resorts in

some of the country’s provincial islands (Lea, 1988).

The country’s tourism industry also has various limitations that refrained them from

developing other parts of the Philippines such as cities in Visayas and Mindanao. The

restraints to expansion are the inability to move large number of tourists to other cities

and lack of trained human resources, strong competition for public and private sector and

finance, land use planning and development policies that make it difficult to develop

large resort estates and the unpredictable natural calamities and political crises (Calma,

1997).

Yet, data shows that tourism industry in the Philippines continues to prosper. Based

on the release of the World Economic Forum (WEF), the global ranking of the Philippine

tourism industry has improved from 86th to 81st in its 2008 Competitiveness Report. The

WEF estimates that the Philippine Tourism industry is worth $5.7 billion in 2007 which

reflects an annual growth rate of 4.4 percent and employing about 1.3 million people.

2007 was deemed a year of breakthroughs for DOT as foreign visitor arrivals hit more

than three million and tourist expenditure was posted US$ 4.885 billion (DOT, 2008).

Methods to Estimate Economic Impact of Tourism

A great deal of studies has been published about the estimation of economic

contribution of tourism. Most of these involve tourist expenditure which generates

economic activity directly in the form of output or sales, labor earnings and employment.

Archer (1973) identifies the four major factors in the determination of tourism

impact. These are (1) the nature of the main facility, (2) number of visitors, (3) spending
of visitors, and (4) the degree to which spending re-circulates in the local economy. In

practice, reliable estimates of tourism expenditures and information on the structure of

the local economy are sufficient to estimate tourism impacts.

Furthermore, Archer (1973) introduced the use of tourism regional multiplier

approach and discussed the Keynesian multiplier which is relatively straightforward to

calculate. However, this multiplier only provides a limited and partial perspective on the

impact of tourism because they focus on simple aggregates and are unable to address the

nature of linkages between sectors.

Frechtling (1994) developed a cost-factor model for estimating travel expenditures at

the national and regional level. The difficulty of tourist in reporting accurately their

expenditures was discussed.

Other methods for estimating economic impact of tourism includes demand analysis,

cost-benefit analysis, standard multiplier analysis, use of econometric techniques and

Computable General Equilibrium framework (Lin and De Guzman, 2007).

Another model for assessing the local income and employment effects of tourism is

the Nordic model of tourism. However, it was not adopted as a new method but an

innovative construction of two methods- the expenditure and income method. It can be

considered as an equal method of input-output method. The application of the income and

expenditure methods constitutes the heart of the Nordic model. These two methods are

taken independently to yield data in the demand and supply sectors of tourism. The

accuracy of the Nordic model of tourism draws on the parallel analysis of the data

obtained using the income and expenditure method (Paajanen, 1999).


Tourism Satellite Accounts (TSA) is also used to measure the tourism impacts. The

World Tourism Organization recommends the use of TSA that are based on a common

conceptual framework for the design of TSA. It analyzes in detail all aspects of the

demand for goods and services which might be associated with tourism in the economy.

It is built on information from existing national accounts and provides basis for the

calculation of industry’s value-added. In the case of the Philippines, TSA is also done by

NSCB to provide a comprehensive database of tourism status in the country. However, as

pointed out by Nhu (2007), this concentrates only on the direct impact of tourism

expenditure.

Many studies adopted the use of input-output (I-O) approach to estimate the

economic impact of tourism because of its advantages. First, Input-output tables provided

an excellent resource with which to estimate indirect impacts of economic activity across

regional industries. Second, the use of existing tables enabled targeted data collection

regarding the nature of tourism operators’ activity and tourists’ expenditure in a region.

Third, I-O frameworks have been used successfully for the analysis of tourist related

economic activity in the past. Fletcher (1994) identifies input-output analysis as a

relatively reliable method to trace the effects of tourism spending in an economy.

According to Fletcher, “input-output models are preferable since they operate in a

general equilibrium framework, provide a comprehensive view of the economy, pay

attention to sectoral interdependencies, and are flexible and policy neutral.

On the other hand, weaknesses of input-output analysis include the assumption of

uniform consumption functions for all household income levels, the aggregation of

competitive and non-competitive imports, massive data requirements and the static nature
of the input-output models. Fletcher also stated the restrictive assumptions of the input-

output model concerning the production process of the various industrial sectors and the

consumption function of household. However, he argued that, in most cases, these

assumptions do not offer significant distortions to the result. Nhu (2007) cited the four

major categories of input-output limitation namely: (1) substantive issues, (2)

aggregation, (3) structural change and prediction, and, (4) intangible impacts.

Meanwhile, Leontief presents input-output model in its theoretical form wherein

multipliers can be calculated to show the benefits of tourism which include the increased

output, earnings and employment. Multipliers are derived from the input-output tables

representing the structure of an economy (Horvath and Frechtling, 1999).

Archer and Fletcher show how input-output model can be used to estimate the

economic impacts of tourism. It was discussed that all exogenous injections of

expenditure into an economy have a multiplier effect. They also assert that “policy

implication concerns the structure of the economy, backward and forward inter-industry

linkages, supply constraints and capital and labor intensities.”

Computable General Equilibriums (CGE) model is also one of the widely-used

methods to analyze the tourism impacts. It is said that CGE models have their historical

origins in the I-O methodology, but have developed to overcome many shortcomings of

the I-O models. Conceptually, it includes more general specifications of the behaviors of

consumers and producers than those allowed in I-O models. However, there are claims

that CGE are more expensive, and produces almost similar results as I-O method. There

are also claims that its assumptions entail the same pitfalls as the I-O analysis.
Despite this, CGE method was adopted by Nhu (2007) to analyze the tourism impacts

in the Philippine economy. The study by Nhu utilized the TARFCOM model wherein two

experiments are done: (1) increase in tourism output, and, (2) increase in tourism exports.

Based on related literature reviewed, since no study was yet conducted using input-

output table of 2000, the study estimated the impact of tourism in the Philippine economy

using input-output method.


CHAPTER III
THEORETICAL AND CONCEPTUAL FRAMEWORK

Theoretical Framework

Economic Base Theory

Economic base theory is commonly used to explain growth of a region. It states that

some activities in a region are peculiarly ‘basic’ such that “their growth leads and

determines the region’s overall development while other activities or the ‘non-basic’ are

simply consequences of the region’s overall development. It assumes that all local

economic activities can be identified as basic or non basic activity.

The basic sector is composed of local firms that are entirely dependent upon external

factors. Manufacturing and local resource-oriented firms such as logging and mining are

usually considered as basic-sector firms because they depend largely on non-local factors

or since they usually export their goods. On the other hand, the non–basic sector is made-

up of firms that largely depend upon the local business conditions. Almost all local

services are identified as non-basic because they depend almost entirely on local factors.

Also, this theory states that firms that sell to both local and an export market must be

assigned to one of these sectors or that some means of apportioning their employment to

each sector must be employed. If the basic activities are identified, the regional growth

can be explained by determining the location of basic activities and tracing the processes

by which these basic activities in any region give rise to the development of non-basic

activities”. The basic economic base theory identifies the basic activities as those which
bring in money from the outside world, generally by producing goods and services for

export (Hoover, 1975).

Furthermore, it asserts that the means of strengthening and growing the local

economy is to develop the basic sector. Thus, the basic sector is identified as the engine

of the local economy.

Moreover, the economic base theory answers the question about how regions grow. It

answers that exports fuel the economic growth in the region. “Expenditure from outside

a region or a region's exports stimulate local businesses, both through local supply chains

(inputs to the exported production) and through the earnings and spending of local

employees (payment for labor).” These expenditures will generate a chain reaction effect

which is known as multiplier. Local industries buy inputs from local suppliers which pay

local employee and buy further inputs from local suppliers, and so on. Thus the effect of

an expenditure on a region’s exports from outside the region must be multiplied by these

further rounds of local income and spending (Blumenfeld, 1955).

“Economic Base Theory also position that the local economy is strongest when it

develops those economic sectors that are not closely tied to the local economy.

By developing firms that rely primarily on external markets, the local economy

can better insulate itself from economic downturns because, it is hoped, these

external markets will remain strong even if the local economy experiences

problems. In contrast, a local economy wholly dependent upon local factors

will have great trouble responding to economic slumps” (Klosterman, 1990).

In relation to this, tourism can be fit into the base theory model as a basic activity

since tourist buy goods and services to meet their needs and their trip, the region has
somehow exported value mostly through its natural resource or recreational services

provided by the region.

Furthermore, using the economic base theory, a ‘community multiplier’ was

commonly obtained which can be expressed as (I-A)-1 wherein A is a constant

coefficients which denotes the proportion of inputs that comes from the community itself.

However, it was determined that this multiplier denoted only casual relationship. Its value

in the analysis can only be applied where stability exists and the system and less value

where extremely change can be expected in the system. Thus, an input-output model is

mostly used because it can provide a more detailed analytical framework than what is

provided by the community multiplier (Harmston and Lund, 1967).

Input-output analysis is related to the economic base theory because it estimates the

importance of exports, which bring new income into the local economy. The major

difference lies in the extent of aggregation since I-O analysis combined those that possess

similar input patterns and trading characteristics which are called ‘industries’. This results

to the construction of a multi-dimensional model which is generally identical to the

community multiplier, but the data may be placed in rows and columns. Multiplier

produced by the economic base theory appeared as single numbers while I-O model

handled these in such a way that total output and exports are in row of elements in a

table. Each element in the row denotes output of a particular industry. Moreover, instead

of one A denoting an input-coefficient, a multi-dimensional A is constructed in which

each element can denote the relationship among local industries.


Thus, input-output model can be denoted as a stratified form of the community

multiplier that was produced by the economic base concept. On the other hand, the

community multiplier can be regarded as a one-dimensional input-output model.

Theory of Multiplier

Increase in the volume in transaction results to economic growth in income and

employment. This increase in the volume in transaction, however, has a “ripple effect” or

the multiplier effect. Figure 3.1 provides an overview on how an economy works.

It shows that if an industry or an economic unit experienced an increase in the volume

of sales, this would cause an initial or immediate effect in the local economy. For

example, an increase in revenues would lead to increased in payments for primary inputs

such as labor. Moreover, households who receive greater incomes would spend higher

amounts within the economy. Firms who exhibit greater sales would demand higher level

of intermediate inputs from other producers or industries within the economy. Thus, the

benefits of that initial increase in the volume of sale of a business or a single firm do not

end there. Since households receive greater income, household expenditure on

commodities sold within the locality will also increase. This also means increased in the

demand for the commodities produced by other businesses which will further means

increased in the supplies of inputs from other producing sectors. Again, the income for

these sectors would increase causing further increase in consumption and the demand for

other goods and services and so on. Thus, the effect of one initial transaction or economic

movement would ripple, or multiply through the numerous rounds of transactions (cited

by Cortez, 1997).
It can be applied in the study, since tourist’s expenditure will cause changes in the

transactions within the local economy. Increase in income of tourist-related firms due to

tourism expenditure will further increase income and employment. It also results to the

increase in sales for suppliers of inputs and other sectors including households within the

locality. Moreover, increase in household income also results to further increase in

consumption and so on.

(3)

(2)

(1)

(1) (1)

(2) (2)
Households Business
(3) (3)

(1)

(2)

(3)

Figure 1. Economic Income and Expenditure Pattern (cited in Cortez, 1997)

Conceptual Framework

ECONOMIC IMPACT ANALYSIS OF


TOURISM IN THE PHILIPPINES
Status and Trends Identification of
of Philippine Sectors Related to
Tourism Tourism
IMPACTS OF
TOURISM
Descriptive Input-Output and
Analysis Descriptive Analysis

Tourist Expenditure Input-Output Table


of 2000

Impacts on Different Sectors

Output Income Employment Indirect Taxes Imports

Figure 2. Schematic Diagram of the Economic Impact Analysis of Tourism in the


Philippines

The study provides an overview about the status and trends of Philippine tourism

using descriptive analysis. Different sectors related to tourism were identified with the

use of input-output and descriptive analysis. Moreover, data on tourist expenditure and

the latest input-output table of 2000 were utilized in order to analyze the economic

impact of tourism to different sectors. Impacts of tourism were also estimated in terms of

output, income, employment, indirect taxes, and imports.

Input-Output Analytical Framework

Input-output (I-O) analysis describes the economic transaction within a region. This

transaction represents a ‘snap shot’ and creates a mathematical representation of the


economic activity occurring within the region. I-O analysis uses an economic model that

traces the flow of goods and services, income, and employment among related sectors of

the economy. It provides a means for examining relationships within an economy among

and between different sectors. The model also allows the examination of impact on the

entire economy of a change in one or several economic activities (Pao 2005).

Thus, the study adopted the input-output analysis to estimate the status and impact of

the tourism industry in the Philippine economy because of the following reasons: (1) An

I-O model is suited to measure both the relative sizes of sectors that make-up the

economy including the linkages among them, (2) It is one of the most commonly used

method to assess the economic impact of tourism., and, (3) It provides impact estimates

in the general equilibrium framework instead of single-market analysis wherein it capture

the direct, indirect, and induced impacts of tourist expenditures in an economy.

Input-Output Tables

Input-output tables are analogous to national account tables for the economy

which can be constructed at national and sub-national levels. Figure 3 shows the four

different areas or quadrants of an input-output table structure.

QUADRANT A QUADRANT
B
QUADRANT C QUADRANT
D

Figure 3. The Structure of an Input- Output Table (Fletcher, 1999)

Quadrant A represents the area in the table that registers the sales and purchased

made by each sector from each other sectors including itself within the local economy.

The column in this quadrant can be seen as the input of goods and services required by

each local sectors of production from each other local sectors.

Quadrant B is the area of the table that describes the purchases of the primary inputs

(i.e. income, government revenue and imports) that each sector of the economy makes.

This includes all forms of income that is paid to the factors of production within the

economy such as wages, salaries, profits, rent, interest and dividends. It also includes all

form of government revenue including direct and indirect taxes, excise duty and trading

surplus.

Quadrant C is the area that shows how each productive sectors sells its output to final

users (final demand) including households, governments capital formation and exports.

And lastly, quadrant D is the area which shows the direct use of primary inputs for final

demand.

Because the sum total of each column represents all the inputs of that sector, it will be

exactly equal to the sum total of the corresponding row regardless of the nature and

origin of that input. Figure 3.3 provides an example of an input-output table.


SALES INTERMEDIATE DEMAND FINAL DEMAND
TO Productive Sectors Final Demand
Sectors
PURCHA Industry
SES 1 2 3 4 . H I
FROM ……. m G E
Industry X11 X12 X13 X14 C1 I1 G1 X
Productive Sectors

1 …….. X1m E1 1
Industry X21 X22 X23 X24 C2 I2 G2 X
2 …….. X2m E2 2
Industry X31 X32 X33 X34 C3 I3 G3 X
3 …….. X3m E3 3
Industry X41 X42 X43 X44 C4 I4 G4 X
4 …….. X4m E4 4
------- ---- ---- ---- ---- .. ---- ---- --
------- …… ---- ---- ---- -
Industry ---- ---- ---- ---- .. ---- ---- --
m …… ---- ---- ---- -
Xm1 Xm2 Xm3 Xm4 Cm Im Gm X
…….. Xmm Em m
Wages W1 W2 W3 W4 WC Wl WG W
Primary Inputs

and ……... Wm WE
Salaries
P1 P2 P3 P4 P
Profits/ ……... Pm PC Pl PG
Dividends PE
T1 T2 T3 T4 T
Taxes ……... Tm
TC Tl TG
TE
Imports M1 M2 M3 M 4 MC Ml M
……... Mm MG ME
TOTAL X1 X2 X3 X4 .…….. Xm C X
INPUTS I G E
Where X= output E= exports FINAL DEMAND SECTORS
C= consumption(households) M= imports H= household consumption
sector
I= investment (private) W= wages and salaries I= investment expenditure
sector
G= govt. expenditure P= profits and dividends G= govt. expenditure sector
T= taxes E= exports sectors

Figure 4. Basic Input-Output Transaction Table (Fletcher, 1999)

Transaction Table
Transaction table is divided into two parts. First is the purchasing sectors portion of

the table which depicts the type and degree of inter-industry linkages between sectors of

the regional economy. The other part is the final demand section which shows the sales to

final consumers of the product.

The transaction table offers two perspectives about the relationship between

production and consumption of the region’s output. Rows are the ‘producing’ sector and

columns are the ‘purchasing’ sectors in the economy wherein columns and rows are

buyers and sellers, respectively. The ‘purchasing sectors’ section describes the

transactions between the producing sectors of the economy. Each industry group

purchases inputs from other sectors within the region. These are termed “inter-industry

transactions.” Other inputs to local production include imports from outside the region

and payments to households in exchange for labor, rents, investment, etc.

Reading down a column of the table describes the total value of purchases made by

each sector listed at the top of a column. The purchases are made from each of the sectors

listed at the left side of the table. Thus, reading down the column, the inter-industry

purchases of inputs for production from other regional sectors are depicted.

Reading across the table rows provides an alternative interpretation of economic

activity wherein local sales from each sectors listed at the left side of the table to other

local sectors listed at the top are shown. Thus, for any production sector it is possible to

track to whom sales are being made.

Direct Requirements Table


Direct requirements table, also called the ‘technical coefficients matrix’ shows the

proportion of inputs required to produce one peso value of output. It is calculated by

dividing each of the column values in the transaction table by the column sum. This

allows the direct requirements to be expressed in percentages. Reading down the table

shows the proportion of input required from each sector to other sectors.

Total Requirements Table

The total requirements table is based on mathematical manipulation of the direct

requirements table or I-A matrix. Only the producing sectors which are considered the

endogenous portion of the A matrix are utilized. The final payments sectors are

disregarded for computation of the total requirements.

The total requirements table recognizes that an increase in demand for a sector’s

output has a greater impact on the regional economy than the direct effect. Firms that

supply inputs to the sectors experiencing the increase in demand must also increase their

purchase of inputs for their production. These support firms purchase materials and labor

in order to meet the inter-industry demand from the sector initially stimulated by final

demand changes. The effects on supporting sectors reflect the backward linkages in the

economy as firms within the region buy and sell to one another. These additional

“ripples” of the economic activity are the indirect effects of an initial increase in final

demand. The total requirements table captures the combined direct and indirect effects

from a change in final demand.


Inverse Matrix

The input-output framework can be fully utilized with the derivation of the inverse

matrix. As discussed, impacts due to a change in the economic activity also have

resounding effects that resulted from the consequent rounds of re-spending. The inverse

matrix can be derived by subtracting the direct coefficient matrix by the identity matrix

wherein the resulting [I-A] will then be inverted to [I-A]-1.

Then, from this inverse matrix, production, income and employment multipliers can

be derived. But, unlike other multiplier, input-output multipliers are specific to certain

industries. They show the direct, indirect and even induced effects of the changes in the

final demand.

Economic Multipliers

Multipliers are another means of estimating the overall change in the economy due to

changes in final demand. A change in final demand generates activity in the regional

economy wherein various industries buy and sell from one another. These inter-industry

relations cause the total effect on the economy to exceed the initial change. The ratio of

the total change in the economy to the initial change in final demand is the economic

multiplier.

Economic multipliers are a product of input-output analysis which is often used to

estimate the impact of changes in production or sales in a given sector of the economy.

The basic types of economic multipliers are usually derived from I-O models includes the

output multiplier, income multiplier, employment multiplier and the indirect business tax

multiplier.
‘Output Multiplier’ for a sector is defined as the total production of all sectors of the

economy that is necessary to satisfy a peso worth of final demand for the sector’s output.

In other words, it is changes in the total value of output in all sectors for every peso

change in final demand spending (direct output).

‘Income multiplier’ can be defined as the change in the income for each sector for

every peso change in the final-demand spending.

‘Employment multiplier’ indicates the change in the number of jobs generated in the

economy for every million peso change in the final demand spending or direct output.

And lastly, the ‘indirect business tax multiplier’ estimates the change in indirect

business taxes for every peso change in final-demand spending.

Input-output Framework for Tourism

In the input-output model, the total output of each industry (X) is said to be equal to

the intermediate sales plus the final demand sales. Letting X as a vector of the total sales

of goods and services of each industry in the economy; A as a matrix of the inter-

industrial sales or purchases; Y as a vector of the final demand sales, including tourism;

and, I as the identity matrix which is equal to one, input-output model can be expressed

as:

X= AX + Y

It can be also be expressed such that the total output of each industry (X) less the

output used for intermediate production (AX) is equivalent to the output left for final

demand (Y). This can be expressed as:

X-AX =Y (1)
Rearranging this to derive an expression for X will produce:

(I-A) X=Y (2)

X= (I-A)-1 Y (3)

To trace the impact of a change in final demand, which in this case is the tourist

spending, let the change in final demand be ∆Y. This change in the final demand will

lead to further changes in the level of output of each of the industries within the

economy. This can be expressed by the following formula:

∆X= (I-A)-1 ∆ Y (4)

Thus, the change in final demand ∆Y will lead to a change in the output of the

economy by ∆X. In this case, ∆Y is the incremental tourists’ expenditure. Economic

impacts of the incremental tourists’ expenditure are represented in the changes of outputs

across sectors (∆X). The basic input-output model shown above can be developed

further to provide much broader range of information. Impacts on output, income,

employment, and tax revenues, as well as their multipliers, can therefore be derived from

the input-output model.

Assumptions of the Input-Output Model

The input-output model works on several restrictive assumptions: (1) It assumes a

linear production function which means constant returns to scale and constant production

functions for each firm within an industry, (2) Output is assumed to be homogenous, (3)
It assumes that there are no constraints on the supply of any commodity, and, (4) It

assumes that the “full employment” is maintained.

Despite these assumptions, it can still be considered as a suitable method for

economic impact an analysis of tourism (Fletcher, 1999).

CHAPTER IV
METHODOLOGY

Research Design and Sources of Data


The study applied a combination of descriptive analysis and input-output framework

in the assessment of the economic impact of tourism. Secondary data were utilized

wherein the sources of data are the Department of Tourism (DOT) and Philippine

Tourism Satellite Accounts (PTSA) of the National Statistics Coordination Board

(NSCB). Moreover, the latest NSCB national input-output table of 2000 was used by the

study.

To have an overview on the status and trends of the Philippine Tourism, descriptive

analysis was carried-out using the indicators provided by the DOT and PTSA. It includes

data on tourist receipts including average tourist expenditure, average length of stay and

visitor arrivals.

Moreover, to identify the sectors and subsectors, the study followed the sector

classification provided by the PTSA. The linkages of the sectors and subsectors that were

identified as related to tourism were evaluated using input-output (I-O) analysis that

provides the interrelationship between sectors as depicted by the I-O coefficients.

Using the NSCB latest input-output table of 2000, the impact of tourism expenditure

on output, income, employment, indirect taxes, and imports were estimated.

Data Analysis

In tourism, tourist expenditure has repercussive effects throughout the economy.

Aside from the direct effects, tourist expenditure also has indirect effects in other industry
aside from those who directly receive tourism income. Using the I-O analysis, the impact

of change in the final domestic demand generated by tourism on the economy was

examined. The input-output multipliers provides the detailed picture on the impact of the

tourism expenditure on output, income and employment throughout the locality.

Using input-output analysis, the effect on output was calculated as:

X=(I-A)-1 Dt (5)

Where: X= column vector of domestic output generated


(I-A)-1= Leontief inverse
I= identity matrix
A= input-output coefficients matrix
Dt= vector of tourist expenditure, and, t= sectors

Using the formula above, the impact on output was estimated by multiplying the

tourist expenditure vector by Leontief inverse matrix.

The income generated for each sectors was obtained using the formula:

Inc= W (I-A)-1 Dt (6)

Where: W is the labor-income coefficient (ratio of wages to gross


output of each sector)

Using the formula, income impact for each sector was obtained by multiplying the

labor-income coefficients which is equivalent to ratio of wages to gross-output of each

sector by the inverse coefficients and tourism expenditure (Albqami, 2000).The wages or

compensation and the gross output data was derived from the input-output (I-O) table.

Moreover, the impact on employment from other sectors was calculated as:

E= L(I-A)-1 Dt (7)

Where: L is the labor-output ratios


Impact on employment was estimated by multiplying the labor-output ratios by the

inverse coefficient and tourist expenditure (Albqami, 2000).

Impact on the indirect tax payments to government was estimated using the following

formula:

S= St (X) (8)

Where: S= vector of net indirect taxes (less subsidies)


St= diagonal matrix of net indirect tax coefficients
X= matrix of total output requirements.

From the formula, impact on taxes was estimated in terms of the indirect taxes less

subsidies by multiplying the diagonal matrix of net indirect tax coefficients from the I-O

table and the matrix of the total output requirements. (Albqami, 2000)

Moreover, the impact on imports was obtained using the I-O model. To obtain the

estimates on the total import requirements, the following formula was used:

M= M t (X) (9)

Where: M= vector of sectoral import requirements


Mt= diagonal matrix of sectoral imported input coefficients
X= matrix of total output requirements.

Thus, using the formula discussed above, the impact of tourism expenditures in terms

of output, income, employment, indirect taxes and imports were obtained.

BIBLIOGRAPHY

ALBQAMI, R. 2000. Economic Impact of Tourism Sector on Saudi Arabian Economy.


Institute of Diplomatic Studies. Riyadh, Saudi Arabia.

ARCHER, B.H. 1973. The Impact of Domestic Tourism. Bangor Occasional


Papers in Economics Number 2. Cardiff: University of Wales Press.

ARCHER, B. H. 1989. Progress in Tourism, Recreation and Hospitality


Management. London : Belhaven Press, pp 125-134

ASHLEY, C.R AND H. GOODWIN. 2001. Pro-poor Tourism Strategies: Making


Tourism Work for the Poor. Overseas Development Institute Pro-poor Tourism
report 1.

BELISLE, F.J. and D. R. HOY.1982. The Perceived Impact of Tourism by Residents: A


case Study in Santa Marta, Columbia. Annals of Tourism Research 12: 83–101.

BLUMENFELD, HANS. 1955. “The Economic Base of the Metropolis”. Journal of the
American Institute Planners. Vol. 21, P. 114-32

CALMA, Y.P. 1997. Socio-economic Impact of Tourism in the Philippines: The Case of
Samal Island Davao del Norte. Undergraduate thesis, UPLB.

CORTEZ, AILEEN P. 1997. The Application of an Input-Output Framework to a Local


Economy, Implication’s for Development Planning at the Local Level (Case
Study of Pila, Laguna). Undergraduate thesis, UPLB.

CRAWFORD, J. 1991. Environmental Responsibility in the Tourism Industry. Tourism:


Building Credibility for Credible Industry. Proceeding from the 22nd Annual
Conference. California,

DEPARTMENT OF TOURISM. 2008. Industry Updates


http://www.dotpcvc.gov.ph/Visitor%20Information/updates.html

FAULKNER, B. AND C. TIDESWELL. 1997. A Framework for Monitoring


Community Impacts of Tourism. Journal of Sustainable Tourism 5(1):3-28

FLETCHER, J.E. 1999. Input-Output Models in Thomas Baum and Ram Mudambi
(eds.), Economic and Management Methods for Tourism and Hospitality
Research. USA: John Wiley and Sons Ltd

FRECHTLING, D.C. 1994. Assessing the Impacts of Travel and Tourism: Measuring
Economic Benefits. Journal on Travel, Tourism, and Hospitality Research
pp. 367-391

HOGESCHOOL. 2008. Philippine Tourism http://www.philippines.hvu.nl/tourism2.htm

HOOVER, EDGAR M. 1975. An Introduction to Regional Economics. New York, NY.


Alfred A. Knopf, Inc.
HORVATH E. AND D. FRECHTLING. 1999. Estimating the Multiplier Effects of
Tourism Expenditures on a Local Economy Through a Regional Input-Output
Model. Journal of Traveo Research 37(4): 324-332

JONES, C. AND M. MUNDAY. 2001. Tourism and Local Economic Development:


Three Case Studies. Paper for European Regional Science Association 41 st
Annual Meeting, Croatia.

KLOSTERMAN, RICHARD E. 1990. Community and Analysis Planning Techniques.


http://garnet.acns.fsu.edu/~tchapin/urp5261/topics/econbase.htm

KREAG, G. 2001. The Impacts of Tourism. Minnesota Sea Grant Program


http://www.seagrant.umn.edu/tourism/pdfs/ImpactsTourism.pdf

LEA, J. 1988. Tourism and Development in the Third World.. New York: Routledge
Chapmen and Hall, Inc.

LEE, C.C AND C.P CHANG. 2007. Tourism Development and Economic Growth: A
Closer Look at Panels. Journal on Tourism and Management 29: 180-192

LEONES. J. 1995. Tourism Trends and Rural Economic Impacts


http://ag.arizona.edu/AREC/pubs/dmkt/TourismTrends.pdf

LIN, T. AND F.D DE GUZMAN. 2007. Tourism for Poor and Sustainable Growth:
Economic Analysis of Tourism Project. ADB: ERD, Technical Notes Series 20

MARTIN, R.H. 2004. Impacts of Tourism Consumption on GDP: The Role of Imports
http://www.feem.it/NR/rdonlyres/D9C6D82A-00DA-48A

MARTINEZ, O.Y. 1997. The Impact of Coastal Tourism in Maribago, Lapu-Lapu City.
Undergraduate Thesis, UPLB

NHU, D.Q. 2007. Analyzing the Impacts of Tourism in the Philippine Economy Using A
CGE Model. MS in Economics Thesis, UPLB.

PAAJANEN, M. 1999. Assessing Local Income and Employment Effects of Tourism:


Experience Using Nordic Model of Tourism in Thomas Baum and Ram Mudambi
(eds.), Economic and Management Methods for Tourism and Hospitality
Research. USA: John Wiley and Sons Ltd

PAO, J.W. 2005. A Review of Economic Impact Analysis for Tourism and Its
Implications for Macao
http://www.seagrant.umn.edu/tourism/pdfs/ImpactsTourism.pdf
PIKE, C. 2007. Tourism Economic Impact. Travel and Tourism Preliminary Results
Paper. Guam.

STYNES, D.J. 1999. Economic Impacts of Tourism


https://www.msu.edu/course/prr/840/econimpact/pdf/ecimpvol1.pdf

STYNES, D.J. 1999. Approaches to Estimating the Economic Impacts of Tourism; Some
Examples https://www.msu.edu/course/prr/840/econimpact/pdf/ecimpvol2.pdf

TOOMAN, L.A. 1997. Multipliers and Life Cycles: A Comparison of Methods for
Evaluating Tourism and Its Impacts. Journal of Economic Issues 31(4):917-932.

VIROLA, et. al. 2003. Measuring thea Contribution of Tourism to the Economy: The
Philippine Tourism Sattellite Account. Paper prepared for 10th National
Convention on Statistics. Manila, Philippines

WTO. 2006 World Tourism. Facts and Figures


http://www.iteexhibitions.com/travel/WorldTravel.FactsandFigures.htm

WTTC. World Travel and Tourism Council Press Release. 2005.


http://www.wttc.org/eng/Tourism_News/Press_Releases/Press_Releases_2008/Co
ntinued_growth_signalled_for_Travel_and_Tourism_Industry/

Vous aimerez peut-être aussi