Estimating tourism impacts using input-output and SAM models in the Balearic Islands

Clemente Polo, Elisabeth Valle

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6 Citations (Scopus)

Abstract

The main goal of the paper is to provide an assessment of the importance of tourism in the Balearic Islands (BI) and to estimate the impact on its economy of a fall in tourism flows in line with that observed in the last decade.1 The BI, a rather backward region that received just a handful of curious travellers in 1950, has become a major tourism resort during the second half of the twentieth century and there seems to be little doubt that tourism has been the engine of growth that has turned the Balearic economy into one of the most prosperous Spanish regions. Recent data trends, however, seem to indicate that the sustained growth of tourism flows into the BI has come to a halt, while their economy has recorded the worst growth performance of all 17 autonomous Spanish regions since 2000. Input-output (IO) analysis has been the traditional tool used to asses the weight of tourism in the economy and to quantify tourism impacts. (Fletcher 1994, Archer 1995, Archer and Fletcher 1996, Henry and Deane 1997, Wagner 1997 and Frechtling and Horvath 1999). Dwyer et al. (2003) and (2004), argue that the answers IO models provide are wrong because they are based on extremely unrealistic assumptions and do not take into account income feedbacks, resource limitations and price adjustments. They propose to employ extended linear (Social Accounting Matrix or SAM) models to account for income feedbacks, or, even better, applied (or computable) general equilibrium (AGE or CGE) models to account for resource constraints, market imperfections and the influence of relative prices on agents' decisions. Despite these well known shortcomings, IO models have continued being applied to analyze impacts of tourism events on local and regional economies (Crompton et al. 2001, Tyrrell and Johnston 2001, Kim et al. 2003, Chhabra et al. 2003, Gelan 2003, Daniels et al. 2004, Lee and Taylor 2005, Tohmo 2005,Mules 2005 and Hodur et al. 2006) along with AGE models.2 After all, fix prices may be an acceptable assumption in a regional context and endowments constraints may not be binding when capital and labour are highly mobile among regions. Moreover, the results of Polo and Valle 2008, indicate that AGE models can provide very unsound estimates of the effects of an external shock depending on the closure rules imposed. They also show that for some closure rules the results of AGE and IO and SAM models are highly correlated. Following this well established tradition, the paper uses a standard IO model to estimate the weight of tourism in the Balearic economy. It may come as a surprise that, notwithstanding the importance of tourism in the region, no one has ever attempted to estimate its importance and effects on the economy. The results of the standard model are compared then with those obtained with extended IO models where residents' consumption and investment replacement demand are endogenous. As to the impact of a 10% fall in tourism flows on the Balearic economy, the paper compares IO results with those obtained with an extended SAM model. The paper is divided into four sections. Section 8.2 provides a portrait of the Balearic economy as reflected in the regional input-output table. The IO and SAM models used to perform the simulations are outlined in Sect. 8.3. Estimates of the weight of tourism obtained with the standard IO model are presented in Sect. 8.4; then, they are compared with those calculated when consumption and investment are endogenous. Section 8.5 presents the results of simulating a 10% fall in tourism demand using both IO and SAM models. A short section with the conclusions and final remarks ends the paper. © Physica-Verlag Heidelberg 2009.
Original languageEnglish
Title of host publicationAdvances in Tourism Economics: New Developments
Pages121-143
Number of pages22
DOIs
Publication statusPublished - 1 Dec 2009

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